strategic management and financial performance in south korean

Strategic Management and Financial Performance in

South Korean Apparel Retail Stores

Eun Jin Hwang

Dissertation submitted to the faculty of the Virginia Polytechnic Institute and

State University in partial fulfillment of the requirements for the degree of

Doctor of Philosophy

In

Apparel, Housing, and Resource Management

Marjorie J. T. Norton, Chair

Jessie H. Chen-Yu

LuAnn R. Gaskill

Dong Jin Lee

James E. Littlefield

Kent F. Murrmann

November 16, 2005

Blacksburg, VA

Keywords: Strategic Management, Korean Retailing, Market Orientation,

Organization Structure, Perceived Environmental Uncertainty,

Copyright 2005, Eun Jin Hwang

Strategic Management and Financial Performance in

South Korean Apparel Retail Stores

by

Eun Jin Hwang

Marjorie J. T. Norton, Chair

Apparel, Housing, and Resource Management

ABSTRACT

The research objectives were to determine (a) interrelationships among

components of Korean apparel retail stores’ management strategies, (b) effects of

perceived environmental uncertainty on their management strategies, (c) effects of stores’

management strategies on their performance, and (d) market-orientation strategies the

stores have implemented. Four hundred top managers of Korean apparel stores in Seoul,

Busan, Suwon, Daejeon, and Daegu completed a questionnaire. A structural equations

model was used to test the hypotheses concerning relationships between the research

variables. The exogenous variables include components of perceived environmental

uncertainty (market turbulence, competitive intensity) and top management’s willingness

to adapt a changing market (top-management emphasis and risk aversion). The

endogenous variables include components of market-orientation strategy (intelligence

generation, intelligence dissemination, response design, response implementation),

organicity of organizational structure (centralization, formalization, specialization), and

satisfaction with store performance (relative to other Korean retail stores, relative to key

competitors).

iii

Many of the hypotheses were supported. Perceived market turbulence positively

affected stores’ market-orientation strategies and functional specialization. Market-

orientation strategy positively affected stores’ functional specialization and centralization

of decision making. Intelligence generation positively affected satisfaction with store

performance relative to other Korean retail stores and relative to key competitors, and

response implementation positively affected satisfaction with store performance relative

to other Korean retail stores. Some positive relationships were found between perceived

environmental uncertainty and top management’s willingness to adapt to a changing

market. Also, seven of the eight tested relationships were significant and positive

between market-orientation strategy and top management’s willingness to adapt to a

changing market. Top-management emphasis positively affected organicity of

organizational structure. Formalization of store structure positively affected satisfaction

with store performance relative to other Korean retail stores and relative to key

competitors.

A major conclusion is that Korean apparel stores’ top managers did not view

environmental conditions as important influences on their stores’ performance, although

their perceptions of environmental uncertainty affected their stores’ strategic

management in such terms as response design, intelligence generation, and intelligence

dissemination.. In addition, despite the positive effects of perceived environmental

uncertainty on stores’ centralization and functional specialization, the top managers

appeared reluctant to fundamentally change their stores’ organizational structures.

iv

TABLE OF CONTENTS

TABLE OF CONTENTS................................................................................................... iv LIST OF FIGURES .............................................................................................................x LIST OF TABLES............................................................................................................. xi CHAPTER 1 INTRODUCTION .........................................................................................1

Market Opening in South Korea .....................................................................................2

Retailing in South Korea.................................................................................................4

Before Market Opening ........................................................................................4

After Market Opening...........................................................................................4

Statement of the Problem................................................................................................7

The Need for the Study ...................................................................................................8

The Proposed Model .....................................................................................................10

Purpose of the Research................................................................................................12

Overview of the Research Design.................................................................................13

Contribution of the Study..............................................................................................14

Organization of the Dissertation ...................................................................................15

CHAPTER 2 LITERATURE REVIEW – PART I............................................................16

Environment..................................................................................................................16

Definition of Environment......................................................................................16

Environmental Uncertainty.....................................................................................18

Definitions of Environmental Uncertainty..........................................................19

Perceived Environmental Uncertainty ................................................................23

Two Factors of Perceived Environmental Uncertainty.......................................24

Perceived Market Turbulence ..................................................................24

Competitive Intensity...............................................................................26

Measuring Environmental Uncertainty...................................................................27

v

Top Management ..........................................................................................................29

Business Strategy .........................................................................................................31

Market Orientation...................................................................................................32

Benefits of Market Orientation ..........................................................................33

Market Orientation and Strategy........................................................................34

Market-oriented and Customer-led Business Strategies ..........................37

Components of Market Orientation ................................................................37

Intelligence Generation............................................................................38

Intelligence Dissemination.......................................................................39

Responsiveness ........................................................................................39

Measuring Market Orientation........................................................................40

Organizational Structure ...............................................................................................41

Mechanistic vs Organic Organizational Structure ....................................................42

Dimensions of Firm Structure...................................................................................45

Formalization ..................................................................................................46

Centralization..................................................................................................46

Specialization..................................................................................................47

Business Performance...................................................................................................47

Measuring Firm Performance ...................................................................................48

Multi-dimensional vs Uni-dimensional Measures ...........................................49

Subjective Measures and Judgmental Measures.............................................50

Retail Performance....................................................................................................51

Summary .......................................................................................................................51

CHAPTER 3 LITERATURE REVIEW – PART II ..........................................................53

Introduction...................................................................................................................53

Interrelationships Among the Components of

Strategic Management and Hypothesis Development ................................................53

Environment..............................................................................................................53

Environment and Business Strategy .................................................................54

vi

Perceived Environmental Uncertainty and

Business Strategy Relationship........................................................................58

Environment and Organizational Structure ........................................................60

Environment and Firm Performance...................................................................64

Relationship Among Environment, Business Strategy, and

Organizational Structure ...................................................................................65

Relationship Among Environment, Business Strategy, and

Firm Performance .............................................................................................66

Relationship Among Environment, Organizational Structure,

and Firm performance.......................................................................................67

Relationship Among Environment, Business Strategy,

Organizational Structure, and Firm Performance .............................................67

Business Strategy......................................................................................................69

Business Strategy and Organizational Structure.................................................69

Market-orientation Strategy and Organicity of

Organizational Structure .......................................................................70

Business Strategy and Firm Performance ...........................................................74

Relationship Among Business Strategy,

Organizational Structure, and Firm Performance .............................................80

Top Management .....................................................................................................81

Top Management and the Environment...............................................................81

Top Management and Business Strategy (Market Orientation) ..........................83

Top Management and Firm Performance ............................................................86

Relationship Among Top Management, Environment,

and Organizational Structure ............................................................................88

Firm Performance Measures ....................................................................................90

Organizational Structure ..........................................................................................93

Firm Performance and Organizational Structure ...............................................93

Summary .......................................................................................................................95

vii

CHAPTER 4 METHODOGY............................................................................................97

Research Questions and Hypotheses ............................................................................97

Research Design..........................................................................................................102

Background on the Operationalization of Constructs

in the Proposed Model ..............................................................................................103

Exogenous Constructs.............................................................................................103

Perceived Environmental Uncertainty ..............................................................103

Top Management’s Willingness to Adapt to

a Changing Market..........................................................................................104

Mediate Endogenous Constructs.............................................................................105

Market Orientation Strategy ............................................................................105

The MARKOR Scale .................................................................................105

Organicity of Organizational Structure............................................................106

Ultimate Endogenous or Dependent Construct.......................................................107

Store Performance..........................................................................................107

Data Collection Methods ............................................................................................108

Sampling and Sample Size and Selection..............................................................112

Data Collection Process .........................................................................................112

The Questionnaire.......................................................................................................113

Respondent and Store Demographic Information...................................................114

Perceived Environmental Uncertainty ....................................................................115

Top Management’s Willingness to Adapt to

a Changing Market................................................................................................116

Market Orientation Strategy ...................................................................................117

Organicity of Organizational Structure...................................................................119

Store Performance...................................................................................................121

Pilot Test of the Survey Instrument ............................................................................122

Reliability and Validity of the Survey Questionnaire.................................................123

Reliability................................................................................................................123

viii

Validity ...................................................................................................................124

Statistical Analysis......................................................................................................125

Preliminary Data Analysis ......................................................................................125

Data Analysis for Hypothesis Testing ....................................................................128

Summary .....................................................................................................................128

CHAPTER 5 RESEARCH RESULTS AND DISCUSSION..........................................129

Return Rate of the Survey...........................................................................................129

Demographic Profile of the Sample............................................................................131

Instrument Reliability .................................................................................................135

Mean Rating and Standard Deviations of the Variables.............................................136

Perceived Environmental Uncertainty ....................................................................136

Top Management’s Willingness to Adapt to a Changing Market ..........................138

Market-Orientation Strategy ...................................................................................140

Organicity of Organizational Structure...................................................................143

Satisfaction with Store Performance.......................................................................148

Pearson Correlations for Measured Variables ............................................................148

Correlation Coefficients Among the Constructs.........................................................152

Multicollinearity Diagnostics......................................................................................152

Incomplete Data ..........................................................................................................156

Overall Fit of the Measurement Model.......................................................................158

Results Research and Discussion of the hypothesis Testing ......................................163

Perceived Environmental Uncertainty and Market-Orientation Strategy................163


Organicity of Organizational Structure...............................................................167

Perceived Environmental Uncertainty and Store Performance ...............................170

Market-Orientation Strategy and Organicity of Organizational Structure ..............172

Market-Orientation Strategy and Store Performance ..............................................174


Top Management’s Willingness to Adapt to a Changing Market ......................177

ix

Top Management’s Willingness to Adapt to a Changing Market and

Market-Orientation Strategy ...............................................................................179


Organicity of Organizational Structure...............................................................181


Store Performance...............................................................................................181

Organicity of Organizational Structure and Store Performance ..............................185

Summary of the Results of Hypothesis Testing..........................................................188

Chapter Summary .......................................................................................................188

CHAPTER 6 IMPLICATIONS, LIMITATIONS, AND

SUGGESTIONS FOR THE FUTURE RESEARCH .................................................192

Summary and Conclusions.........................................................................................192

Implications of the Research Findings........................................................................195

Limitations and Suggestions for Future Research ......................................................197

REFERENCES ................................................................................................................199

APPENDIX A Human Subjects Approval ......................................................................266

APPENDIX B Cover Letter to Managers of South Korean Retail Stores

For the Pilot Test................................................................................268

APPENDIX C Cover Letter to Professors in South Korean University

For the Pilot Test................................................................................270

APPENDIX D Cover Letter to Managers of South Korean Apparel Retail Stores

For the Final Data Collection.............................................................272

APPENDIX E Questionnaire (English) ...........................................................................274

APPENDIX F Cover Letter to Managers of South Korean Apparel Retail Stores

For the Final Data Collection (Korean) .............................................279

APPENDIX G Survey Questionnaire (Korean)...............................................................281

APPENDIX H Vita ..........................................................................................................287

x

LIST OF FIGURES

Figure 1 Research Model ................................................................................................11

Figure 2 Research Hypotheses in the Proposed Model ....................................................99

Figure 3 Respondents’ Years of Employment in the Stores

Where They Currently Worked .................................................................133

Figure 4 Respondents’ Length of Employment in the Korea Retailing Industry ...........133

Figure 5 Years When the Respondents’ Stores Opened .................................................134

Figure 6 Number of Employees per Store ......................................................................134

Figure 7 Research Results for Hypothesis 1 ...................................................................165



Figure 10 Research Results for Hypothesis 4 .................................................................173






Figure 16 Research Results for Hypothesis 10...............................................................187

xi

LIST OF TABLES

Table 1 Chronology of Market Opening in South Korean Retailing................................3

Table 2 Research Results on Moderators of the Link Between

Market Orientation and Performance............................................................68

Table 3 Summary of Operationalization of Constructs ..................................................109

Table 4 Statistical Analysis.............................................................................................126

Table 5 Survey Response Rates by City .........................................................................130

Table 6 Respondents’ Job Titles .....................................................................................132

Table 7 Cronbach’s Alpha Coefficient ...........................................................................135

Table 8 Means and Standard Deviations for perceived Environmental Uncertainty......137

Table 9 Means and Standard Deviations for Top Management’s

Willingness to Adapt to a Changing Market................................................139

Table 10 Means and Standard Deviations for Market-Orientation Strategy ..................141

Table 11 Means and Standard Deviations for Organicity of Organizational Structure..144

Table 12 Means and Standard Deviations for Satisfaction with Store Performance......149

Table 13 Pearson Correlation Coefficients for Market-Orientation Strategy.................151

Table 14 Pearson Correlation Coefficient for Organicity of Organizational Structure ..151

Table 15 Correlation Among the Constructs of the Five Research Variables................153

Table 16 Collinearity Diagnostics on the Independent Variables –

Condition Indices .........................................................................................154

Table 17 Collinearity Diagnostics on the Independent Variables –

Variance Inflation Factors............................................................................157

xii

Table 18 The Research Variables and the Number of Missing Values

Replaced for Each .......................................................................................159

Table 19 Goodness-of-fit Measures for the Measurement Model ..................................160

Table 20 Summary of the Research Results ...................................................................189

1

CHAPTER 1

INTRODUCTION

The growing liberalization of economies and international trade is radically

transforming the global business environment. Firms are facing turbulent operating

environments characterized by changing technologies and markets that represent both

problems and opportunities. Retail systems have undergone transformation over time in

response to changes in the environment. Many researchers have investigated

environmental changes including ecological, cyclical, and conflict factors (Bucklin, 1972;

McNair & May, 1958; Schumpeter, 1934). Bucklin saw external environments,

including changes in technology and economic conditions, as influencing institutional

change ecologically. McNair and May conceptualized “the wheel of retailing” to show

the changes over time in retailing due to cyclical factors such as in the economy,

technology, and consumer behavior. According to Schumpeter’s theory of economic

development, institutions are affected and changed by conflict with their competitors.

Competition among firms in the South Korean retailing industry has become more

intense since the country began market opening in the 1990s. The opening of the

industry to large-scale foreign firms, especially retail discount stores, accelerated changes

as the newcomers introduced modern business styles, new networking methods, and a

larger scale of operations. These in turn instigated increased competition among local

firms, which pushed some retail businesses to conglomerate while others went out of

business. Numerous South Korean retailers have experienced losses in market share,

profits, and occupancies. Increased domestic and global competition has forced many

South Korean retailers to reevaluate the basic nature and purpose of their organizations.

Many of the retailers have had difficulty in keeping up with the rapid changes in the

market or in taking advantage of expert advice. On top of such developments, the 1997

financial crisis accelerated all these trends. The liberalization policy in 1996 and the

financial crisis in 1997 forced reorganization on the South Korean retailing industry.

According to Brown and Fisk (1964), companies that cannot adapt quickly to a changing

market environment will ultimately fail.

2

Market Opening in South Korea

Historically, South Korea kept its major retailing operations closed to foreign

ownership. And further, South Koreans have been taught from youth that exports are

good and imports are bad for the economy. Exporters have been treated well and

importers have not. Foreign trade officials have been caricatured or even attacked in

effigy. For decades, South Korea discouraged foreign direct investment (FDI) by

companies, although it financed its economic development through foreign borrowing.

In 1988, the South Korean government began a series of five-year plans to

improve the efficiency and productivity of the country’s retailing industry. One of the

major programs was the opening of the domestic market to foreign trade. The first stage

of the program, which began in 1989, included the relaxation of regulations on the

establishment of foreign companies’ subsidiaries and FDI. The second stage of the

opening policy, from 1991 through 1992, allowed foreign retailers to open no more than

10 stores, with each at a maximum size of 1,000 m2. The limitations on the number and

size of foreign companies’ retail outlets were further relaxed in the third stage of the

program, beginning in 1993. In this phase, foreign companies were allowed to open up to

20 stores, but each store could not exceed 3,000 m2. Effective January 1, 1996, market

liberalization allowed foreign retailers to enter South Korea on their own, or with a South

Korean partner, unencumbered by the restrictive regulations that for decades kept most

retail outlets under the control of South Korean owners. This liberalization of the retail

sector was part of a general liberalization to allow foreign investors to participate in

South Korean markets, as required for South Korea to become a member of the

Organization for Economic Cooperation and Development (OECD) in 1996. In

accordance with South Korea’s trade agreements during the negotiations in the Uruguay

Round of the General Agreement on Tariffs and Trade (GATT), foreign retailers now

have greater access to the South Korean market (see Table 1).

3

Table 1 Chronology of Market Opening in South Korean Retailing

Date

Name of Action

Major Feature

July, 1981

Limited allowance of foreign investment

Allowed less than 333 m2 per store for one-item retailing.

October, 1982

Relaxation of the space limit

Expansion to 660 m2.

July, 1984

Lifting of limits on merchandise volume

Expansion to 700 m2 and in number of stores.

October, 1988

Announcement of a three-phase plan for market opening

January, 1989

1st-phase market opening

Drastic expansion in technology introduction and in wholesale investment scope.

July, 1991

2nd-phase market opening

Allowed up to 10 stores with unit store size less than 1,000 m2.

July, 1993

3rd-phase market opening

Expansion to up to 20 stores with store size less than 3,000 m2.

December, 1993

Market-opening plans submitted to GATT negotiators

The government submitted plans to GATT negotiators to completely lift existing restrictions on the number of stores and maximum floor space allowed.

January, 1996

Full market opening initiated

Full lifting of limits on the number and size of stores, and opening to foreign retailers.

1997

Entrance of foreign retailers

Foreign retailers enter the local distribution sector.

Note. Compiled from Korea: KOTRA to hold active investment promotion activities. (1996, January 17). The Korean Economic Weekly; Korea: Retail distribution market overview. (1996, July 22). International Market Insight Reports. Chamber World Network International, Ltd.; and Local Retailers brace for a foreign onslaught. (1993, September). Business Korea, 11(3), 53-54. Conversion applied: 1 Pyong = 3.3 m2.

4

Retailing in South Korea

Before Market Opening

Throughout the past four decades, mainly small, family-operated mom-and-pop

stores have characterized the South Korean retail industry. This type of store has an

average space of 10 m2 and typically employs one person. These stores, which account

for a major share of the retail market and a large portion of total retail employment, have

been a prime factor in the persistently low productivity in this industry. South Korean

retail trade remained almost exclusively a domestically owned and operated industry

before market opening. Competition between retailers was severely lacking. The South

Korean retailing sector is still lagging behind, unable to keep up with the impressive

advances in the country’s manufacturing industry.

After Market Opening

Market liberalization has had a positive impact on the distribution industry in

general, in terms of boosting its output and productivity, by exposing Korean companies

to such global players as Carrefour, Price-Club, and Wal-Mart. Furthermore, market

opening has helped reduce retail prices, which is often regarded as one of the most

important contributions of market liberalization.

Increases in imports and property prices, as a result of market opening, have been

minimal, although these were major concerns for government officials. Concerning

possible negative effects on employment, it is difficult to evaluate the impacts because of

the few studies on this matter. It is still too early to evaluate the precise impacts because

less than 10 years have passed since the South Korean market was fully opened. It is

certain, however, that the liberalization process has driven the Korean government's

regulatory reform program. Furthermore, liberalization has led to fundamental changes

in the structure of the Korean retail market. As foreign retailers have entered the market,

retail formats have become increasingly diverse. Consequently, competition among

inter-type retail formats as well as intra-type retail companies has become fiercer.

5

Market opening is also expected to improve Korean retailers' management practices

through knowledge transfers by exposure to the world's best practices.

Until 1996 when the South Korean retail sector was opened to international

competition, Korea's retail market was mainly composed of 98 department stores, about

2,000 conventional outdoor markets, and many more mom-and-pop stores. Until the

1990s, department stores were the only competitive retail format in South Korea. As a

group, they enjoyed more than a 20% annual sales growth rate since 1994; however, due

to the intense competition from both foreign and domestic retailers after the full-scale

market opening, more than 20 department stores have gone bankrupt, including New

Core, the biggest department store chain, and Midopa, one of the oldest department stores

in South Korea. The arrival of foreign retailers and the introduction of their new retail

formats in South Korea subsequently intensified competition between these retail formats

and the existing ones. The most apparent new development was the emergence of large-

scale discount stores, both foreign and domestically owned. Department stores located

outside of Seoul have lost their competitiveness and are expected to face great difficulties

in coming years. Due to changing consumer behavior, discount stores have expanded

rapidly in both number and sales volume at the expense of conventional markets and

department stores. In the ongoing competition, discount stores have taken a sizeable

market share from department stores and conventional outdoor markets, which were the

most developed retail formats in South Korea prior to the 1990s (Korea Retail Research

Group, 1999).

In 2003, South Korea’s economy became worse due to shrinkage of domestic

demand during the first half of the year. South Korean consumers felt uncertain about the

economy due to massive household debt that had built up over 2000 and 2001 when

heightened consumer expenditure led economic recovery. Sluggish domestic demand is

continuing with household expenditures posting negative growth rates since the second

quarter of 2003. South Korea has been in an economic recession since that time. Both

low-income and high-income households have been cutting their spending, and further

reduction in consumption is expected. Total retail sales in South Korea grew throughout

the period from 1999 to 2003, although at a slowing pace. Although relative economic

recovery and growth occurred from 2000 to 2002, the South Korean retailing industry’s

6

total sales have been disappointing since the beginning of 2003. In addition, much

consolidation in the retail sector has been occurring, such as among department stores.

The consolidation is eliminating many independent, individual stores that have long

spotted the country (Kim, 2004).

The competitive environment for South Korean retailing companies has changed

drastically in recent years. South Korean customers in geographically dispersed,

emerging, and established markets now demand quality products at a lower cost in a

shorter time than in the past. In addition, South Korean consumers increasingly desire

the most current models of goods and services, which independent retailers appear to be

incapable of providing. The hardship of the economic crisis in the late 1990s changed the

spending patterns of consumers who became willing to make longer journeys to find

quality items at lower prices. As a result, South Korean retailing firms have been forced

to reorganize their merchandise sourcing activities, including the development of global

strategies. The new competitive pressures from foreign and domestic retailers are forcing

South Korean retailers to compete on the basis of more than one dimension. New types

of retailers and mixed merchandising have combined to create more types of competition

for both department stores and mass merchandisers; for example, department stores

compete with each other and with mass merchandise chains, but also with discount stores,

furniture stores, warehouse outlets, variety stores, catalog showrooms, and an assortment

of specialty stores, both chain and independent. In the coming years, as more new types

of retailers develop and merchandising practices become increasingly scrambled, the

competition is likely to grow even more diverse and intense.

Some research on retailing competition has emphasized linkages between the

emergence and development of retail institutions and the ways they respond to changes in

their economic, technological, and demographic environments (Bogart, 1973; Coles,

1999; Hollander, 1960; Lowry, 1997; McNair & May, 1978; Radaev, 2004). Coles

(1999), McNair and May (1978), and Davidson, Bates, and Bass (1976) focused on

specialty stores, discount stores, mass merchants, department stores, and nonstore

retailing. Stock, Greis, and Kasarda's (1999) framework proposed that a firm’s business

strategy reflects its competitive environment. All current patterns, including changing

customer needs, increased competition, technological advances, globalization, and a more

7

diverse workforce, propel a trend toward a system-level redesigning of tomorrow's

organizations, at least for those organizations that survive and thrive in the future.

Statement of the Problem

The opening up of the South Korean retail industry will most likely continue to

have both positive and negative impacts. Over time, market opening could be beneficial

to domestic market growth, the creation of more jobs for South Koreans, the

improvement of South Korea’s logistical and distribution systems, and the expansion of

consumer choices. Foreign retailers opening stores in South Korea create high

competition for South Korean retailers. Since full liberalization of the domestic retail

market in 1996, South Korean firms have been struggling against multinational giants

advancing into the domestic industry with more financial resources and sophisticated

marketing know-how. Foreign retailers are receiving financial support from their parent

companies, in many cases outpacing the support South Korean retailers receive from their

parent companies.

Because the South Korean retailing industry was closed to the outside world for

many years, it did not accumulate the experience or skill to compete with foreign retailers

who are highly experienced in competing with others and have more skilled managers.

South Korea's many small, traditional stores are particularly affected by competition from

foreign companies. The Korean Institute of External Policy stated that full opening of

South Korea's markets would force 15% of its small retailers out of business and would

hurt the least competitive big distributors as foreign concerns gained market share

("World Wire," 1992). Although market liberalization presents opportunities for South

Korean retailers, they have a great deal of catching up to do to survive in the new

competitive environment. Also, the financial crisis of 1997 and the resulting drop in

demand had a negative impact on the retail industry. According to Shinsegae's Research

Institute of Distribution, the total sales volume of the retail industry decreased 13.8%

(US$74.17 billion) in 1998 (Lee, 1999). Similarly, retailers were negatively affected in

2003 in the face of greatly reduced domestic demand.

8

The Need for the Study

In order to survive and prosper in the new environment of participation in a global

economy, South Korean retailers must identify effective strategies, implement them

properly, and evaluate them appropriately. Management strategies that emphasize the

systemic relationships among the important components of strategic management,

including the business environment, strategy itself, organizational structure, and strategy

implementation, can lead to better firm performance. In spite of the importance of

strategy and the match among the components of strategic management for successful

operation of a firm in an extremely competitive business environment, no research has

addressed strategic management in the South Korean retail industry, either prior to or

since the advent of market opening. Research on strategic management, in general, has

been conducted to examine the interrelationships among the components of strategic

management and the impact of these relationships on firms’ performance (Dev, 1988;

Elwood, 1991; Ketchen, Snow, & Street, 2004; Kor & Mahoney, 2005; Murthy, 1994).

No study, however, has investigated how changes in the environment due to South

Korea’s market opening have affected South Korean retailing firms’ strategy, top

management’s willingness to adapt to changing market conditions, organizational

structure, and firm or store performance, either before or after market opening. This

study involves the development of a model that incorporates interrelationships among

components of strategic management, and the application of the model in the case of

South Korean retailing, since market opening.

The development of a strategic management paradigm for retailing firms has long

been an important focus for researchers (Holmberg & Morgan, 2004; Spillan &

Ziemnowicz, 2003; Werner, McDermott, & Rotz, 2004). Several studies over the years

have analyzed the role of the strategic management process in firms’ performance.

Kwock (1999) defined strategic management as consisting of an organization’s strategy

formulation in relation to its environment, strategy implementation to design the

organization to achieve its objectives, and evaluation of the organization’s performance.

Determining the relationships among the components of strategic management and

9

achieving effective congruence among them are critical if the purposes of an organization

are to be achieved.

David (1997) defined strategic management as the art and science of formulating,

implementing, and evaluating the cross-functional decisions that enable an organization

to achieve its objectives. As the definition implies, strategic management focuses on

integrating management, finance/accounting, production/operations, research and

development, information systems, and other factors, and matching them with external

environmental factors in order to achieve organizational success. Hofer and Schendel

(1978) added that the goal of strategic management is to determine a firm’s strengths and

weaknesses, and then match its resources with the threats and opportunities in the

environment in order to achieve long-term viability.

The adoption of a market orientation has been the cornerstone of many strategic

marketing plans (Drummond, Ensor, Laing, & Richardson, 2000; Palmer & Pels, 2005).

Market orientation is defined as “organization culture…that most effectively and

efficiently creates the necessary behaviors for the creation of superior value for buyers

and, thus, superior performance for the business” (Pelham & Wilson, 1999, p. 21). It

involves “the organization-wide generation of market intelligence pertaining to current

and future customer needs, dissemination of the intelligence across departments and

organization-wide responsiveness to it” (Kohli & Jaworski, 1990, p. 6). Researchers

have emphasized the importance of considering market orientation in the study of firms’

strategy and performance (Deal & Kennedy, 1982; Schein, 1984; Wilkins & Ouchi,

1983). Those researchers postulated that organizational performance could not be

accurately understood without an understanding of the culture and strategy of the

organization. Their findings supported this notion in showing relationships between

corporate culture, strategy, and performance. Generally speaking, strong recognition has

been given in the literature to the influence of organizational culture on strategy. Weick

(1985) went so far as to suggest that an organization’s culture is synonymous with

strategy.

Dobni, Dobni, and Luffman (2001) defined organizational culture as a “conscious

pattern of shared values and beliefs that help employees understand organizational

functioning and thus provide them with norms for behavior in the organization” (p. 401).

10

They stressed the need to understand the culture of an organization in order to understand

the organization’s strategy and performance. They stated that behavior is culture and

culture is strategy; therefore, one must manage culture to manage strategy. The

marketing culture or behaviors of employees drive marketing strategy in an organization.

Preliminary efforts have been made to reveal relationships among the elements that

bridge market orientation and business performance, those being strategy type and to

some degree, specific strategy elements (Matsuno & Mentzer, 2000; Palmer & Pels,

2005; Zajac, Kraatz, & Bresser, 2000).

The Proposed Model

Researchers (Bourgeois, 1978; Harrington, Lemak, Reed, & Kendall, 2004;

Mador, 2000; Paine & Anderson, 1977; Pearce II, 1981; Shrivastava & Grant, 1985) have

been interested in the effect of the business environment on strategy formulation and

processes. A firm’s management must be aware of and respond to the external

environment in order to formulate strategy (Kwock, 1999). The proposed model for this

research is an adaptation of a model by Kwock (see Figure 1). An overview of the model

is provided here, and a detailed description is given in Chapters 2 and 3. In this model,

top managers’ perceptions of environmental uncertainty and their willingness to adapt to

a changing market are assumed to affect each other component of strategic management,

including market orientation strategy, organicity of organizational structure, and store

performance.

Astley and Van de Ven (1983) and Chandler (1962) have investigated

environmental variables, which they conceptualized as including performance. They also

examined the relationship between performance and other organizational variables.

According to Ackoff (1970), the choice of strategy may result in different adaptations and

responses by similar organizations operating within the same industry. Structure can be

defined as "the way in which the various parts of an organization are arranged" (Kwock,

1999, p. 17). Organizational structure is a system of communication and authority that

links people and groups together to accomplish tasks that serve an organizational purpose

11

Figure 1. Research Model Note: Compiled from Jaworski, B., & Kohli, A. (1993). Market orientation: Antecedents and consequences. Journal of Marketing, 57(3), 53-70; Kwock, Y. (1999). A theoretical integration and empirical test of strategic management: Environment, strategy, structure, implementation, and performance in the hospitality industry. Unpublished doctoral dissertation, Virginia Polytechnic Institute and State University, Virginia.

ENVIRONMENT

Perceived Environmental Uncertainty

Market Turbulence

Competitive Intensity

BUSINESS STRATEGY

Market Orientation Strategy

Intelligence Generation

Intelligence Dissemination

Response Design

Response Implementation

STORE PERFORMANCE

Satisfaction with Store Performance

Compared to other stores

in the retail industry

Compared to the store’s

key competitors

TOP MANAGEMENT

Top Management’s Willingness to Adapt to a Changing Market

Emphasis

Risk Aversion

ORGANIZATIONAL

STRUCTURE

Organicity of Organizational Structure

Formalization

Centralization

Specialization

12

(Kwock). According to Stonich (1982), successful firm performance depends on

effective implementation and rationalization of the basic strategic elements. Strategy

implementation involves the actions of establishing policies and annual objectives and

allocating resources so that a formulated strategy can be accomplished. "A firm's

performance generally has been considered to be the result of a strategic management

process which contains all possible situations and activities, including the external

environment, and internal factors, including a firm's size, age and structure, and strategy

choices" (Kwock, p. 7).

Purpose of the Research

What does it take to make the changes needed in South Korean retailing for stores

in the industry to respond effectively to increased competition, oversupply, globalization,

work-force diversity, and customer demands for better, faster, cheaper services? It will

be necessary to rethink and redesign South Korean retailing organizations. Enz (1993)

suggested that making such changes in an industry would take new ways of seeing

competitors, both foreign and domestic, as well as employees.

The overall purpose of this research is to investigate the effects of environmental

conditions, such as those brought about by market opening and other changes in the

economy, on the strategic management and financial performance of South Korean retail

stores. South Korean retailers sought and received protection in the form of import

barriers in the 1980s, and then beginning in the late 1980s, they experienced the opening

of their industry to the global market. This research focuses on reactions of South

Korean retailers to uncertainty about their external environment. The objectives of the

research are to determine: (a) the interrelationships among the different components of

South Korean retailers’ management strategies; (b) the effects of perceived

environmental uncertainty on the components of South Korean retailers’ management

strategies, (c) the impact of the components of Korean retailers’ management strategies

on their stores’ performance; and (d) the market-orientation strategies that South Korean

retailers have implemented in the competitive environment they currently face. The

13

proposed model has been designed to explore the relationships among the selected

constructs and to examine certain relationships among the selected constructs concerning

strategic management in the South Korean retailing industry, including the external

business environment, business strategies, organizational structures, top management’s

willingness to adapt to environmental changes, and stores’ performance.

Overview of the Research Design

The unit of analysis is South Korean retail stores in major cities and towns in

South Korea. A questionnaire was used to gather the research data. Because the number

of South Korean retailers is small, the questionnaire was sent to retailers in all major

cities and towns within cities in South Korea in order to have a large enough sample size..

The questionnaire was sent with a letter that explained the study and asked that the store

managers complete the questionnaire. The focus is retailers who carry apparel products,

and the survey recipients include department stores, discount stores, specialty stores,

membership stores, chain stores, and boutiques that are not fully owned by foreigners.

The survey respondents were asked questions about their stores that relate to the

components of strategic management. The respondents were also asked to indicate their

degree of satisfaction with their stores’ financial performance in the areas of return on

investment, earnings growth, sales growth, market share, return on assets, and cash flow

compared to those of other stores in the industry and of the stores’ key competitors.

These measures of financial performance are the same as those used by Greenley (1995a)

and Kwock (1999).

The researcher went go to South Korea to distribute and collect the questionnaires.

The questionnaires were sent by mail to stores that did not have FAX numbers, but when

FAX numbers were found, the questionnaires were sent by FAX. The respondents were

also able to return the questionnaires by FAX. The mailing system in South Korea is not

dependable, so it was preferable to send the material by FAX. In March 2003, a Korea

Information Security Agency survey found that an average of more than 90% of

commercial e-mail received by users was unsolicited (Williams, 2003). Such unsolicited

14

e-mail has driven many people to avoid using e-mail. Many people are concerned that

wanted e-mail will be lost in the clutter of unwanted e-mail. Others fear that spammers

may co-opt e-mail addresses of friends and family. For the above reasons, the surveys

were not sent by e-mail.

Contributions of the Study

This research is expected to advance theory and practice in the area of South

Korean retail management by discovering and empirically testing interrelationships

among the components of South Korean retailers’ strategic management, including the

external business environment, market orientation strategy, organizational structure, top

managements’ willingness to adapt to environmental changes, and stores’ performance.

This study contributes to theoretical advancement in the field of strategic management by

providing and empirically testing a structural model that describes strategic management

and its influences in the case of South Korean retail stores’ performance. This study

illustrates the structure of strategic management in South Korean retailing and the

interactive and simultaneous characteristics of the variables in South Korean retailers’

strategic management that affect their stores’ performance. This study helps in

understanding the processes and context of strategic management in South Korean

retailing. The study also explores certain congruencies or matches among the constructs

in strategic management. An understanding of how these constructs and their

correspondence contribute to a store’s performance is of benefit for practitioners in

planning and implementing strategy. An investigation of the strategic management

practices by South Korean retail stores could contribute to more effective strategic

planning and implementation, in general.

15

Organization of the Dissertation

This dissertation is organized as follows. Chapter 1 discusses the origin and

importance of the study, the overall purpose of the study, the objectives, the research

questions, and the need for the study. It also introduces the model proposed in this study.

Chapter 2 is Part 1 of the literature review and presents each construct of the model,

including the external business environment, market-orientation strategy, organizational

structure, top management’s willingness to adapt to environmental changes, and

organizations’ performance. Chapter 3 is Part 2 of the literature review and explains the

relationships among the constructs in the model. Chapter 4 outlines the procedure used

in the research, including the survey instrument. Chapter 5 presents and discusses the

results of the preliminary data analysis and the hypothesis testing. Chapter 6 summarizes

the research, draws conclusions, and discusses implications of the findings and

limitations of the study, and provides suggestions for future research.

16

CHAPTER 2

LITERATURE REVIEW PART 1

The literature review consists of two parts. Chapter 2 comprises Part 1, which

reviews the literature pertaining to each construct in the model that guided the study (see

Figure 1). The constructs of the model are interactive, and therefore, Chapter 3 is a

review of the literature that examines the relationships among the constructs, including

environment, market-orientation strategy, organizational structure, top managements’

willingness to adapt to environmental changes, and organizations’ performance.

Environment

Definition of Environment

Bourgeois (1980b) summarized the discussion of the environment as treated in the

organizational theory literature, both in terms of the main ways of conceptualizing the

environment and some examples of their operationalization in empirical research.

According to Kunz (1995), environments, including cultural, ecological, economic,

political, regulatory, social, and technological, may strengthen or limit an apparel firm’s

behavior. For apparel firms, environment is the complex of conditions that impact the

nature of a firm’s operation, including the above factors. As defined by Duncan (1972a,

p. 314), environment consists of “the totality of physical and social factors that are taken

directly into consideration in the decision-making behavior of individuals in the

organization.” West (1990) discussed the business environment on the basis of the work

of Selznick (1948). Selznick characterized the business environment as the flows of

information that pertain to setting and achieving goals and that influence the decision-

making process due to management’s perceptions and the objective dimensions of the

structure of the industry.

The marketing environment is a set of forces that directly or indirectly influence a

business’ acquisitions of inputs or generation of outputs (Dibb, 1996). Kotler (1991, p.

17

129) defined the marketing environment as “the actors and forces that affect the

company’s ability to develop and maintain successful transactions and relationships with

its target customers. It comprises ‘non-controllable’ actors and forces that impact on the

company’s market and marketing practice.”

Although early research (Tung, 1979) treated the environment as a single, huge

unit, more recent studies have emphasized the importance of different sectors of the

environment, each of which may have a distinct influence on an organization. Numerous

aspects of the environment, including environmental turbulence, complexity, uncertainty,

and heterogeneity, have been demonstrated to impact the strategic process (Fredrickson

& Mitchell, 1984; Keats & Hitt, 1988; Miller, Dröge, & Toulouse, 1988).

Many researchers have focused on categorizing the environment by its

dimensions and characteristics. According to Duncan (1972a), the environment can be

categorized as the internal and external environments. The internal environment consists

of the relevant physical and social factors within the boundaries of the organization or a

specific decision unit, such as organizational structure and the size and age of

organizational culture, that are taken into direct consideration in the decision-making

behavior of individuals in that system. On the other hand, the external environment

consists of the relevant physical and social factors outside the boundaries of the

organization or specific decision unit, such as customers, suppliers, competitors, and

regulatory groups, that are taken into direct consideration (Duncan).

Environments also can be categorized into their objective and perceived states

(Bourgeois, 1980b). The objective environment consists of the task and the general

environments. The task environment includes customers, suppliers, competitors, and

regulatory groups, whereas factors within the general environment include economic,

political, social, cultural, and ecological factors (Dill, 1958). Dill’s task environment, to

which Duncan (1972a) added the technological requirements of an industry, appears to be

the most useful in identifying with whom or with which an organization must contend or

compete in its pursuit of goals. Thompson’s (1967) dual-factor approach to

environmental attributes formed the basis for Duncan’s ideas. Duncan’s measure of

perceived environmental uncertainty (PEU) is the most useful to date.

18

Along with attempting to categorize the environment, many researchers have

investigated the general characteristics or dimensions of the environment. According to

Duncan (1972a) and Lawrence and Lorsch (1967), the environment also may be viewed

as a multidimensional form. Aldrich (1979) developed a scheme of six environmental

dimensions on which there is an “emerging consensus among researchers” (Dess & Beard

1984, p. 54). According to the degree of interaction among the dimensions of the

environment, including complexity, uncertainty, and dynamism, Emery and Trist (1965)

suggested that four types of environments exist (placid and randomized, placid and

clustered, disturbed and reactive, and dynamic). Aldrich’s codification of environmental

dimensions is represented in a more confined set as follows: munificence (capacity),

dynamism (stability-instability, turbulence) and complexity (homogeneity-heterogeneity,

concentration-dispersion). Utterback (1979) applied the dimensions of complexity and

change to his typology of the environment. Other authors have argued that change is an

important characteristic of the environment (Dill, 1958; Thompson, 1967); Perrow (1967)

has stressed the heterogeneity of the environment.

Conceptual and empirical studies have identified several specific environmental

dimensions, which include dynamism (Dess & Beard, 1984; Thompson, 1967),

complexity (Child, 1972; Dess & Beard, 1984; Mintzberg, 1979; Thompson, 1967; Tung,

1979), and hostility (Miller & Friesen, 1978; Mintzberg, 1979). Many investigators have

identified six important dimensions of organizations’ environments: environmental

capacity; environmental homogeneity-heterogeneity; environmental stability-instability;

environmental concentration-dispersion; domain consensus-dissensus; and environmental

turbulence (Aldrich, 1979). Dess and Beard used factor analysis to break down five of

the six dimensions into a more parsimonious set of three: munificence, dynamism, and

complexity. These three dimensions are conceptually similar to those proposed by others

(Jurkovich, 1974; Minztberg, 1979; Pfeffer & Salancik, 1978; Scott, 1981).

Environmental Uncertainty

According to Smart and Vertinsky (1984), the degree of environmental stability is

one important dimension of the external environment of an organization. In the model

19

proposed in the present research (see Figure 1), environmental uncertainty is investigated

as a factor that affects top management’s willingness to adapt to a changing market,

market-orientation strategy, organizational structure, and a store’s performance. Over

recent years, the environments of many businesses have been overwhelmed by change –

change informed by deregulation, increasing consumer expectations, new information

technology, changing professional standards, and an increasingly global marketplace

(Lovelock, 1996). The environment creates opportunities and threats for an organization.

It affects organizational structure, processes, and managerial decision making (Duncan,

1972a; Keats & Hitt, 1988). Abell (1978) suggested that, because a technology

developed in one industry is used to exploit a new product opportunity in another, quite

frequently an unexpected environmental change takes place. Another source of

unexpected change is the emergence of new global competitors disrupting the status quo

in domestic industries. These changes have caused increasing uncertainty in the

marketplace (Grewal & Tansuhaj, 2001; Murtha, Lenway, & Bagozzi, 1998; Utterback,

1979). The environment creates uncertainty for an organization’s managers and

influences information processing needs within the top management team. Managers

must cope with uncertainty by identifying opportunities, recognizing problems or threats,

and implementing strategic adaptations (Hambrick, 1980; Jemison, 1984).

Definitions of Environmental Uncertainty

The concept of uncertainty has been defined in a variety of ways in the literature.

Knight (1921) and Luce and Raiffa (1957) defined uncertainty as the inability to assign

probabilities to events. Information theorists have defined the concept of uncertainty in a

narrow fashion (Attneave, 1959; Garner 1962). Garner operationally defined the

uncertainty of an event as “the logarithm of the number of possible outcomes the event

can have…” (p. 19). Decision theorists Knight (1921) and Luce and Raiffa (1957)

defined uncertainty as those situations where the probability of the outcome of events is

unknown, as opposed to risk situations where each outcome has a known probability.

Lawrence and Lorsch (1967) stated that uncertainty consists of three components: the

lack of clarity of information, the long time span of definitive feedback, and the general

uncertainty of causal relationships.

20

Miller (1993) defined uncertainty as “the unpredictability of environmental or

organizational variables that have an impact on corporate performance” (p. 694). Miller

proposed that managers might perceive uncertainty in a threefold categorization: (a)

general environment, (b) industry, and (c) firm-specific variables. General environmental

uncertainties include macroeconomic uncertainty and political and governmental policy

instability. Industry uncertainties include input market, product market, competitive, and

technological uncertainties. Firm-specific uncertainties include uncertainties with respect

to operations, research and development, and management and employee actions.

Milliken (1987) developed a general definition of environmental uncertainty as an

individual’s perceived inability to predict [an organization’s environment] accurately”

because of a “lack… of information” or “an inability to discriminate between relevant

and irrelevant data” (p. 136). He identified three types of uncertainty in environments:

effect, response, and state. Effect uncertainty is an inability to predict the nature of the

effect of a future state of the environment on the organization, and response uncertainty is

an inability to predict the likely consequences of a response choice. State uncertainty

refers to perceived environmental uncertainty (Bunchko, 1994). Milliken stated that,

when administrators could not predict an organization’s environment, perceived

environmental uncertainty occurred. He also stated that, when executives are unable to

predict future changes in components of the environment or processes, and have an

incomplete understanding of the relationships among components of the environment,

perceptions of environmental uncertainty occur.

Duncan (1972a) proposed that environmental uncertainty could be defined by

three components. The first is lack of information regarding the environmental factors

associated with a given decision-making situation. The second component of

environmental uncertainty is not knowing the outcome of a specific decision in terms of

how much the organization would lose if the decision were incorrect. And the last

component is inability to assign probabilities, with any degree of confidence, regarding

how environmental factors will affect the success or failure of the decision unit in

performing its function.

Kahneman and Tversky (1982) asserted that a more insightful approach to

uncertainty is to equate it with unpredictability, the incapability to predict future events.

21

Uncertainty can be ascribed to the external world or to one’s state of knowledge (external

uncertainty versus ignorance). This, in turn, closely relates to a more general distinction

between external and internal attributions of experience. Kahneman and Tversky

proposed that external uncertainty could be determined in two ways. In the first instance,

it can be determined through a distribution mode where the case in question is seen as an

instance of a class of similar cases for which the relative frequencies of outcomes are

known or can be estimated. The second instance is a singular mode in which

probabilities are assessed by the inclination of the particular case at hand.

Complexity and rate of change are two characteristics of the environment that

affect environmental uncertainty (Duncan, 1972a; Tung, 1979). Child (1972) suggested

that complexity was caused by the heterogeneity of relevant environmental events.

Diversity and a large number of external events produce high environmental complexity.

Rate of change involves the frequency of changes occurring in the external environment

(Daft, Sormunen, & Parks, 1988). Duncan determined that the degree of environmental

uncertainty perceived by strategic decision makers increased with the increased

complexity and rate of change in environmental sectors.

Much of the literature on organization theory, business-policy theory, and

strategic management has dealt with dynamism, which primarily reflects instability

(volatility). The dynamism construct is manifest in the degree of instability or turbulence

of such key operating concerns as market and industry conditions, as well as more

general technological, economic, social, and political forces (Aldrich, 1979; Dess &

Beard, 1984; Emery & Trist, 1965; Mintzberg, 1979; Sharfman & Dean, 1991). These

theories suggest that the best measures of environmental stability-instability are

unpredictability and the absence of pattern (Dess & Beard).

Miles, Snow, and Pfeffer (1974) and Jurkovich (1974) indicated that it was

important to differentiate between the rate of environmental change and the degree of

uncertainty (unpredictability of environmental change). Dess and Beard (1984)

commented that dynamism should be restricted to change that is hard to predict and that

engenders uncertainty for key organizational members. Members of organizations

competing in a dynamic industry will be likely to segment similar elements of their

environments to enable them to cope with uncertainty (March & Simon, 1958).

22

Thompson (1967) considered dealing with uncertainty as the “essence of the

administrative process” (p. 159). Uncertainty also will affect organizational structure

more as task uncertainty increases. The more uncertainty a firm faces, the more types of

information the decision makers will need to use in achieving a given level of

performance (Galbraith, 1973).

Dynamism has been empirically related to such macro-organizational phenomena

as structural form (Burns & Stalker, 1961; Lawrence & Lorsch, 1967), strategic

diversification (Keats & Hitt, 1988), the strategy-making process and strategy content

(Miles & Snow, 1978; Miller, Dröge, & Toulouse, 1988), organizational postures toward

innovation (Zahra & Pearce, 1994), and corporate goal structures (Bourgeois, 1985)

Environmental complexity and dynamism have been closely linked to the

information-uncertainty perspective (Lawrence & Lorsch, 1967; Thompson, 1967),

whereas hostility has been tied to the resource-dependence perspective (Aldrich; 1979;

Pfeffer & Salancik, 1978). These perspectives offer a better understanding of the impact

of each environmental dimension on the formulation of a firm’s strategy. These

dimensions affect top management’s perception of uncertainty, which in turn influences

such strategic decision characteristics as propensity for risk taking, proactiveness, and

defensiveness (Miles & Snow, 1978; Miller & Friesen, 1982). Venkatraman and Prescott

(1990) predicted that a fit between environmental dimensions and strategic orientation

would lead to better organizational performance.

In the organizational context, Hickson, Hinings, Lee, Schneck, and Pennings

(1971) defined uncertainty as a “lack of information about future events, so that

alternatives and their outcomes are unpredictable” (p. 219). Lawrence and Lorsch (1967)

and Thompson (1967) suggested that environmental complexity and dynamism were key

dimensions affecting uncertainty.

A significant amount of theoretical and empirical research has been conducted to

understand the nature and effects of environmental uncertainty on organizations (Jauch &

Kraft, 1986; Milliken, 1987; Tymon, Stout, & Shaw, 1998). Efforts have been made

primarily toward such substantive research issues as the nature of the theoretical

relationships among environmental uncertainty (Harrison, 2003; Schwab, 1980) and such

variables as organizational structure (Kim & Burton, 2002; Koberg & Ungson, 1987), a

23

firm’s strategy (Choe, 2003; Gerloff, Muir, & Bodensteiner, 1991; Hitt, Ireland, & Palia,

1982), and economic performance (Kim & Burton, 2002; McCabe, 1990; Sawyerr,

McGee, & Peterson, 2003). Also, March and Simon (1958) and Thompson (1967)

identified environmental uncertainty as a central problem of organizations. Little effort

has gone toward studying such measurement issues as the development of a systematic

body of literature on the relationships among results, operational definitions, and

underlying theoretical constructs (Hinkin, 1995; Schwab, 1980).


This study focuses on top management’s perceptions of uncertainty in the

business environment. Perceived environmental uncertainty refers to the absence of

information with regard to organizations, activities, and events in the environment (Daft,

Sormunen, & Parks, 1988). Ebrahimi (2000) observed that major emphases of research

have been perceived environmental uncertainty and the subjective rather than the

objective data produced and used by strategic decision makers. Uncertainty has been

characterized as either an objective component of the external environment or as the end

result of the process of decision makers’ perceptions through which they designate

meaning and interpret situations (Milken, 1987). Coping with uncertainty is one of the

central issues of organizations’ adaptations to their environments in order to remain

competitive (Crozier, 1964; Thompson, 1967). Adorno, Frenkel-Brunswick, Levinson,

and Sanford (1950) and Berlyne (1968) indicated that people differ in their perceptions

and tolerance for ambiguity or uncertainty.

The extensive research on the concept of the external environment has focused on

distribution channels (Achrol, Reve, & Stern, 1983; Achrol & Stern, 1988; Arndt, 1983;

Dwyer & Welsh, 1985; Stern & Reve, 1980). These studies have identified decision-

making uncertainty as the key outcome of external environmental uncertainty.

Uncertainty in decision making has been characterized as perceptual. Many researchers

have stated that the environment could be considered certain or uncertain only to the

extent that decision makers perceive it to be so (Achrol & Stern, 1988; Aldrich, 1979;

Duncan, 1972a; Emery & Trist, 1965; Pfeffer & Salancik, 1978).

24

Organizational theorists emphasize that organizations must adapt to their

environments if they are to remain viable. One of the main issues in this process is

coping with uncertainty. Duncan (1972a), based on the work of Dill (1958) and Emery

and Trist (1965), investigated perceived environmental uncertainty. He identified a two-

dimensional view of environment: the simple-complex, and the static-dynamic. The

number of factors taken into consideration in making decisions in the simple-complex

and the static-dynamic dimensions is affected by the degree to which those factors in the

decision unit’s environment remain basically the same over time or are in a continual

process of change. Empirical results have indicated that individuals in decision units

facing dynamic, complex environments experienced the greatest amount of uncertainty in

decision making.

Dibb (1996) stated that, when the marketing environment changes, companies

face uncertainty, threats, and opportunities. He suggested that retailers must be ready to

predict likely outcomes and act quickly in order to capitalize on such opportunities.

Keegan (1989) said that retailers need to particularly watch consumer goods because

these products are very sensitive to environmental factors. Dibb, Simkin, Pride, and

Ferrell (1994) stated that, when marketing managers fail to recognize changes in

environmental factors, their firms are left unprepared to take advantage of marketing

opportunities and may suffer from threats that are created by environmental changes.

Two Factors of Perceived Environmental Uncertainty

In the model proposed in this research, market turbulence and competitive

intensity are identified as two factors of perceived environmental uncertainty included in

the environment construct.

Perceived market turbulence. Changes in the environment facing a firm can be

both dramatic and sudden. As environments become more dynamic, threatening, and

complex, traditional managerial orientations are proving to be deficient. The result is all

too often a loss in market position, declining profits, or outright business failure (Cooper,

1979; Covin & Slevin, 1989; Hayes & Abernathy, 1980; Waterman, 1987). Early

researchers of this proposition identified the concepts of turbulence and its opposite,

placidity (Emery & Trist ,1965). Smart and Vertinsky (1984) broadly defined turbulence

25

as change that occurs in the factors or components of an organization’s environment.

One end of the change continuum is a static environmental state (no change), and the

other end is a turbulent or dynamic state where all factors are in constant flux. The

amount of environmental turbulence closely relates to the degree of uncertainty facing a

firm. As the environment becomes increasingly turbulent, factors become less

predictable and more uncertain, and the values of important variables and the variables

themselves move in an unpredictable manner (Smart & Vertinsky). According to Drucker

(1980) and Huber (1984), turbulence displays dramatic increases in the number of events

that occur within a given period.

Wang and Chan (1995) discussed the characteristics of information in a turbulent

environment. In the works of Duncan (1972a), Emery and Trist (1965), Terreberry

(1968), and Thompson (1967), two characteristics contribute to the uncertainty of the

environment: complexity and dynamism. Wang and Chan defined complexity as “the

number and diversity of external factors facing the firm”; they defined dynamism as “the

degree of change exhibited in those factors” (p. 34). Ansoff and McDonnell (1990)

suggested complexity, novelty, rapidity of change, and visibility of the future as four

characteristics of turbulence of the environment. Complexity refers to the variety of

factors that management must consider when making decisions. Novelty refers to the

discontinuity of successive challenges that the firm encounters in the environment.

Rapidity of change is the ratio of the speed of the evolution of changes to the speed of the

firm’s response. Visibility of the future is measured by the predictability of information

about the future that is available at the time of decision making (Ansoff & McDonnell,

1990; Wang & Chan, 1995). Wang and Chan suggested that changes in a turbulent

environment possess one or more of the following characteristics: high complexity, high

novelty, high dynamism, and low visibility.

According to Wang and Chan (1995), “high complexity requires top managers to

consider a large number of factors from various environmental segments (e.g.,

competitive, economic, political, technological, global) to make decisions. High novelty

means that relevant events and trends are discontinuous and unfamiliar to top managers.

High dynamism indicates that relevant environmental factors are in a continuous process

of change. Low visibility means that, by the time that top managers must make decisions,

26

the content of available information is very vague and ambiguous” (p. 34). Wang and

Chan determined that top managers faced a turbulent environment when prevailing

information was highly complicated, novel, dynamic, or ambiguous.

Simon (1973) emphasized that organizations need to resemble information-

processing and decision-making systems, rather than production systems, in order to

respond effectively to environmental turbulence. Douglas (1999) suggested that, as a

condition for success in today’s environment, organizations must make timely, informed

decisions and that information processing is a fundamental factor in this success.

Kohli and Jaworski (1990) noted that market turbulence is a subset of

environmental turbulence that is characterized by rapid change in the composition of

customers and their preferences. In support of this notion, Egeren and O’Connor (1998)

determined that market instability or dynamism could come from changes in consumers

and in consumer preferences. They stated that an organization has little need to adjust its

marketing mix in environments characterized by unchanged consumer preferences. On

the other hand, in an environment remarkable because of rapidly changing sets of

consumers and consumer preferences, the possibility is greater that the organization’s

offerings will differ from consumer needs. Miller (1987) developed measures of the

dynamism, heterogeneity, and hostility components of environmental turbulence. Kohli

and Jaworski’s market turbulence is similar to “heterogeneity.” Miller described

heterogeneity as the change in diversity of production methods and marketing tactics

required to address customers’ needs. Pelham and Wilson (1999) indicated that it seemed

likely that the greater the change in customer preferences, the greater the required

diversity of value-creation efforts to satisfy those needs; therefore, they noted that the

Miller construct of heterogeneity adequately captured the meaning of market turbulence.

They also stated that market turbulence implies changing market strategies in the face of

changing customer needs. In a continually changing business environment, the ability to

adapt and respond to the shifting needs of customers is important to business success. In

order to analyze and fulfill customer needs, and also to assist in monitoring the

competition, the small-business executive may develop externally focused activities.

Competitive intensity. Yasai-Ardekani and Haug (1997) stated that, in highly

competitive environments, advanced environmental signals must be detected,

27

environmental information must be transmitted to key decision makers in a timely

fashion, and the speed of decision making in the implementation of strategic decisions

becomes critical to attainment of organization-environment alignment. Eisenhardt (1989)

characterized highly competitive environments as those with intense price and non-price

competition. Such intense rivalry is often associated with rapid and sometimes

discontinuous changes in the market and in competitive and technological conditions.

Competitors’ actions and reactions may be highly unpredictable, and the speed of

adjustment to market and technological conditions become the key to survival of

participants in such environments (Eisenhardt).

Among retailers, intra-type competition and inter-type competition are the most

common and representative models of modern retail competition today (Berry, 1995;

Miller, Reardon, & McCorkle, 1999; Mishra. 2004). Yet, for most retailers, inter-type

competition is the most challenging (Berry). Increasing inter-type competition has made

it harder for retailers to identify and monitor their competition. Intra-type competition is

defined as “competition between two retailers of the same type, such as two drugstores”

(Mason & Mayer, 1987, p. 208). Inter-type competition is defined as “competition

between different types of retail outlets selling the same merchandise” (Mason & Mayer,

p. 208).

Douglas (1999) maintained that firms must become more flexible in responding

to changes in an external environment characterized by intense competition. As

competition becomes stronger, the choices available for consumers increase. Kohli and

Jaworski (1990) suggested that a business must become more aggressive in discovering

customer wants and building superior customer value in order to satisfy consumers in the

face of increased competition. An organization must monitor and respond to consumers’

changing needs and preferences to insure that they select its products/services over its

competitors’ (Egeren & O’Connor, 1998).

Measuring Environmental Uncertainty

The literature contains examples of the operationalization of environmental

uncertainty. Early research relied primarily on two scales to measure perceived

28

environmental uncertainty. Lawrence and Lorsch (1967) developed the first scale to

examine the uncertainty associated with specific jobs in an organization. They measured

uncertainty in terms of degree of clarity of information, degree of clarity of cause-effect

relationships, and the time span of feedback from the environment. Their instrument was

a nine-item questionnaire that they designed to measure uncertainty in three sub-

environments: marketing, manufacturing, and research. The questions and response

categories ascertain the perception of each sub-environment according to the following

characteristics: degree of clarity of information, general degree of uncertainty of causal

relations, and the time span of feedback about results. Milliken (1987) and Miller (1993)

indicated that this scale might not be an appropriate measure of perceptions of the general

environment of an organization because it focuses on particular jobs or functions. A

further difficulty was pointed out by Tosi, Aldag and Storey (1973) and Downey,

Hellriegel, and Slocum (1975) who found that the Lawrence and Lorsch uncertainty

subscales did not show adequate reliability.

The second scale, which Duncan (1972a) developed, provides an index of

perceived uncertainty, including the degrees to which information from the environment

is lacking, to which information about the outcomes of decisions is lacking, and to which

probabilities cannot be assigned. He conceptualized environmental uncertainty as having

two dimensions: complexity and dynamism. Three operational indicators of these

dimensions were developed: the adequacy of information about the particular factor in

question; the importance of the factor to the firm’s performance; and the predictability of

the environmental consequences of the decisions of the firm’s executives regarding the

factor. Milliken (1987) indicated that the scales to measure these dimensions may

measure alternative forms of perceived environmental uncertainty and that they are not

consistent with Duncan’s conceptual definition of perceived environmental uncertainty as

state uncertainty.

State uncertainty refers to “a perceptual uncertainty about the state of the

environment. It relates directly to unpredictability about the state of the world.

Administrators experience state uncertainty if they perceive that the environment or some

component of the environment is unpredictable” (Gerloff, Muir, & Bodensteiner, 1991, p.

754). Furthermore, Buchko (1994) stated that Duncan’s (1972a) scale might not be an

29

adequate measure of executives’ perceptions of environmental uncertainty. Duncan’s

perceived environmental uncertainty instrument contains five components of the external

environment: customers, suppliers, competitors, socio-political, and technological. His

measure of perceived uncertainty reduces multiple items to a single index. He pooled

respondents’ scores on the five components to obtain a two-dimensional index of

perceived environmental uncertainty, with one dimension being a continuum from simple

to complex and the other dimension being a static-dynamic continuum. Miller (1993)

argued that the pooling of perceived uncertainty scores on multiple items into a single

index presumes that environmental uncertainty is a single, unidimensional construct.

Downey, Hellriegel, and Slocum (1975) criticized Duncan’s measure of perceived

environmental uncertainty for deficiencies in scale construction and low scale reliability.

Miller (1993) developed and tested the reliability of another instrument for

measuring managers’ uncertainty perceptions. Miller’s analysis of data that he collected

from an international sample provides insights into the importance of different country

and industry factors for explaining managers’ perceptions of environmental uncertainty.

Werner, Brouthers, and Brouthers (1996) tested the reliability of Miller’s scales, using

samples of both manufacturing and service firms, and found that the scales had generally

high internal consistency. The findings suggested, however, the need for several changes

in the measurement of perceived environmental uncertainty, which led to their refinement

of Miller’s measure; they labeled the refined measure PEU2. Following Milliken (1987)

and responding to calls for an assessment of perceived environmental uncertainty (PEU)

measures, Ashill and Jobber (2005) viewed PEU measures in terms of state, effect, and

response dimensions. They developed three distinct scales of environmental uncertainty

and assessed these scales’ psychometric properties in terms of dimensionality, reliability,

and validity.

Top Management

As emphasized by Felton (1959), Hambrick and Mason (1984), and Webster

(1988), top managers play an important role in shaping an organization’s values and

30

orientation. According to Mason and Mayer (1987), management needs information to

augment its perceptions and experience as it manages the many issues that emerge from

the firm’s internal and external environments. The political, social, technological, and

economic forces that surround the organization can be considered parts of the external

environment. Technological trends, legislative trends, workforce availability, and the

actions of potential competitors are key external factors on which information is needed.

Financial resources, company strengths and weaknesses, and merchandise quality are

examples of internal information (Mason & Mayer). Anderson and Paine (1975) used a

perceptual model of strategic formulation dependent on managers’ interpretation of

environmental certainty and uncertainty and of high and low need for change. They

maintained that, depending on perceptions of both environmental and internal properties,

managers have considerable leeway in making strategic choices to meet various

contingencies. Cunningham (1977) and Palmer, Veiga, and Vora (1979) also supported

the notion of the influence of management’s perceptions of environmental properties on

resulting strategic changes.

Bourgeois (1978) found that unpredictable environmental changes risked the

survival of a firm and that management’s perceptions and evaluations of risks influenced

the strategic decisions it took in attempting to effectively posture the firm with respect to

those changes; therefore, environmental change, or volatility, interacted with managerial

efforts at strategy making in attaining some level of firm performance.

Risk taking refers to the active willingness to pursue a perceived opportunity

notwithstanding a reasonable chance of costly failure (Caruana, Morris, & Vella, 1998).

Davis and Morris (1991) concluded that the risk-taking dimension of management

involves managers’ “willingness to commit significant resources to opportunities having

a reasonable chance of costly failure” (p. 45). They also stated that entrepreneurship does

not require reckless decision making, but rather a reasonable awareness of the risks

involved and an attempt to manage these risks.

31

Business Strategy

Business strategy has its main value, for both profit-seeking and non-profit

organizations, in determining how an organization defines its relationship to its

environment in the pursuit of its objectives (Bourgeois, 1980b). Although this view

would probably receive little dispute in the field, it is only implicit in most of the

definitions found in the literature. Uniform treatment of the concept is not evident in

these definitions, and this lack of uniformity has led writers such as Hatten and Schendel

(1975) to point out that it is still not clear “what strategy is,” or, more recently, for

Anderson and Paine (1978) to decry the field’s difficulty in defining what is meant by the

term.

Two general types of literature have historically characterized the field of

business policy. The normative works of several researchers have typically instructed

managers on “how to” formulate strategy by scanning the firm’s environment to seek

opportunities that could be matched with the firm’s capabilities (Ackoff, 1970; Andrews,

1971; Ansoff, 1965; Cannon, 1968; Katz, 1970; Steiner, 1979; Uyterhoeven, Ackerman,

& Rosenblum, 1977; Vancil, 1976). The descriptive literature tends to rely on case

analyses to explain how strategy is “really” formed (Allison, 1971; Bower, 1970;

Chandler, 1962; Cyert & March, 1963; Lindblom, 1959).

Among the many definitions of strategy are two underlying connotations: one that

refers to the differentiation and definition of that segment of the environment in which

the organization will operate, and one that refers to the provision of guidance for

subsequent goal-directed activity within that environment. Strategy can be

conceptualized in a hierarchical manner into the following two levels. Domain strategy

refers to the organization’s choice of domain and/or the change of domain that occurs

when a firm diversifies into particular products or markets (Chandler, 1962; Miles &

Snow, 1978). Although Ansoff’s (1965) limited focus concentrates entirely on this level,

Hofer (1973), Hofer and Schendel (1978), Vancil (1976), and Vancil and Lorange (1975)

referred to this level of strategy as “corporate” or “portfolio” strategy, in contrast to

“business” strategy. Their concepts are related to the domain direction-finding strategy.

Domain direction-finding strategy refers to competitive decisions made within a

32

particular task or product market environment. Thus, once a “domain consensus” has

been achieved and a competitive arena defined, the organization then becomes subject to

the environmental constraints to which the contingency theorists attribute primacy (Levin

& White, 1961).

Market Orientation

The subject of market orientation in one form or another has had the center stage

in the theory and practice of marketing since the late 1980s (Kotler, 1977; Levitt, 1960;

Shaprio, 1988; Webster, 1988). Only recently, however, have researchers built a theory

of the antecedents and consequences of market orientation, developed a valid measure of

the construct, and tested its effect on business performance (Kohli & Jaworski, 1990;

Narver & Slater, 1990). Kohli and Jaworski described and offered a theory of market

orientation. They stated, “A market orientation appears to provide a unifying focus for

the efforts and projects of individuals and departments within the organization, thereby

leading to superior performance” (p. 13). Narver and Slater developed a measure of

market orientation and tested its effect on business performance. Their measure of

market orientation consists of three behavioral components–customer orientation,

competitor orientation, and inter-functional coordination–all of which are critical and

related to creating sustainable superior value for customers.

In recent years, the number of empirical studies based on the market orientation

concept has increased (Atuahene-Gima, 1995; Deng & Dart, 1994; Diamontopoulos &

Hart, 1993a; Pitt, Caruana, & Berthon, 1996). Many studies have examined the links

between market orientation and various correlates. Market orientation was first applied

in consumer packaged-goods industries (Chandler, 1977). Later on, it broadened into

other sectors such as aerospace (Reynold, 1966), health service (Zaltman & Vertinsky,

1971), fundraising (Mindak & Bybee, 1976), promotion of social objectives (Kotler &

Zaltman, 1971), banking and financial services (Davies, 1974), nursing (Lewis, 1977),

railways (Christoper, 1975), tourism (Greenley & Matcham, 1986) and apparel

manufacturing (Socha, 1996). As early as 1965, Frame argued that many large U.S.

retailers focused mainly on product, rather than on customers, and suggestions were made

33

to correct this. Berry, Gresham, and Millikan (1990) observed that, despite significant

research on the market orientation of manufacturing firms and a growing interest in the

application of market orientation to business areas other than manufacturing, research on

the implementation of market orientation in retailing remained limited. An extensive

search of the literature showed that such research concerning retailing remains limited to

the present.

Research has been conducted to examine the role of the marketing departments of

retailing companies (Piercy & Alexander, 1988) by comparing UK department stores’

and supermarkets’ operational marketing practices (Greenley & Shipley, 1992) and by

looking into retailing organizational selling behavior (Hogarth-Scott & Parkinson, 1993).

Greenley and Shipley conducted a survey of UK retailers’ attitudes towards marketing

mix factors, customer services, and sources of information for marketing decision making.

Piercy and Alexander (1988) found that 6% of the sample firms were “merchandising

orientated,” 29% were “sales orientated,” and 65% were “marketing orientated.” Many

studies have found that market orientation leads to greater customer satisfaction (Siguaw,

Brown, & Widing, 1994), teamwork, and organizational commitment (Jaworski & Kohli,

1993).

Literature pertaining to market orientation is primarily concerned with large firms,

and relatively little research has concerned small and medium-sized businesses, though

some such research does exist. Peterson (1989) and Sriram and Sapienza (1991) found

that most small U.S. manufacturing businesses adopted a production orientation, and

focusing on sales was the second most common orientation. Meziou (1991) found areas

of strength and weakness in small-business efforts to adopt the marketing concept. These

findings suggest that the marketing concept is part of the managerial philosophy of many

executives, particularly those who have attended training courses on marketing.

Benefits of Market Orientation

The benefits of having a market orientation are noted in numerous scholarly

papers, textbooks, and speeches (Kotler, 1988; Webster, 1988). Market orientation has

been theorized to be the central construct behind successful modern marketing

management and strategy. Jaworski and Kohli (1993) and Narver and Slater (1990)

34

linked high market orientation to high business performance. Many studies have

identified the development of a strong market orientation as an important factor to the

success of a business in firms in the U.S. and similar countries because a strong market

orientation in a company will increase its ability to adapt to changing market conditions,

will increase its ability to be innovative, and will generally increase the performance of

the company (Atuahene-Gima, 1996; Day, 1994; Jaworski & Kohli, 1993; Kohli &

Jaworski, 1990; Narver & Slater, 1990; Ruekert, 1992; Slater & Narver, 1994b).

Theoretically related to the study of market orientation are three research topics.

The first topic is the antecedents of market orientation, which comprise organizational

factors such as structure, climate, conflict coordination, and motivational reward

(Jaworski & Kohli, 1993; Kelley, 1992; Ruekert, 1992). The second is the consequences

of market orientation, including business performance and employee attitudes

(Deshpandé, Farley, & Webster, 1993; Jaworski & Kohli, 1993; Narver & Slater, 1990;

Siguaw, Brown, & Widing, 1994). The last concerns the environmental moderators of

the relationship between market orientation and its consequences (Narver & Slater, 1990;

Slater & Narver, 1994a); however, empirical research has not supported the influence of

environmental moderators (Jaworski & Kohli, 1993).

Previous research has several limitations. As the unit of analysis, most studies

have used strategic business units (SBUs) of a few select corporations, particularly for-

profit business corporations. Only one study (Jaworski & Kohli, 1993) tested the

influence of antecedents on market orientation. Many researchers have indicated the

need to investigate the role of additional influences on market orientation within

organizations (Hambrick, 1987; Jaworski & Kohli, 1993; Siguaw, Brown, & Widing,

1994). Kohli, Jaworski, and Kumar (1993), Narver and Slater (1990) and Deshpandé,

Farely and Webster (1993) have attempted to systematically develop valid measures of

market orientation, but have produced limited results.

Market Orientation and Strategy

Egeren and O’Connor (1998) stated that market orientation is a business strategy.

Andrews (1980) defined corporate strategy as “the pattern of decisions in a company that

determines and reveals its objectives, purposes, or goals; and produces the principal

35

policies and plans for achieving those goals, and defines the range of business the

company is to pursue, the kind of economic and human organization it is or intends to be,

and the nature of the economic and noneconomic contribution it intends to make to its

shareholders, employees, customers, and communities” (p. 18).

For more than a decade, the nature and benefits of a market orientation have been

discussed in the strategic marketing literature, and market orientation has been accepted

as a successful business strategy by academics and practitioners (Day, 1990; Homburg,

Krohmer, & Workman, 2004; Kohli & Jaworski, 1990; Narver & Slater, 1990; Yoon &

Lee, 2005; Zhou, Gao, Yang, & Zhou, 2005). The subject of market orientation in one

form or another has had the center stage in the theory and practice of marketing (Kotler,

1977; Levitt, 1960; Shapiro, 1988; Webster, 1988). Because customer needs and

expectations constantly change with time, the offering of consistently superior quality

products and services calls for continuous tracking and responsiveness to changing needs

in the business environment–in other words, being market oriented (Kohli & Jaworski).

Kumar, Subramanian, and Yauger (1997) summarized the range of the research on

market orientation, some of which has focused on understanding the construct and

examining its relationship to performance.

Kohli and Jaworski (1990) were among the first in recent years to study firms’

market orientation as a research topic, followed by Narver and Slater (1990), Ruckert

(1992), Jaworski and Kohli (1993), Siguaw, Brown, and Widing (1994), and Slater and

Narver (1994a, 1994b). Until the 1990s, the call to adopt market-oriented practices was

more an article of faith than empirically grounded theory. Early researchers suggested

that market orientation was an organizational culture (Narver & Slater, 1990), a

philosophy (Lichtenthal & Wilson, 1992), or a set of behaviors (Jaworski & Kohli, 1990)

that most effectively and efficiently created superior value for the customer and superior

business performance for the organization. The early work served as a reason for

subsequent research examining the effect of market orientation on business profitability

(Kohli & Jaworski, 1990; Kohli, Jaworski, & Kumar, 1993; Narver & Slater, 1990; Slater

& Narver, 1994a, 1994b).

The literature reveals a number of meanings ascribed to market orientation.

Kanopa and Calabro (1971) defined it from the customer perspective and compared that

36

emphasis to a product/cost emphasis. Other researchers have indicated that various

activities were integrated in the marketing function (Felton, 1959; McNamara, 1972),

with the types of activities and the extent of integration depending on whether the

marketing function had a leadership role (Viebranz, 1967). Deshpandé and Webster

(1989) defined market orientation as an organization-level culture–a set of shared values

and beliefs about putting the customer first in business planning. Market orientation also

was defined and operationalized by Narver and Slater and by Kohli and Jaworski in 1990.

Researchers have suggested that market orientation involves an external or outward-

looking perspective of a firm, which is a focus on not only customers but also

competitors. Narver and Slater (1990) operationalized market orientation in terms of

three behavioral dimensions–customer orientation, competitor orientation, and

interfunctional coordination, and two decision criteria–long-term focus and profitability.

The three behavioral components were treated as equally important. They included two

stakeholder groups, customers and competitors, in a firm’s task environment because

these two elements of the task environment are critical for gaining a sustainable

competitive advantage.

Lately, market orientation has been defined, and so measured, as a set of activities

or behaviors relating to market-intelligence gathering, market-intelligence dissemination

cross-functionally within a firm, and the action responses based on this intelligence.

Based on both a literature review and field interviews of managers, Kohli and Jaworski

(1990) identified the market-orientation construct as consisting of three basic

components: intelligence generation, intelligence dissemination, and responsiveness.

Their market-orientation conceptualization put particular emphasis on the firm’s

activities in dealing with information regarding customer needs and the market

environment (Jaworski & Kohli, 1993; Kohli & Jaworski, 1990). Greenley (1995a)

suggested that both pairs of researchers’ approaches to defining the market-orientation

construct were similar in emphasizing behavioral issues. According to both approaches,

the construct involves collecting information about the task environment and

disseminating the information to all organizational units. And in order to provide value

to the customer, the organization must be ready to act on the information. Both

approaches also operationalize the market-orientation construct as a multidimensional

37

concept in which each dimension measures a different feature of market orientation.

Finally, both studies view an organization’s magnitude of market orientation as the sum

total of its relative emphasis on the different components of market orientation. Peters

and Waterman (1982) indicated that the most important component of market orientation

is an emphasis on the customer, but others have suggested that a balance between

customer and competitor is most beneficial. Kohli, Jaworski, and Kumar (1993)

contended that market orientation includes customer, competitor, and technology-

information generation, dissemination, and response implementation.

Market-oriented vs. customer-led business strategies. Because market-oriented

businesses resemble customer-led businesses, confusion exists about what is market-

oriented and what is customer-led (Slater & Narver, 1998). Compared to customer-led

businesses, market-oriented businesses scan the market more broadly, have a longer-term

focus, and are much more likely to be generative learners (Senge, 1990). Slater and

Narver (1995, 1998) described the foundation behaviors of market-oriented businesses.

They indicated that, through the processes of acquiring and evaluating marketing

information in a systematic and anticipatory manner, market-oriented businesses are

committed to understanding both expressed and latent needs of the customers. And, the

businesses develop superior solutions to those needs and the capabilities and plans to be

competitive (Day, 1994; Kohli & Jaworski, 1990; Narver & Slater, 1990; Slater & Narver,

1995, 1998). By sharing market knowledge broadly throughout the organization and by

acting in a coordinated and focused manner, market-oriented businesses continuously

create superior customer value (Slater & Narver, 1995).

Although market orientation has been generally seen in a positive light, customer

orientation has been criticized for contributing such negative outcomes as trivial product

development efforts (Bennett & Cooper, 1979), confused business processes (Macdonald,

1995), and a decline in U.S. industrial competitiveness (Hayes & Wheelwright, 1984).

Components of Market Orientation

Researchers of market orientation have cited five main components of a strong

market orientation (Atuahene-Gima, 1996; Day, 1994; Jaworski & Kohli, 1993; Kohli &

Jaworski, 1990; Narver & Slater, 1990, Ruekert, 1992; Slater & Narver, 1994a, 1994b).

38

The first component is the systematic and continuous generation of market intelligence,

including detailed information about customers, competitors, and the general market

environment. The second component is the dissemination of market intelligence

throughout the organization. The next component is cross-functional coordination and

the inclusion of all employees in focusing their activities toward satisfying customer

needs at all levels of the organization. The fourth component is rapid response to

changing customer needs or market conditions. The last component is a dynamic

strategic-planning process incorporating a long-term perspective (Martin, Martin, &

Grbac, 1998).

Market orientation can refer to the organization-wide generation of market

intelligence pertaining to current and future needs of customers, dissemination of

intelligence within the organization, and responsiveness to it (Kohli & Jaworski, 1990).

This integrated view has three key features. The first feature is an expanded focus on

market rather than customer intelligence. The second feature is an emphasis on a specific

form of interfunctional coordination with respect to market intelligence, and the last

feature is a focus on activities related to intelligence processing rather than the effects of

these activities (Kohli, Jaworski, & Kumar, 1993). Kohli and Jaworski also described

three basic components: intelligence generation, intelligence dissemination, and

responsiveness.

Intelligence generation. Kohli and Jaworski (1990) and Jaworski and Kohli

(1993) suggested that market intelligence relates to observing customer needs and

preferences and that it also involves an analysis of how the needs and preferences might

be affected by such factors as government regulation, technology, competitors, and other

environmental forces. Market-intelligence generation refers to the collection and

assessment of both customer needs/preferences and the forces (task and macro

environments) that influence the development and refinement of those needs.

Importantly, multiple departments should engage in this activity because each has a

unique market lens (Kohli & Jaworski). Researchers have described market-intelligence

generation as including four distinct notions: (a) gathering, monitoring, and analyzing

information pertaining to the current and future needs of customers; (b) monitoring and

analyzing exogenous factors outside the industry that influence the current and future

39

needs of customers (e.g., government regulations, technology, the general economy, and

other environmental forces); (c) monitoring and analyzing competitive actions that

influence the current and future needs of customers; and (d) gathering and monitoring

market intelligence through both formal and informal means (Day & Wensley, 1983;

Houston, 1986; Kohli & Jaworski, 1990) (see Figure 2).

Egeren and O’Connor (1998) proposed that, although market development relates

to consumer needs and preferences, it includes an analysis of how external factors might

affect technological changes, competitive actions, government regulations, and other

environmental forces. Market-intelligence generation includes environmental scanning

activities (Kohli & Jaworski, 1990).

Intelligence dissemination. Intelligence dissemination refers to the process and

extent of market-information exchange within a given organization. Attention should be

balanced between both horizontal (interdepartmental) and vertical transmission of

marketplace information because the dissemination’s focal point is the entire strategic

business unit (SBU). The dissemination of intelligence occurs both formally and

informally (Kohli & Jaworski, 1990). Jaworski and Kohli (1990) and Kohli and Jaworski

(1990) maintained that intelligence dissemination extends beyond collecting information

about customer needs and preferences to include information about an organization’s

entire task environment. They also suggested that intelligence dissemination relates to

the communication and transfer of intelligence information to all departments and

individuals within an organization through both formal and informal channels. Jaworski

and Kohli (1993) and Slater and Narver (1994a) indicated that market-intelligence

dissemination has two distinct aspects. The first aspect is sharing both existing and

anticipated information throughout the organization (i.e., ensuring vertical and horizontal

flows of information within and between departments) concerning the current and future

customer needs, exogenous factors, and competition. The second aspect is ensuring

effective use of disseminated information by encouraging all departments and personnel

to share information concerning current and future customer needs, exogenous factors,

and competitors.

Responsiveness. Responsiveness is action taken in response to intelligence that is

generated and disseminated. On the planning side, the focus is on the degree to which

40

marketplace needs play a role in the evaluation of market segments and the development

of marketing programs. Action on the basis of market intelligence concerns the speed

and coordination in implementing marketing programs (Kohli & Jaworski, 1990). Those

authors observed that an organization accomplishes nothing if it does not respond to

information. Kohil and Jaworski (1990) and Kumar, Subramanian, and Yauger (1997)

stated that an organization must communicate, disseminate, and oftentimes “sell” market

intelligence to relevant departments and individuals in the organization in order to be

market oriented. They added that a market-oriented organization responds to or acts on

the market intelligence that is gathered and disseminated. Kohli, Jaworski, and Kumar

(1993) and Narver and Slater (1990) stated that responsiveness requires three distinct

activities. They are (a) developing, designing, implementing, and altering goods and

services (tangible and intangible) in response to the current and future needs of

customers; (b) developing, designing, implementing, and altering systems to promote,

distribute, and price goods and services that respond to the current and future needs of

customers; and (c) utilizing market segmentation, product differentiation, and other

marketing strategies in the development, design, implementation, and alteration of goods

and services and their corresponding systems of promotion, distribution, and pricing.

Measuring Market Orientation

Narver and Slater (N-S) developed a 15-item factor-weighted scale to measure

market orientation, for which the weighting factors included some that were firm-specific

(size, growth, and return on investment) and others referring to the external environment

(market growth, buyer and seller power, industry concentration and ease of entry, and

technological change). The 15-item market-orientation scale was tested, along with the

measures of the weighting factors. They tested the market-orientation scale on split

samples using 371 self-administered questionnaires from top managers of 140 strategic

business units (SBUs) in a single corporation. They found positive and significant effects

of market orientation on firm performance for commodity and noncommodity SBUs

(Narver & Slater, 1990).

41

Deshpandé, Farley, and Webster (D-F-W) developed a customer-orientation scale

as part of a broader study of the impact of corporate innovation and market orientation on

firm performance. Their nine-item scale was developed from a list of 30 items, along

with measures of item salience, using results from an earlier study of 138 Japanese

executives (Deshpandé, Farley, & Webster, 1993).

In 1993, Kohli, Jaworski, and Kumar (K-J-K) published MARKOR, a

freestanding 20-item scale used in their study of market orientation, but they did not

attempt to explain dependent variables or use other explanatory factors in their study.

Earlier, Kohli and Jaworski (1990) developed a conceptual path model of factors

affecting market orientation. Their scale was made using nonlinear factor analysis of

matched samples of senior marketing and nonmarketing executives from 222 SBUs,

including firms that were members of the Marketing Science Institute.

Each of the scales mentioned above was used in later research. Deshpandé,

Farley, and Webster (1995) extended their previous research to international comparisons.

Slater and Narver (1994a) examined whether the competitive environment moderated the

market orientation-performance relationship using the N-S scale. Using the K-J-K scale,

adding a series of antecedent and performance measures, Selnes, Jaworski, and Kohli

(1996) conducted a cross-country comparison.

Organizational Structure

Theorists have defined organizational structure in various ways. Miller and

Dröge (1986) defined structure as capturing centralization of authority, formalization,

complexity, and integration. Organ and Battement (1986) defined structure as “the

formal, systematic arrangement of the operations to one another” (p. 607). Griffin and

Moorhead (1986) perceived structure as including the organization’s task reporting and

the various relationships within the organization. Although these definitions appear

similar, Daft’s (1989) definition of organizational structure is more comprehensive than

the others above. Daft (1989) defined structure as consisting of formal reporting

42

relationships, including the number of levels in the hierarchy, the span of control of

managers and supervisors, and the communication across the organization’s departments.

Mechanisitc vs. Organic Organizational Structure

Many researchers have worked to dimensionalize and explain diversity and

variety in the structure of organizations (Burns & Stalker, 1961; Lawrence & Lorsch,

1967; Woodward, 1965). They have drawn a principal contrast between mechanistic or

bureaucratic structures and organic ones. A mechanistic structure has vertical hierarchies,

numerous departments, limited decentralization, and many rules and procedures. It tends

to have authority centralized at the top of the system, considerable standardization and

formalization, and tight specification of duties, and interaction is primarily in the vertical

direction (Bantel, 1993; Marsden, Cook, & Kalleberg, 1994). On other hand, an organic

structure tends to be open; it has less structural complexity, fewer rules, extensive

decentralization, and a less rigid definition of methods, duties and powers, and it is prone

to rich, horizontal interaction (Bantel, 1993; Johnson & Scholes, 1993; Marsden, Cook,

& Kalleberg, 1994). Özsomer, Calantone, and Benedetto (1997) stated that the

appropriate organizational structure can change through time and, therefore, must be

explicitly managed by the firm.

Burns and Stalker (1961) investigated 20 manufacturing firms and concluded that,

depending on the nature of a firm’s external environment, either the mechanistic or

organic organizational form could be successful. The more bureaucratic form,

mechanistic, thrives when the environment is stable, but experiences difficulty when the

environment is rapidly changing and uncertain. In this environment, the much less

bureaucratic organic form performs best. Utterback (1979) suggested that firms with

flexible production processes and organizational structures tend to be better at product

and process innovation than more rigidly structured firms. Mechanistic organizations are

highly bureaucratic in form and have the characteristics of centralization, many rules,

precise division of labor, narrow spans of control, and formal coordination (Peters &

Waterman, 1982; Schermerborn, 1993).

43

Several studies have found that, in unpredictable environments, organic structures

allow rapid organizational response to changing external forces, whereas mechanistic

structures are better suited to predictable environments where rapid organizational

responses are not typically required (Burns & Stalker, 1961; Covin & Slevin, 1989;

Khandwalla, 1977; Lawrence & Lorsch, 1967). Bourgeois, McAllister, and Mitchell

(1978) supported the idea that organic structures allow rapid response in the face of

turbulent environments. Burns and Stalker showed that organic structures were effective

in conditions of environmental dynamism. They found that such structures were likely to

be more positively related with firm performance under dynamic than under stable

environmental conditions. Because environmental dynamism influences

structure/performance relationships, the effects of this variable were controlled in the data

analysis.

A long tradition of support exists for the notion that environment moderates the

effectiveness of organizational structure. Lawrence and Lorsch’s (1967) study of the

influence of a business’s technological, market, and economic setting on its pattern of

organization and administration is the practical beginning of this stream.

According to contingency theory, differences in structure largely relate to the

level of uncertainty and complexity that an organization faces. Uncertainty could be a

result of conditions in the customer environment or of technological requirements or

limitations. Mechanistic structure is often found under stable and well-understood

conditions, in situations requiring efficient execution or repetitive tasks. Organic

structure would be found in the presence of substantial uncertainty, in conditions

involving innovation or adjustment to changing circumstances. Researchers attempting

to explain coordination strategies have looked, therefore, beyond organizational

boundaries.

Özsomer, Calantone, and Benedetto (1997) proposed that the firm should adapt

not only its strategic posture to the environment, but also its organizational structure.

Bourgeois (1985) and Porter (1980, 1985) explained that, through its strategic posture, a

firm selects and interprets its environment, responds to those elements it considers fixed,

and adapts its strategy to the requirements of the environment.

44

Morris, Avila, and Allen (1993) found that environmental turbulence could lead

to increased formalization in decision making and that such turbulence was also

associated with higher levels of entrepreneurship (Covin & Slevin, 1989; Davis, Morris,

& Allen, 1991). Schaffer (1984) discovered that organizations operating in relatively

stable environments had a tendency to be more mechanistic and could better utilize

prescribed procedures, methods, and rules for governing and controlling their operations.

Conversely, organizations operating in dynamic environments did better with organic

structures, which provided more flexibility in uncertain environments.

Several authors have argued that organizational effectiveness is a function of the

correctness and tightness of fit between the structure and processes of an organization

and its environment (Burns & Stalker, 1961; Dill, 1958; Hage & Aiken, 1970; Lawrence

& Lorsch, 1969; Lorsch & Morse, 1974). Lawrence and Dyer (1983) argued that an

organic structure is best suited to coping with or adapting to a turbulent environment.

Mintzberg (1979) indicated that the low degree of formality and high degree of

information sharing and decentralization of an organic structure help improve an

organization’s flexibility and ability to adapt to continual environment change. He also

indicated that a generally accepted principle of organizational theory is that

environmental dynamism drives the structures of organizations toward greater organicity.

The impulsiveness of dynamic environments can work against any benefit that would

result from the adoption of mechanistic structures. In such environments, firms must be

able to rapidly respond to changing conditions. Accordingly, organic structures have

been found to be particularly common and effective in dynamic environments (Miller &

Friesen, 1984).

Peters and Waterman (1982) described organistic structures as “loose” and having

formal means of capturing the advantages of informal structures. This type of structure

utilizes networks of alliances and interpersonal relationships, which provides the

resources needed to operate successfully.

45

Dimensions of Firm Structure

Researchers began in the 1940s to identify the dimensions of firm structure. As a

result of findings about the dimensions of organizational structure, the attention of

researchers in the area shifted in the 1970s to attempts to formulate a typology of

structure. Typologies of structure most often include the degree of each dimension, such

as formalization, centralization, and specialization of structure. According to Boyd,

Walker, and Larreche (1995), three structural variables–formalization, centralization, and

specialization–are important in shaping the performance of both a strategic business unit

and its marketing department within the environment of a given competitive strategy.

Covin, Slevin, and Schultz (1994) defined organizational structure as “the

arrangement of the workflow, authority, and communication relationship within a firm,”

adding that “structure can be operationally defined in several ways: in terms of the

organization of departments or work units, as in functional structures, product structures,

and matrix structures, and in terms of its core dimensions, like formalization and

centralization” (p. 484). Schaffer (1984) and Miller and Dröge (1986) defined the

dimensions of an organization’s structure as the degree of formality (rules and

procedures), the degree of complexity (the degree of specialization and task diversity),

and the degree of centralization (the distribution of decision authority within the

organization’s hierarchy), capturing centralization of authority and integration. A firm

should adapt both its strategic posture and its organizational structure with regard to the

environment.

Ghoshal, Korine, and Szulanski (1994) described organizational structure as

simply the differentiation between organizations according to centralization or

decentralization. Habib and Victor (1991) categorized multinational corporations into

“pure” structures, including world-wide function, international division, world-wide

product division, geographic region, and matrix. These categories refer to differences in

the relationship of foreign operations to the corporate head office. Another categorization

of organizational structure includes function, project, and matrix. Yet another approach

is the mechanistic-organic continuum of structure (Burns & Stalker, 1961), as previously

discussed. Stock, Greis, and Kasarda (1999) stated, “each of these methods in some way

46

differentiates organizations in terms of how tasks are allocated among organizational

units and how decision-making authority is specified” (p. 42).

Chandler (1962) determined that organizational structure could be regarded as

comprising the parameters that define the way an organization is assembled. Schaffer

(1984) stated that, when the dimensions of the organization’s structure are such that they

allow the organization to complete its purpose and meet its goals and objectives, it has

established structural effectiveness.

Formalization

Ruekert, Walker, and Roering (1985) defined formalization as the degree to

which decisions and working relationships are managed by strict rules and standard

policies and procedures. It also refers to the existence of formal rules and regulations and

the organization’s efforts to enforce those rules. Zeithmal, Berry, and Parasuraman

(1988) observed that, in a highly structured environment, employees perform

standardized responsibilities which are regulated by strict rules and operating procedures.

Galbraith (1973) and Daft and Lengel (1986) found that formalization might increase the

level of certain types of information processing and information use.

Centralization

Centralization refers to the extent to which decision-making power is

concentrated at the top level of the organization (Massie, 1965; Sisk & Williams, 1981).

Boyd, Walker, and Larreche (1995) noted that middle- and lower-level managers are

more self-sufficient and participate in a wider range of decisions in more decentralized

units. In McGregor’s (1960) Theory X, the qualities of centralization in terms of

discipline, standardization, single-mindedness, and effective control were underpinned by

a set of assumptions. Such a management system favors efficiency over effectiveness

and presupposes a stable, constant, and clearly defined external environment (Spillard,

1985). In many studies, reduction in centralization has been associated with growing

uncertainty in the external environment of firms. And, such uncertainty tends to help the

entrepreneurial process through the opportunities it creates (Davis, Morris, & Allen,

1991; Morris, Avila, & Allen, 1993).

47

Specialization

Specialization refers to the division of tasks and activities across positions within

the organizational unit. A highly specialized marketing department has a large number of

specialists, such as market researchers, advertising managers, and sales promotion

managers, who direct their efforts to a narrowly defined set of activities (Boyd, Walker,

& Larreche, 1995).

Kast and Rosenzweig (1973), Dunn (1971), and Chakravarthy (1982) suggested

that the structural characteristics of an organization with a high level of adaptability are

flexibility and decentralization, similar to an organic structure. Chakravarthy (1982),

Khandwalla (1977), and Slevin (1989) proposed that an organization with a low level of

adaptability would have the structural characteristics of tight control, centralized decision

making, strict adherence to formally prescribed rules and procedures, and clearly

structured reporting relationships similar to a mechanistic structure. Highly specialized

organizations have a high proportion of “specialists” who direct their efforts to a well-

defined set of activities (Rueker, Walker, & Roering, 1985). In complex environments,

specialists are experts in their respective areas and are typically given considerable power

to determine the best approach to complete their tasks (Mintzberg, 1979). This expertise

allows the organization to respond rapidly to changes in its environment (Walker &

Ruekert, 1987).

Business Performance

Both in terms of definition and measurement, performance is a difficult concept.

Organizational performance is central to the study of business strategy or policies

(Bourgeoise & Astley, 1979; Cheng & McKinley, 1983; White & Hamermesh, 1981).

Researchers frequently take the performance of organizations into account when

investigating such organizational phenomena as structure, strategy, and planning;

however, in the literature, researchers disagree on what creates effective performance of a

firm and how to measure performance. Various researchers have focused on modeling

the antecedents and consequences of market orientation and on developing a valid

48

measure of the construct to test its effect on organizational performance (Jaworski &

Kohli, 1993; Kohli, Jaworski, & Kumar, 1993; Narver & Slater, 1990; Siguaw, Brown, &

Widing, 1994; Slater & Narver, 1994a).

Measuring Firm Performance

Measuring firms’ performance has been a major challenge for researchers.

Strategic management researchers have raised questions about how performance should

be measured (Connolly, Conlon, & Deutsch, 1980; Ford & Schellenberg , 1982.)

Because performance is a multidimensional construct, any single index may not provide a

comprehensive understanding of the performance implications related to the constructs of

interest (Chakravathy, 1986). Firm performance can be measured according to many

different methods. According to Welch (1993), the three most important things to

measure in business are customer satisfaction, employee satisfaction, and cash flow. Bart

and Baetz (1998) indicated that the relationship of firms’ mission statements to

performance can be assessed with five measures, four of them financial and one

behavioral.

Many researchers agree that “hard” measures, such as economic measures, are

more reasonable for use in measuring a firm’s performance than subjective measures.

The advantages of hard measures, such as economic or financial measures of

performance, are their usefulness for practitioners (Cheng & McKinley, 1983).

Bourgeois (1980a) suggested that the use of hard measures increases the level of

confidence in the reported relationships and is more meaningful to managers than soft

measures. Several financial performance measures are return on sales (ROS) (Brush &

VanderWerf, 1990; McDougall, Covin, Ribinson, & Herron, 1994); return on assets

(ROA) (David, 1989; Roth & Ricks, 1994); the percentage of annual change in sales

(Brush & VanderWerf, 1990; McDougall, Covin, Ribinson, & Herron, 1994); and the

percentage of annual change in profits. ROA is a presumed aim of most businesses and

is a measure often used in research (Bettis & Hall, 1982; Hambrick, 1983a; Hoskisson,

1987). When the sample includes small, privately-held firms, growth measures are also

useful performance measures (Bagby & Shull, 1987; Dess & Robinson, 1984). Hofer and

49

Schendel (1978) suggested sales growth as one reflection of how well an organization

relates to its environment. Schaffer and Litschert (1990) suggested that revenue and

profit are important variables for measuring a firm’s performance. They used the

percentage change in total revenue and the average change in operating profit to measure

firm performance.

According to Dess and Robinson (1984), researchers face major problems in

allocating the assets and sales of multi-industry firms among the various industries in

which they do business. Because of the confidential nature of the data and the variation

among participating firms with regard to accounting procedures, accurate estimates are

difficult to obtain by survey techniques and represent a major source of measurement

error. Many studies have addressed the problems associated with the accuracy of

performance data from documentary sources (Anderson & Paine, 1975; Buzzell, Gale, &

Sultan, 1975; Glueck & Willis, 1979; San Miguel, 1977). The researcher investigating

small firms is often confronted with an inability to obtain objective performance

measures on a consistent basis because of restricted access to performance data on

privately-held firms. Even if access to such information is obtained with a sample of

privately-held firms, there is great risk of error attributable to varying accounting

procedures in these firms. Owners of privately-held firms are very sensitive about

releasing any performance-related data. Also, organizational forms, such as sole

proprietorship, partnership, or corporation, can evince artificial differences (Dess &

Robinson).

Multi-dimensional vs. Uni-dimensional Measures

Researchers have debated reliability issues in measuring firm performance

(Prehalad & Hamel, 1994; Waddock & Graves, 1997). Prahalad and Hamel (1994)

argued that changing social aspects, such as customer expectations, regulatory shifts, the

problem of excess capacity, and environmental concerns, have a significant influence on

strategy and performance. They have also suggested that firm performance should be

measured by not only economic aspects, but also social aspects. The social and economic

aspects of firm performance have proved difficult to operationalize, however (Dess &

Robinson, 1984; Kirchhoff, 1977). Even though measuring firm performance from two

50

aspects should be more reliable than just one aspect, it is not easy to access data about the

social aspect. For this reason, the economic measure is often viewed as the appropriate

measurement for firm performance. Firm performance reflecting the perspective of

strategic management has traditionally been operationalized in terms of economic or

financial criteria. It is generally measured with respect to such objectives as sales, profits,

costs, quality, and product performance.

Subjective Measures and Judgmental Measures

A subjective measure of firm performance has often been used in order to

overcome the problems of gathering performance data across industries (Dess &

Robinson, 1984; Govindarajan, 1988; Miller, 1988). Many studies have used subjective

measures. Subjective measures have been compared with objective data for a sample of

firms from a regional newspaper industry (Bourgeois, 1980a; Dess, & Robinson, 1984;

Wooldridge & Floyd, 1990). In Bowman and Ambrosini's (1997) study, all members of a

top management team were asked to rate their firm's performance relative to other firms

in their industry. Then those ratings were averaged to produce for each firm single

measures of relative profitability and of relative sales performance. According to

Bowman and Ambrsini, selecting firms from the same industry could control the effects

of industry conditions. They also stated that individual firms in the same industry are

likely to have the same underlying cost and revenue structures. Selecting firms broadly

from the same industry, the researchers were able to compare profitability ratios.

Raju, Lonial, and Gupta (1995) suggested that business performance can be

measured through a judgmental measure and an objective measure, although market

orientation can be measured using a multidimensional instrument. They stated that a

judgmental measure might ask respondents to rate only the overall performance of the

business compared to major competitors, and an objective measure could be market share

in monetary terms. They found that a considerable market orientation had an impact on

the judgmental performance measure, but no impact on market share. In addition, they

suggested that, for cross-sectional studies, judgmental measures of performance might be

more suitable than objective performance measures.

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Retail Performance

Pearce (1998) argued that a focus on retail performance can and should occur at

several levels in a firm. He stated that the measures of retail performance in use vary

greatly in terms of level. Overall measures of both financial performance (return on

common equity) and marketing performance (image positioning in the competitive

marketplace) are used at the firm level, whereas units’ asset-use performance measures,

such as dollar contribution per square meter of selling space, are used at various

operational levels (divisions, regions, stores, departments). Many merchandising levels

(groups, classifications, categories, lines, items) use buying and selling indicators, such as

gross margin return on investment in inventory and direct product profitability, to

measure performance.

In the present study, retail store performance was measured with a modified

version of an instrument developed by Gupta and Govindarajan (1984). The respondents

were asked to indicate on a five-point Likert-type scale, ranging from highly dissatisfied

to highly satisfied, the extent to which they were currently satisfied with their own stores’

performance on each of the following financial performance criteria: return on

investment, earnings growth, sales growth, market share, return on assets, and cash flow.

Summary

This chapter comprises a review of the literature that relates to the constructs of

the model guiding this research. These include the external business environment,

market-orientation strategy, organizational structure, top management’s willingness to

adapt to a changing market, and store performance. In this chapter, each construct in the

model was defined and discussed in terms of the factors measured in this research.

Under the category of environment, the main ways that environment is

conceptualized and some examples of empirical research were given. Also discussed was

environmental uncertainty, which is a significant factor that affects firm performance, as

shown in the model. The perception of environmental uncertainty by top management is

a focus of the study, and the relevant literature was discussed in this chapter. In the

52

model, under the construct of environment, market turbulence and competitive intensity

were identified as two factors of perceived environmental uncertainty.

Chapter 2 also included discussion of studies and concepts relating to top

management’s’ perceptions of environmental stability or turbulence and the resulting

strategic choices. Market orientation is a business strategy that includes intelligence

generation, intelligence dissemination, and responsiveness, which is seen as action taken

in response to intelligence that is generated and disseminated. The construct of

organizational structure was discussed, and in particular, organicity of organizational

structure as it relates to formalization, centralization, and specialization. Organic

structure, as opposed to mechanistic structure, has been found to be best suited to coping

with adapting to a turbulent environment (Lawrence & Dyer, 1983).

Finally, this chapter reviewed literature relevant to the construct of firm

performance. Measurement of firm performance has been difficult because firm

performance is a multidimensional construct. This study focuses on store performance,

rather than firm performance. The measurement of store performance in this research

focuses on return on investment, earnings growth, sales growth, market share, return-on-

assets, and cash flow. For the purposes of this study, store performance is measured

using a modified version of an instrument developed by Gupta and Govindarajan (1984),

which uses a five-point Likert-type scale ranging from highly dissatisfied to highly

satisfied.

53

CHAPTER 3

LITERATURE REVIEW

Part 2

Introduction

Chapter 2 presented a detailed discussion of each construct in the research model

(see Figure 1). Chapter 3 focuses on research that deals with the interrelationships

among the constructs of environment, business strategy, organizational structure, top

management’s willingness to adapt to environmental changes, and firm performance.

Research has linked two, three, or four of these constructs, but none of the previous

research has investigated the relationships among all five of the constructs addressed in

this study. This chapter presents the hypotheses on relationships between the constructs

that form the variables in this study, and also reviews the literature which provided the

basis for deriving each of the hypotheses.

Interrelationships Among the Components of Strategic Management and

Hypothesis Development

Environment

This section discusses literature that links environment with other constructs in

this study. The relationships discussed include the effects of the environment, market-

orientation strategy, and organizational structure on firm performance. Recent research

has shown that general environmental dimensions, such as level of industry stagnation

and dynamism, may affect small-firm performance (Miller & Toulouse, 1986; Peterson,

1985). Many researchers have conducted conceptual and empirical studies to introduce

new theories and to examine relationships between the following variables: environment,

structuring, strategic planning and organizational performance, especially financial

performance (Jogaratnam, 1995; West, 1988; West & Olsen, 1989).

54

The model developed in this study (see Figure 1) shows the interrelationships of

the variables that are the components of strategic management, including perceived

environmental uncertainty, top management’s willingness to adapt to a changing market,

market-orientation strategy, organicity of organizational structure, and store performance.

The proposition that the constructs in the strategic management process are causally

related leads to the following overall hypothesis, under which all the other hypotheses in

this study are subsumed.

Hypothesis : Causal relationships will be found among the strategic management

constructs, including perceived environmental uncertainty, top management's

willingness to adapt to a changing market, market-orientation strategy, organicity

of organizational structure, and store performance.

Environment and Business Strategy

Strategy has a strong connection to environment. Many researchers have found

that the environment can affect firms’ strategies (Clark, 1971; Hambrick, 1983a; Jauch,

Osborn, & Glueck, 1980; Jemison, 1981; Rockart, 1979; Selznick, 1948; White &

Hamermesh, 1981). The traditional contingency literature suggests that environment can

and should influence strategy (Burns & Stlker, 1961; Dess & Beard, 1984; Hambrick,

1983b, 1985; Miller & Friesen, 1984; Zaltman, Duncan, & Holbek, 1973). Anderson and

Paine (1975) noted that both strategy and environment have been explored as

determinants of a third variable, usually organizational structure, but they have rarely

been studied together.

Porter (1980) and Scherer (1980) have adopted a similar stance, claiming that

industrial structure influences strategy, but that a firm can select from a range of

strategies (Child, 1972; Hrebiniak & Joyce, 1985). Paine and Anderson (1977) stated

that firms in uncertain environments tend to utilize inventive strategies. Lenz (1981)

indicated that strategy can influence environment, causing a firm to be attracted to

customers with particular preferences and inviting a kind of revenge from competitors.

Caves and Rosen (1982) observed that, even though each large or small firm has its own

strategic methods, these are not always equally effective for dealing with uncertainty.

55

Miller (1988) stated that “both causal directions interact in an iterative, dynamic process:

strategy defines for attention particular niches of an environment, and environment,

through customer needs and competitors’ challenges, induces strategic adaptation. Such

mutual causality is likely to be the rule” (p. 282). Miller also argued that the matching of

strategy and environment can influence performance and that a poor match could hurt a

firm’s performance.

Andrews (1971) and Schendel and Hofer (1979) indicated that organizational

managers change their strategies to reflect changing conditions in their environment. On

the other hand, other strategy theorists have argued that organizations are constrained in

their ability to adapt (Boeker, 1989; Hannan & Freeman, 1984; Kelley & Amburgey,

1991; Pfeffer & Salancik, 1978; Quinn, 1980).

Several studies have analyzed the relationship between different environmental

factors and the effects of moderating influences on organizational variables (McKee,

Varadarajan, & Pride, 1989; Snow & Hreveniak, 1980.) It has been suggested that firms

should monitor their external environments when considering the development of a

strong market-oriented culture (Houston, 1986; Kohli & Jaworski, 1990). Because

market-oriented firms are externally oriented, the construct of market orientation is

related to the industry environment. Golden, Doney, Johnson, and Smith (1995)

examined four factors to determine the influence of the external environment on market

orientation in transition economies. The four factors are demand changes, product

obsolescence, competitive pressures, and product technology. These variables appear to

reflect four external factors, specifically market growth/demand, market turbulence,

competitive intensity and technological turbulence, which Kohli and Jaworski identified

as potential moderators of the market orientation and performance link.

The importance of the market-orientation concept has generated a continuous

flow of research in the literature. Appiah-Adu (1998) observed that most empirical

studies on the subject have been conducted in industrialized economies. In recent years,

several researchers have paid attention to developing nations that are making the

transition from centralized economies to a more free-market orientation (Aggarwal &

Singh, 2005; Chang & Chen, 1998; Chelariu, Ouattarra, & Dadzie, 2002; Darroch &

McNaughton, 2003; Kim, 2004; Kuada & Buatsi, 2005; Kwon & Ho, 2000; Mavondo,

56

1999; Sittimalakorn & Hart, 2004). Because of the economic and structural changes

taking place through economic reforms in many developing nations, business

environments in such countries are rapidly evolving and thereby influencing firms to

change from production to sales and market orientations. Bhuain (1996) indicated that

these developments in emerging economies could provide appropriate grounds for

analysis of market orientation and the links with its various correlates.

In the management literature, environmental turbulence is identified as an

important construct in the planning and implementation of strategy (Golden, Doney,

Johnson, & Smith, 1995; Lusch & Laczniak, 1987; Slater & Narver, 1994a). Davis and

Morris (1991) stated that environmental turbulence has latent implications for a firm’s

marketing orientation. Moreover, Davis, Morris, and Allen (1991) found that perceived

environmental turbulence was positively related to a firm’s level of market orientation

due to the firm’s desire to minimize uncertainty and the importance of market

segmentation in such markets. Researchers have given much attention to potential

environmental moderators such as competitive intensity, market turbulence, and

technological turbulence, but they have given little attention to the actual mechanism

responsible for transforming market-oriented behavior into superior corporate

performance (Greenley, 1995a; Jaworski & Kohli, 1993; Slater & Narver, 1994a). Davis

Morris, and Allen indicated that environmental turbulence has implications for firms’

market orientation. Khandwalla (1977) suggested that marketing activities are a principal

mechanism for dealing with the uncertainty inherent in turbulent environments. Kohli

and Jaworski (1990) noted that, in a stable environment where customer types and

preferences do not change frequently over time, a market orientation would likely have a

limited impact on performance because minimal modification to a marketing mix is

required to serve such markets effectively.

Some researchers have maintained that only through marketing inputs can

perspectives regarding changing social, economic, political, and technological

environments be effectively utilized in the planning and development of corporate

strategy (Jain, 1983; Murray, 1984). Buzzell explained more concisely that, if firms must

change in order to compete, then marketing suddenly becomes an important function

(“Marketing: The New,” 1983). Houston (1986), Kohli and Jaworski (1990), and Narver

57

and Slater (1990) determined that firms examine the external environment prior to

adopting a highly market-oriented organizational behavior as the strategy of choice. Day

and Wensley (1988) indicated that environment might effect the necessary focus, either

on customers or competitors, when a firm has a market orientation. Kohli and Jaworski

(1990) also suggested that certain characteristics of the market environment might affect

the strength (or the importance) of the relationship between market orientation and

performance. Such environmental factors as turbulence in the market and technology

have been cited. Turbulence in the market and technology typically are generated by

heterogeneity in consumer preferences or by irresolution of industry technological

standards, respectively.

On the basis of the literature, two possible principal moderator effects of a

competitive environment on market orientation can be identified (Day & Wensley, 1988;

Kohli & Jaworski, 1990; Slater & Narver, 1999). First, in a competitive environment, a

low rate of market growth could affect the strength of the market orientation-performance

relationship (Kohli & Jaworski). According to Kohli and Jaworski, executives and

managers will assess carefully the expected benefits and the necessary resource

commitment and cost of increasing their businesses’ market orientation. These authors

identified four contexts in an “environmental moderator,” which are expected costs of

increasing or maintaining a market orientation. They noted that these costs could exceed

the expected benefits of a market orientation, and therefore may not be strongly related to

business performance. Jaworski and Kohli (1992) found that the environmental variables

of market turbulence, competitive intensity, and technological turbulence had no

moderating effect on the strength of the relationship between market orientation and

performance. Second, in a competitive environment, the number and power of

competitors could affect the focus of the external emphasis within a market orientation,

leading to a greater emphasis on either customer analysis relative to competitor analysis

or vice versa within a given magnitude of market orientation (Day & Wensley, 1988).

Pfeffer and Salancik (1978) stated that, when extensive, rapid, or adverse changes

characterize the market, managers tend to simplify the changes or selectively attend to

certain aspects of the changes. Day and Wensley indicated that these processes often

lead to adoption of either a customer- or competitor-focused market perspective. They

58

also stated that managers analyze the relative importance of customer or competitor to

their businesses’ ability to create and sustain superior value for customers.

Egeren and O’Connor (1998) noted that the greater the technological change in a

market, the more diverse will be the opportunities to create value for consumers. In this

situation, a firm would seek a stronger market orientation. Previous research had found a

positive relationship between market orientation and a high degree of turbulence (Kohli

& Jaworski, 1990; Slater & Narver, 1994a).

Perceived Environmental Uncertainty and Business Strategy Relationship

A market-oriented strategy takes into account environmental change. Changes in

the environment do more than create a need for entrepreneurial and marketing

orientations; they are the basis of these orientations (Davis & Morris, 1991). The

entrepreneurial firm becomes an agent of change instead of simply adapting to external

developments (Burgelman, 1984). Similarly, Zeithaml and Zeithaml (1984) suggested

that marketing be reconceptualized as a proactive effort whose aims are to effect and

manage change. Accordingly, the marketer would try to redefine the product and market

context within the organization rather than simply choosing a strategy within a given

environment.

Market turbulence is characterized by changes in consumers’ needs and

preferences. The firm does not need to adjust the marketing mix strategy in order to

respond efficiently to consumers’ behavior when consumers’ needs and preferences are

stable, so the firm might be a less market-oriented organization. Kohli and Jaworski

(1990) and Slater and Narver (1994) indicated that if the degree of consumers’

preferences is unstable over time and a firm does not respond to consumers’ needs in a

timely fashion, the firm’s performance may be adversely affected. Thus, the firm will

become a market-oriented organization when consumer preferences are unstable.

Therefore, turbulent preferences of consumers will influence the market orientation of a

firm. Jaworski and Kohli (1993) found that market turbulence has a positive effect on the

market orientation-performance relationship, but on the contrary Slater and Narver

showed a negative effect of market turbulence on this relationship.

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Diamantopoulos and Hart (1993a) found competitive intensity to be an important

environmental variable. In highly competitive business environments, customers tend to

be faced with several different options to satisfy their needs and wants. In such

competitive environments, firms tend to become more sensitive and responsive to the

needs of customers (Lusch & Laczniak, 1987). In a highly competitive market, the firm

should respond to consumers’ needs and preferences sensitively, but monopolistic or

oligopolistic markets may reduce the necessity to modify product and service strategies

for matching variable consumer preferences. Thus, a business that is not market-oriented

would be in peril of losing customers to competitors, causing market orientation to

become an important determinant of business performance. The company under a greater

competitive environment could become more market oriented than a company under a

lesser competitive environment (Kohli & Jaworski 1990; Slater & Narver 1994). Later

studies of Jaworski and Kohli (1993) and Slater and Narver (1994) showed, however, that

competitive intensity does not have a significant effect in the market orientation-

performance relationship.

Jaworski and Kohli (1993) searched for the moderating effect of the combination

of market turbulence, competitive intensity and technological turbulence on the

relationship between market orientation and business performance, but found no evidence

of these environments affecting this relationship. Pelham and Wilson (1996) found that

the degree of market orientation among small firms was not influenced by market

dynamism or competitive intensity. In other words, under certain conditions market

orientation is not critical. Singh (2003) found that the link between market orientation

and business performance was stronger when competitive intensity was high and market

dynamism was low.

The discussion above indicates somewhat mixed results on the effects of

perceived market turbulence and perceived competitive intensity on market-orientation

strategy. Some studies have shown positive effects of market turbulence and competitive

intensity on firms’ market orientation. Although some other studies have found results

that contradict those findings, yet another study (Jaworski & Kohli, 1993) was focused

more on determining whether market turbulence and competitive intensity, along with

technological turbulence, had moderating effects on the relationship between market

60

orientation and business performance. The presented study focuses instead on the direct

effects of market turbulence and competitive intensity on the four components of market

orientation and hypothesized the effects would be positive, partly on the basis of the

argument of Davis and Morris (1991) that changes in the environment do more than

create a need for entrepreneurial and marketing orientations; they are the basis of these

orientations. Thus, the first hypothesis is as follows.

Hypothesis 1: Perceived market turbulence and perceived competitive intensity

will have significant positive effects on each component of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination, and response

design, and response implementation).

Environment and Organizational Structure

Many studies have related the strategy-making process to environment and

organizational structure (Andersen, 2004; Grinyer, Yasai-Ardekani, & Al-Bazzaz, 1980;

Miller & Friesen, 1978, 1984; Mintzberg, 1973; Nwachukwu & Tsalikis, 1990/1991,

Okumus, 2003; Spanos & Prastacos, 2004). A significant amount of literature exists on

the relationship between the environment and structure (Burns & Stalker, 1961;

Lawrence & Lorsch, 1967), but few studies have addressed the influences of the

environment on structure (Preffer & Salancik, 1978). Other than the research by

Chandler (1962) and his followers, which was rather specialized, none has systematically

attempted to relate strategic content to process, structure, and environment. Barnard

(1938) was among the first to identify the system properties of organizations and their

interdependence with the environment. Dill (1958) defined the components of an

organization’s task environment and proposed a causal relationship in which this task

environment affects managerial independence. Since his investigation of two firms,

researchers have subsequently sought both to increase the sample sizes used to examine

this issue, expand on the causal effects of the environment on organizational structure,

and/or develop the definitions of environment and structure.

Terreberry (1968) stressed that, in order for an organization to continue to exist, it

must adapt to external forces. May Sammons of Fred Meyer Inc. indicated that

61

methodical change requires a balance of technology, organizational structure, cultural

factors, and procedures (Brooks, 1995). Woodward (1965) and Perrow (1967) added

technological determinism to the contingency idea. Galbraith (1973) associated

environment and technology by concentrating on the environmental information-

processing needs of the organization. Slevin and Covin (1997) analyzed the effects of a

company’s organizational structure and environmental context on the relationship

between that company’s dominant strategy-formation pattern and its sales growth rate.

They collected data from 112 manufacturing firms operating in 78 industries. The results

of data analysis indicated that planned strategies were positively related to sales growth

among firms having mechanistic structures and operating in hostile environments. On

the other hand, they found that among firms with organic structures sales growth and

operating in benign environments were even more positively related.

Researchers who have investigated organizational adaptation from a contingency

perspective became increasingly interested in the linkage between perceived

environmental uncertainty and structure (Duncan, 1972b; Hrebiniak & Snow, 1980;

Lawrence & Lorsch, 1967; Miles, Snow, & Pfeffer, 1974; Pugh, Hickson, Hinnings, &

Turner, 1969; Segal, 1974). Contingency theory suggests that differences in structure are

significantly related to the level of uncertainty and complexity that an organization faces.

The traditional view holds that the external environment has a considerable influence on

organizational structure. Pugh et al. (1969) stated, “The structure of an organization is

closely related to the context within which it functions, and much of the variation in

organization structure might be explained by contextual factors” (p. 91). The literature

has strongly supported this (Bourgeois, McAlliaster, & Mitchell, 1978; Hrebiniak &

Snow, 1980).

Uncertainty could be a result of technological requirements or limitations, or a

product of conditions in the technical/task environment. Under stable and well-

understood conditions, in situations requiring efficient execution or repetitive tasks,

mechanistic structure can be found. Organic structure would be found in the presence of

substantial uncertainty, in conditions involving innovation or adjustment to changing

circumstances; therefore, researchers attempting to explain coordination strategies have

looked beyond organizational boundaries. Yasai-Ardekani and Haug (1997) also noted

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that organizations that operate in highly competitive environments would tend to develop

strategic planning processes that emphasize great flexibility in their structures; high

levels of competitive pressure may be unsuitable to formalized structuring of planning

processes.

Environment as an independent variable and organizational structure and process

as dependent variables are discussed extensively in the literature. For instance, studies

have focused on aspects of an organization’s environment, such as the task environment

(Dill, 1958; Thompson, 1967), the domain of an organization (Levine & White, 1961),

critical constituencies (Holden, 1966), the enacted environment (Weick, 1969), internal

and external environments (Duncan, 1972b), general types of environment (Emery &

Trist, 1965), and general and specific environments (Hall, 1972). Terreberry (1968)

discussed organizations’ dependence on their environments in detail, and several studies

have examined the relationships between organizational environment and structure (Child,

1972; Inkson, Pugh, & Hickson, 1970; Pugh, Hickson, Hinings, & Turner,1969;

Thompson, 1967). Research and theory also have focused on the relationships between

organizational environment, organizational structure, and environmental uncertainty

perceived by organizational decision makers.

The linkage between perceived environmental uncertainty and organizational

structure has drawn considerable attention from researchers who have investigated

organizational adaptation from a contingency perspective (Duncan, 1972b; Hrebiniak &

Snow, 1980; Lawrence & Lorsch, 1967; Miles, Snow, & Pfeffer, 1974; Pugh, Hickson,

Hinnings, & Turner, 1969; Segal, 1974). The traditional view assumes that the external

environment has a considerable influence on organizational structure. Pugh, Hickson,

Hinnings, and Turner (1974) express this perspective. They proposed that:

The structure of an organization is closely related to the context within which it

functions, and much of the variation in organization structure might be explained

by contextual factors (p. 91).

Research findings have largely supported this assumption (Bourgeois, McAllister,

& Mitchell, 1978; Hrebiniak & Snow, 1980). Studies of relationships between

63

environment and structure have typically focused on the effects of environmental

uncertainty on the structures of organizations. The hypotheses of these studies have

linked greater environmental uncertainty to higher levels of structural complexity, low

formality, and greater decentralization of decision making (Downey, Hellriegel, &

Slocum, 1975; Duncan, 1972b; Lawrence & Lorsch, 1967). Although such hypothetical

relationships may truly reflect organizational responses to perceived environmental

uncertainty in munificent conditions, different responses may be expected in conditions

of scarcity. Uncertainty has been identified as a key variable in explaining organizational

behavior (March & Simon, 1958). Several studies have indicated that environmental

uncertainty exerts considerable influence on organizational structures and processes

(Huber, O’Connell, & Cummings, 1975; Hurber & Daft, 1987). Dependency theory

suggests that organizations structure their external relationships in response to the

uncertainty resulting from dependence on elements in the environment (Pfeffer &

Salancik, 1978). Burns and Stalker (1961) and Lawrence and Lorsch (1967) argued that

organizations structure themselves internally in response to environmental uncertainty.

The level of environmental turbulence is critical to survival and growth of companies. It

is particularly important in the case of small and medium sized enterprises (SMEs)

because these companies are presumed to be sensitive to changes in business conditions.

Despite the fact that SMEs have the ability to be flexible in terms of organizational

structure and that they are responsive to environmental changes, they are also challenged

by unfavorable and hostile environments (Covin & Slevin, 1989). On the basis of the

literature discussed above, it was hypothesized that perceived market turbulence and

perceived competitive intensity would positively affect each component of organicity of

organizational structure (i.e., formalization, centralization, and specialization). Specific

hypothesis is as follows.


will have significant positive effects on organicity of organizational structure (i.e.,

will be lead to more specialization and less formalization and centralization).

64

The preceding discussion focused on the linkage between environment and

business strategy (including market orientation). The following sections link

environment with pairs of constructs that are used in the present study.

Environment and Firm Performance

External environments, such as the strength of the economy, market growth,

market turbulence, and competitive intensity, have been found to be factors which have

impacts on business performance (Cooper, 1979; Miller & Freisen, 1983; Miller &

Toulouse, 1986; Peterson, 1985). Carilin and Horvath (1999) tested the impact of

competition on performance. Aghion and Schankerman (2000) developed a simple

model to investigate the effects of competition on firms’ productivity and welfare in

“competitive” industries. Nickell, Nicolotsas, and Dryen (1997) showed that firm

performance is positively related to the presence of a majority shareholder and to the

degree of competition in the market. Other researchers observed that enterprises present

in markets where competition is relatively intense are characterized by a high

productivity growth rate (Januszewsik, Koke, & Winter, 1999). Power and Reid (n.d)

studied the performance of long-lived small firms in relation to market turbulence and

flexibility. Their measure of market turbulence had a negative effect on firm

performance. They concluded that turbulence had a larger impact on performance than

did firm flexibility in adjusting to change, but compared to the unambiguous effect of

flexibility, the effect of turbulence on performance was less clear. In general, a large

number of organizational changes would reflect a high degree of turbulence and vice

versa; however, the changes do not automatically imply improved performance.

Reid and Smith (2000) found that both poorly performing (“stagnant”) firms and

high performing (“adaptive”) firms have relatively active and flexible policies. Whereas

stagnant firms frequently adopt organizational changes to counteract the consequences of

inflexibility in terms of poor performance, adaptive firms frequently adopt organizational

changes to promote growth and other aspects of improved performance. Markusen and

Teitz (1985) addressed the underlying dynamics of the competitive environment in which

mature small firms operate; they found that the markets of such firms were turbulent.

Some researchers have failed to show effects of strategic alignment on the financial

65

performance of a firm because they did not consider contextual variables, such as the

environment (Chan & Huff, 1993; Chan, Huff, Barclay, & Duncan, 1997). Sawyer,

McGee, and Peterson (2003) developed a model of the effects of perceived uncertainty on

personal networking activities of small business owners-managers and the subsequent

impact on the financial performance of their firms. On the basis of the literature

discussed above, perceived market turbulence and perceived competitive intensity were

hypothesized to have positive effects on the degree of satisfaction with store performance.

The specific hypotheses follow.

Hypothesis 3: Perceived market turbulence and perceived competitive

intensity will have significant positive effects on the degree of satisfaction with

store performance.

Hypothesis 3-a: Perceived market turbulence and perceived competitive

intensity will have significant positive effects on the degree of satisfaction

with store performance relative to other stores in the industry.

Hypothesis 3-b: Perceived market turbulence and perceived

competitive intensity will have significant positive effects on the

degree of satisfaction with store performance relative to key

competitors.

Relationship Among Environment, Business Strategy, and Organizational Structure

Chandler (1962) noted that, although many studies address strategy and structure,

it is clear that some strategies and structures are more effective than others, depending on

the situation. Schaffer (1986) stated that the “process of matching structure, strategy, and

environment is the basis of the ‘strategic choice’ model of organizations” (p. 76). He

also posited that, because of the dynamics of the market environment, the choice of

strategy and structure is not a one-time incident. A general concept in strategic

management is that managers manage changes in their firms’ external environments

through choosing appropriate structures and designing matching strategies (Andrews,

66

1971; Ansoff, 1979; Schendel & Hofer, 1979). Chandler suggested that a dynamic

environment would effect a flexible organizational structure and that a highly stable

environment would not need the same degree of flexibility. Organizations tend to adopt

structures and strategic postures as a response to the uncertainty and hostility within their

environments (Khandwalla, 1972, 1976/1977). Özsomer, Calantone, and Benedetto

(1997) stated that changes in the environment appear to shape the firm’s ability to

respond to them by helping to define the strategic postures and structures the firm adopts.

An internal factor is the manner in which organizations gather and process information

about their external environments (Daft & Macintosh, 1981; Katz & Kahn, 1978; Morgan,

1986). It is costly to obtain the information about the environment that is needed to find

out whether a change is required in strategy or structure.

Relationship Among Environment, Business Strategy, and Firm Performance

Empirical studies in strategic management have examined the firm-level strategy-

performance relationship (Capon, Farley, & Hoening, 1990; Husseini & O’Brien, 2004;

Jennings, Rajaratnam, & Lawrence, 2003; Parnell, 2002; Sharama, 2004; Sinkovits &

Roath, 2004). Many of these studies have investigated the role played by the

environment in the strategy-performance relationship, and theorists have postulated the

effects of environment on that relationship.

Researchers have indicated that external environmental factors, such as market

dynamism and competitive intensity, affect the market orientation and performance

relationship (Egeren, Trinh, & O’Connor, 2000; Grewal & Tansuhaj, 2001; Harris, 2001;

Kirca, Jayachandran, & Bearden, 2005; Pulendran, Speed, & Widing, 2000; Slater &

Narver, 1994a; Greenley, 1995b) and a firm’s market-oriented actions (Dianmontopoulos

& Hart, 1993a; Ottesen & Gronhaug, 2004; Pelham & Wilson, 1996). Although it has

been demonstrated that market orientation can improve business performance, it has also

been acknowledged that environmental uncertainties might affect the postulated

relationship (Day & Wensley, 1988; Kohli & Jaworski, 1990). Carpano, Chrisman, and

Roth (1994) stated that, depending on the competitive situation that firms face, the

performance of firms following a particular strategy can vary. Others have added that, in

certain environments, certain strategies would lead to significantly higher performance

67

than other strategies (Belderbos & Sleuwaegen, 2005; Powell, 2003; Williamson, Jenkins,

Cooke, & Moreton, 2004). The contingency theory of business strategy, which was first

proposed by Hofer (1975), supports these relationships noted by Carpano, Chrisman, and

Roth (1994) and the other cited authors. The moderator effects of environmental

variables on the link between market orientation and business performance are presented

in Table 2.

Relationship Among Environment, Organizational Structure, and Firm Performance

Peterson (1985) contended that industry structure and environmental dimensions

significantly influence small-firm performance. Khandwalla (1977) examined, with a

sample of 103 large Canadian firms, the relationships among structure, environmental

context, and firm performance. He found that high-performing firms in industries

characterized by intense, diverse, shifting competitive pressures adopted organic

structures, and high-performing firms in industries with minimal competitive pressure

adopted more mechanistic structures. It may be inadvisable, however, to generalize to

small-firm settings the findings of research based on samples of large firms.

Eisenhardt and Bourgeois (1988) found that, when power is centralized in firms

that operate in rapidly changing environments, low levels of strategic decision rationality

resulted in good economic performance; strategic decision rationality was measured in

terms of political activity within firms’ top management teams. Hage and Aiken (1970)

found that power centralization is a critical dimension of organizational structure.

Relationship Among Environment, Business Strategy, Organizational Structure, and Firm

Performance

This section reviews literature that takes a more inclusive approach than that cited

above in linking environment with business strategy, organizational structure, and firm

performance. Many researchers have proposed linkages among environmental

characteristics and firms’ organizational strategy, structure, size, and performance

outcomes (Andrews, 1980; Blau & Schoenherr, 1971; Burns & Stalker, 1961; Grinyer &

Yasai-Ardekani, 1981; Hofer & Schendel, 1978; Lawrence & Lorsch, 1969; Prescott,

1986; Pugh, Hickson, Hinings, & Turner, 1969; Thompson, 1967). Early work addressed

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Table 2

Research Results on Moderators of the Link Between Market Orientation and Performance

Authors

Moderating Effect

Performance Measure

Market Turbulence

Diamantopoulos & Hart (1993a)

Mixed

Performance

Kohli & Jaworski (1993) No Performance

Slater & Narver (1994a) Yes Return on Assets

Greenley (1995a) Yes Return on Investment

Appiah-Adu (1997) Yes Return on Investment

Appiach-Adu (1998) Yes Return on Investment

Singh (1998) Yes Return on Investment

Appiah-Adu & Singh (1998) No Return on Investment

Tay & Morgan (2002) No Business Performance


Jaworski & Kohli (1993)

No

Performance

Diamantopoulos & Hart (1993a) Yes Sales Growth

Slater & Narver (1994a) No Performance

Atuahene-Gima (1995) Yes New Product Success

Bhuian (1996) Yes Organizational Performance

Langerak, Nijssen, Droogenbroeck, &

Delissen (1996)

Yes Competitive Advantage

Appiah-Adu (1997) Yes New Product Success

Appiah-Adu (1998) Yes Sales Growth

Singh (1998) Yes Sales Growth

Grewal & Tansuhaj (2001) Yes After Crisis

Tay & Morgan (2002) No Business Performance

Singh (2003)

Yes Return on Investment

69

the simultaneous relationships among strategy, structure, and environmental variables

(Miller & Friesen, 1978). Miller and Toulous (1986) suggested that environment is the

main variable among several contextual variables that measure the appropriateness of

strategies and structure. Miller (1986) argued that relationships between strategy and

structure cannot be separated from their context. Many investigations have attempted to

identify linkages among environmental conditions, organization size, strategy, and

economic performance (Fahey & Christensen, 1986); however, few have examined those

linkages in a systematic manner.

Much research has been concerned with perceptions of environmental uncertainty

and their linkages with strategy, structure, and performance (Bourgeois, 1985; Dess &

Origer, 1987; Miller, 1987; 1988; Tung, 1979). Pennings (1975) found no relationships

among perceived environmental uncertainty, performance, and structure. Aldag and

Storey (1975) determined that firms with the same degree of perceived uncertainty could

have divergent performance outcomes and that externally induced uncertainty appeared

to require flexibility, whereas internally induced uncertainty could be reduced by

heightened structure.

Business Strategy

Business Strategy and Organizational Structure

This section links the construct of business strategy to organizational structure,

with an emphasis on organic organizational structure. The relationships between strategy

and structure have received much attention in the literature. Chandler (1962) found that

structure follows strategy. This finding was supported by the results of the work of other

researchers (Channon, 1973; Miles & Snow, 1978; Miller & Friesen, 1978, 1980, 1983;

Mintzburg, 1973; Parthasarthy & Sethi, 1991; Rumelt, 1974). Mintzberg (1979)

concluded that organizational effectiveness results when a match exists between an

organization’s strategy and its structure. Unfortunately, however, researchers who have

characterized strategy have largely ignored the relationship between strategy and

structure. Many empirical analyses have failed to consider the structural dimensions of

70

the relationships between environment and strategy (Hambrick, 1983a, 1983c, 1985;

Hofer, 1975; Jauch, Osborn, & Glueck, 1980; Miller & Friesen, 1986); however,

characterizations of business strategies have moved toward detailed examinations of the

relationships of strategy to both its structural and environmental contexts (Miller, 1986;

Porter, 1980; Venkatraman & Camillus, 1984).

Traditional contingency theorists argue that innovation, and the uncertain

environments that seem to necessitate it, require organic (Burns & Stalker, 1961),

decentralized, differentiated (Lawrence & Lorsch, 1967), and intensively integrated

(Galbraith, 1973; Thompson, 1967) structure. Traditional contingency theorists see

strategies as necessary responses to environments, rather than as influences on

environments (Child, 1972). The theorists have taken performance to be a function of the

match between organization and environment, without explicitly considering strategy.

Bourgeois (1980b), Child (1972), Hrebiniak and Joyce (1985), and Lenz (1981)

attempted to ascertain the impact of strategic choice on environment and structure in

order to avoid determinism; however, Chandler (1962), Channon (1973), Rumelt (1974),

and others analyzed the relationships between only strategy and structure.

Market-orientation strategy and organicity of organizational structure. Lear

(1963) was one of the first researchers to recognize organizational structure as a potential

obstacle to improving levels of market orientation. He argued that, whereas a market-

oriented approach is suited to the needs, wants, and demands of customers, the approach

induces “massive complications” in terms of organizational structure. He, therefore,

contended that the efficiency demands of organizational structure can restrict the level of

market orientation which the organization can achieve. At a more micro-level, Harris

(1998) reinforced these ideas through his finding that efficient task allocation of retail

stores acted as an impediment to developing market orientation.

Lichtenthal and Wilson (1992) adopted a sociological structural perspective and

applied it to an analysis of market-orientation development. They found that structural

resistance had two main forms. First, the development of high levels of market

orientation was significantly hindered by the lack of appropriate complementary

relationships. Secondly, structural distance influenced the potential and speed of market-

oriented change to the extent that structurally distinct organizational components would

71

be unaffected by efforts to change. The theoretical literature posits that three dimensions

of organization structure may be associated with market orientation: formalization;

centralization; and specialization (Walker & Ruekert, 1987; Kohli & Jaworski, 1990).

Jaworski and Kohli (1993) emphasized that certain types of structure can impede market

orientation and that organization structure is part of a system which is antecedent to

market orientation. They identified formalization, centralization and departmentalization

as elements, or characteristics, of organizational structure and employed measures of

those three elements. According to Hall, Haas, and Johnson (1967), formalization is the

degree to which rules define roles, authority relations, communications, norms and

sanctions, and procedures. Also, centralization involves the converse of the delegation of

decision-making authority throughout an organization (Aiken & Hage, 1968).

Departmentalization refers to the number of departments into which organizational

activities are separated and isolated (Jaworski & Kohli).

Significant research has found a negative effect of certain types of organizational

structure on the adoption of a market orientation (Deshpandé & Zaltman, 1982; Levitt,

1969; Stampfl, 1978). Jaworski and Kohli (1990) suggested that the quality of market

orientation is influenced by an organization’s ability to generate, disseminate, and

respond to information on markets. Deshpandé and Zaltman (1982) and Baligh and

Burton (1979) indicated that the structure of an organization establishes the

organization’s ability to respond to information on markets. Deshpandé and Zaltman

(1982), Hage and Aiken (1970), and Zaltman, Duncan, and Holbek (1973) noted that

formalization and centralization are oppositely related to information utilization.

Jaworski and Kohli (1996) found that centralization of structure impeded market-oriented

change. Whereas a centralized structure clearly facilitates efficient decision making, the

remoteness and comparative isolation of centralized decision makers appears to delay

market-responsive or innovative change.

Some researchers link the extent of structural formalization negatively to market-

orientation levels (Harris, 2000; Jaworksi & Kohli, 1993; Lear, 1963; Lichtenthal &

Wilson, 1992). In this context, information utilization corresponds to designing programs

in response to market intelligence; therefore, it appears that formalization and

centralization are inversely related to an organization’s responsiveness (Stampfl, 1978).

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Jaworski and Kohli (1993) posited that structural formalization aids the organizational

processes involved in the generation and dissemination of market intelligence. Similarly,

Lundstrom (1976) and Levitt (1969) discussed departmentalization as a barrier to

communication and, therefore, to market-intelligence dissemination. Deshpandè and

Zaltman (1982) argued that formalization could have a negative impact on market

orientation if the emphasis on rules makes the organization less adaptive to the

environment; however, it could have a positive impact on market orientation if the rules

enhance customer satisfaction. Tay and Morgan (2002) suggested that the specialization

and market orientation of the firm are positively linked for two reasons: (1) specialization

affords the firm a finely grained view of its market by focusing specialists’ attention on

specific aspects of the market environment, and (2) by providing great access to

knowledgeable marketers, specialization allows the firm to respond effectively to market

changes.

Many researchers have indicated that organizational structure might not affect the

three components of market orientation (intelligence generation, intelligence

dissemination, responsiveness) in the same way. Kohli and Jaworski (1990) suggested

that market orientation might be viewed as a form of innovative behavior because the

development and implementation of a market orientation essentially involves doing

something new or different in response to market conditions. Zaltman, Duncan, and

Holbek (1973) argued that organizational dimensions, such as formalization,

centralization, and departmentalization, might have different effects on the two stages of

innovative behavior, which are the initiation stage and the implementation stage. The

initiation stage is the stage of awareness and decision making, and the implementation

stage carries out the decision (Zaltman, Duncan, & Holbek). These researchers suggested

that formalization, centralization, and departmentalization may be inversely related to

market-intelligence generation and dissemination and to response design, but positively

related to response implementation.

Jaworski and Kohli (1993) noted that formalization, centralization, and

departmentalization might slow down innovative behavior, but improve the

implementation stage of innovative behavior. According to their results, significant and

positive interdepartmental connections influenced market orientation, but formalization,

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centralization, and departmentalization had no effect on market orientation. Kohli and

Jaworski (1990) proposed that greater departmentalization, formalization and

centralization lead to lower intelligence generation and dissemination and greater

response to intelligence. Generally, they found that connectedness supports a market

orientation and that centralization serves as a barrier to a market orientation. Neither

formalization nor departmentalization was found to significantly impact a market

orientation. Selnes, Jaworksi, and Kohli (1996) extended the Jaworski and Kohli (1993)

study and found that neither centralization nor formalization was significantly related to

market orientation. Harris (2000) hypothesized centralization and formalization as

having negative relationships with market orientation, but his results supported only the

negative relationship between centralization and market orientation. Matsuno, Mentzer,

and Ozomer (2002) hypothesized negative antecedent relationships between

formalization, centralization, and departmentalization and market orientation. They

found that the identified structural paths from formalization and centralization to market

orientation were non-significant. The path from departmentalization to market

orientation was found to be negative and significant. Research of significance found a

negative effect of organizational structure on the adoption of market orientation

(Deshpandé & Zaltman, 1982; Levitt, 1969; Stamfl, 1978). Jaworski and Kohli (1990)

suggested that the quality of market orientation is influenced by an organization’s ability

to generate, disseminate, and respond to information on markets. Deshpandé and

Zaltman (1982) and Baligh and Burton (1979) contended that the structure of an

organization establishes the organization’s ability to respond to information on markets.

Jaworski and Kohli (1993) studied internal antecedents to market orientation, including

organizational structure.

The present study focuses on South Korean apparel retail stores, which tend to

have a high level of centralization and low levels of formalization, departmentalization,

and control systems. Korean companies traditionally have hierarchical systems and a

high centralization with authority concentrated in senior levels (Kim, 2005). Pelham and

Wilson (1996) indicated that, as managers increase the levels of formalization,

differentiation in structure, decentralization, and control systems in their companies, they

should also increase the levels of market-information gathering and dissemination.

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Deshpandé and Webster (1989) tested for differences in business performance among a

sample of Japanese firms on the basis of four culture typologies–clan, adhocracy,

hierarchy, and market–and found that performance ranked from best to worst according

to the following types of corporate culture: clan, adhocracy, hierarchy, and market. In a

competitive market environment, it is expected that a firm’s degree of market orientation

will also vary according to the category of culture. According to Deshpandé et al. (1993)

model, the hierarchical culture, with its focus on smooth operations and predictability in a

bureaucratic organization, is likely to lead to a low level of market orientation. On the

hand, the adhocracy culture, with its emphasis on entrepreneurship, innovation, and risk

taking is expected to lead to a relatively higher degree of market orientation than would

clan culture. The clan culture, which stresses tradition, loyalty, and internal maintenance,

could result in a lack of attention to changing market needs and in turn, could lead to a

low degree of market orientation. Appiah-Adu and Blankson (1998) found that the

hierarchical organization was the least market oriented. They also found that market,

adhocracy, and clan cultures are positively associated with market orientation, whereas

hierarchical culture is negatively associated. The above is the basis for the hypothesis in

the present study that market-orientation strategy will positively affect organicity of

organizational structure.

Hypothesis 4: The four components of market-orientation strategy (i.e.,

intelligence generation, intelligence dissemination, response design, and response

implementation) will have significant positive effects on organicity of

organizational structure (i.e., will lead to more specialization and less

formalization and centralization).

Business Strategy and Firm Performance

During the 1990s, a body of research focused on the concept of market orientation

and its impact upon business performance (Diamantopoulos & Hart, 1993b; Greenley,

1995b; Jaworski & Kohli, 1993; Kohli & Jaworski, 1990; Narver & Slater, 1990; Pitt,

Caruana, & Berthon, 1996; Ruekert, 1992). Kohli and Jaworski (1990) wrote, “A market

orientation appears to provide a unifying focus for the efforts and projects of individuals

75

and departments within the organizations, thereby leading to superior performance” (p.

13). This idea has been refined and built upon, measures of the market-orientation

construct developed, and a strong relationship demonstrated between market orientation

and specific measures of business performance, including profitability, sales growth, and

new-product success (Jaworski & Kohli, 1993; Narver & Slater, 1990; Slater & Narver,

1994b). However, some research on the relationship between market orientation and

profitability has produced mixed results. How a market orientation influences

profitability is not clear. Jaworski and Kohli found no significant relationship between

market orientation and market share or profit and strategic business units’ return on

equity. On the other hand, their study described a significant relationship between

market orientation and overall performance. Narver and Slater (1990) also found mixed

results: a positive relationship between market orientation and return on investment for

specialty-product strategic business units (SBUs) and a negative relationship for

commodity-product SBUs. Esslemont and Lewis (1991) stated that marketers had long

assumed a positive relationship between being market oriented and good company

performance; for example, Kotler (1991) states that a company operating according to the

marketing concept “creates profit through customer satisfaction” (p. 17).

Recently, assumptions have been subjected to serious empirical study. Jaworski

and Kohli commented in 1996, “Over the past ten years, significant progress has been

made in the market orientation area. Scholarly attention has focused on the definition,

measurement and impact of a market orientation” (p. 119). Since 1990, a substantial

number of studies have examined the relationship between market orientation and

company performance. The external and internal environments have been motivating

factors for the continued investigation into the relationship between firm performance

and marketing implementation through market-oriented behaviors (Pelham & Wilson,

1996).

The significance of including market orientation in an integrated model of

determinants of performance is highlighted by several research findings that indicate a

notable influence of market orientation on customer orientation (Siguaw, Brown, &

Widing, 1994), organizational commitment, and esprit de corps (Jaworski & Kohli, 1993).

Previous research typically had predicted a positive relationship between market

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orientation and performance on the assumption that a market orientation provides a firm

with a better understanding of its environment and customers, which ultimately leads to

improved customer satisfaction. Empirical studies have offered results that suggest

positive relationships between market orientation and managers’ perceptions of overall

firm performance (Jaworski & Kohli, 1993), of financial performance (Pelham & Wilson,

1996; Slater & Narver, 1994a), of sales growth (Slater & Narver, 1994a), and of new-

product performance (Atuahene-Gima, 1995; Pelham & Wilson, 1996; Slater & Narver,

1994a). Moreover, a positive relationship has been established between market

orientation and financially based performance measures, such as relative return on assets

(Narver & Slater, 1990), long-run financial performance (Ruekert, 1992), sales growth

(Pitt et al., 1996; Slater & Narver, 1994a), and profitability (Pelham & Wilson, 1996; Pitt

et al., 1996; Slater & Narver, 1994a). Narver and Slater (1990) found a positive

relationship between market orientation and return on assets (ROA), and Slater and

Narver (1994a) found a positive relationship between market orientation and sales growth.

They found that market orientation (controlling for market environment) significantly

affected return on assets. Chang and Chen (1998) and Caruana, Gauci, and Ferry (1995)

also corroborated these findings in studies of Taiwanese and Maltese firms.

In an investigation of the market orientation-performance relationship in the U.K.,

Malta, Pitt, Caruana, and Barton (1996) concluded that the hypothesized positive

association between market orientation and profitability held, regardless of cultural

context and level of economic development. Pelham and Wilson’s (1996) study

established similar findings using a sample of small U.S. firms. Jaworski and Kohli

(1993) found a positive relationship between market orientation and a “judgmental”

measure of business performance, which is a measure based on respondents’ assessments

of their firms’ performance as well as their firms’ performance relative to competitors;

however, they found no significant relationship between market orientation and objective

measures of business performance in terms of market share and return on equity.

Deshpandé, Farley, and Webster (1993) found that businesses’ customer

orientation, as reported by customers, was positively related to business performance, as

measured on a four-item scale. The scale combined three-point scale evaluations of

relative profitability, size, market share, and growth. The authors did not find a similar

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relationship between businesses’ customer orientation, as reported by sellers, and the

four-item performance scale.

Analysis of the effect of market orientation on the key dimensions of business

performance is clearly warranted. Empirical evidence from the U.S. provides strong

support for a positive relationship between market orientation and performance (Jaworski

& Kohli, 1993; Narver & Slater, 1990; Slater & Narver, 1994a; Rukert, 1992;. Studies

undertaken in other countries, especially the U.K., provide mixed findings. Pitt et al.

(1996) found a positive link between market orientation and performance;

Diamantopoulos and Hart (1993a) identified a weak association; and Greenley (1995b)

found no direct linkage. Even though the last two studies did not indicate a positive

relationship between market orientation and performance, the two studies identified

possible moderating influences on the relationship. In the U.K. context, empirical

findings appear to support the unreliability of the assertion that market orientation makes

for better business performance. Based on these findings, Appiah-Adu (1998) suggested

that further empirical research was required to establish the impact of a market

orientation upon firm performance.

Raju, Lonial, and Gupta (1995) noted that an increased market orientation could

be expected to result in higher performance because it facilitates clarity of focus and

vision in an organization’s strategy, generates pride in belonging to an organization, and

generates commitment. Nevertheless, several analyses do not support a direct, positive

relationship between performance and market orientation; for example, in two analyses

that used objective measures of performance as the dependent variable, market

orientation was not related to a firm’s actual market share (Jaworski & Kohli, 1993) or

actual net income growth (Han, Kim, & Srivastava, 1998). Using perceptual measures of

performance, Atuahene-Gima (1996) reported no direct effect of market orientation on

perceived new-product market performance, and Pelham and Wilson (1996) reported no

direct effect of market orientation on perceived market share or perceived growth in

market share. Using a sample of commodity businesses, Narver and Slater (1990)

reported a negative coefficient on market orientation, and a positive coefficient on market

orientation squared, which suggests a curvilinear relationship between market orientation

and perceived financial performance.

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Over the decades, marketing scholars and managers have continued to argue that

a business that improves its market orientation would enhance its performance, although

small businesses have a propensity for a low effect of market orientation on performance

(Kotler & Andreasen, 1987; Levitt, 1960). It has been suggested, however, that market

orientation is likely to be a vital factor for the success of small firms because they usually

lack the financial means to pursue other sources of business profitability, such as research

and development, competitive advantage, low-cost leadership, or skilled staff to develop

effective planning strategies (Pelham & Wilson, 1996).

Studies of manufacturing organizations have supported a positive relationship

between the degree of market orientation and various performance criteria, including

sales growth, new-product success, and return on investment or capital. Nevertheless,

little empirical evidence exists on the performance of companies that may have similar

degrees but different forms of market orientation. Kumar, Subramanian, and Yauger

(1997) suggested that the assumption that some type of relative emphasis on, or a

reasonably balanced form of, market orientation will lead to superior performance is a

question open to empirical research. They commented that, even if one would not expect

to find a statistically significant effect between any given form of market orientation and

all performance measures, it is reasonable to believe that specific forms of market

orientation may be associated with superior performance on specific criteria.

Numerous researchers have examined the relationship between market orientation

and company performance. Ngai and Ellis (1998) provided a summary of these studies

from 1990 to early 1999. Some of the extant literature has reported a direct positive

relationship between the degree of market orientation and performance. For many years,

it has been widely assumed that market orientation is related to better company

performance. McKitterick (1957) suggested that this relationship had a theoretical basis.

He emphasized that, in a competitive environment, organizations must be highly

conscious and responsive to customer needs, or else rivals will devise products to

accommodate those needs and capture their business. This assertion is also based on the

argument of Aaker (1988) and Day and Wensley (1988) that market orientation requires

the efforts of a firm’s employees and provides a sustainable competitive advantage

through the ability to develop long-term superior value for its customers. The notion of

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sustainable competitive advantage implies an expectation that market orientation can

offer a firm the potential to outperform its competitors. A firm’s greater understanding of

customers and competitors can result in more effective decision making, leading to

higher sales growth (Pelham & Wilson, 1996). The tracking of customer satisfaction by a

market-oriented firm and the firm’s timely response to the information generated would

result in higher customer retention, which could positively influence sales growth.

Narver and Slater (1990) explained this view further, stating that if a business has a

strong market orientation, great effort will be expended to offer superior value to buyers,

and so there will be a greater possibility that superior value will be offered; therefore, the

highly market-oriented business will enjoy an advantage over competition in the

perception of customers, which will lead to better profitability. Moreover, Slater and

Narver (1994b) reported a positive relationship between market orientation and sales

growth (controlling for market environment). Pitt et al. (1996) and Caruana, Gauci, and

Ferry (1995), who both treated sales growth as one component of their three performance

measures, established a similar link. On the basis of these ideas and findings, a market-

orientation strategy was hypothesized to have a positive effect on store performance in

the present study.

Hypothesis 5: The four components of market-orientation strategy (i.e.,


implementation) will have significant positive effects on the degree of satisfaction

with store performance.

Hypothesis 5-a: The four components of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination,

response design, and response implementation) will have

significant positive effects on the degree of satisfaction with store

performance relative to other stores in the industry.

Hypothesis 5-b: The four components of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination,

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response design, and response implementation) will have significant

positive effects on the degree of satisfaction with store performance

relative to key competitors.

Relationship Among Business Strategy, Organizational Structure, and Firm Performance

In this section, the construct of firm performance is added to the linkage between

business strategy and organizational structure. This strategy-structure-performance

assumption has received much empirical attention (Carpano & Shao, 1994; Dass &

Ozment, 1998; Davis, Brannon, Zinn, & Mor, 2001; Pierce, 2003; Puerto, 1999; Van

Clieaf, 1992). A key argument in the conceptual literature on organizational change and

adaptation is that managers cope with changes through the choice of an appropriate

strategy and the design of a matching structure in their firms’ external environment

(Andrews, 1971). Chakravarthy (1982) argued that most favorable strategy-structure

matches produce superior performance. Further, he suggested that performance would be

different for organizations having different levels of adaptation. He proposed that

organizations would have specific strategy and structure alignments and that performance

would differ among these organizations in each adaptive state. He also argued that

organizations with the best possible strategy-structure match would have superior

performance when compared to other organizations in the same adaptive state. He noted

that the level of the strategy-structure match depends on the resources available to the

organization and the adaptive ability of its managers.

Other theorists have provided insights that also explain why performance

differences would occur between organizations with an optimal strategy-structure and

those without. March and Simon (1958) explained that some organizations reach a

satisfactory level of performance, though not the maximum level for their industry,

because of inability to reach the maximum. Organizations sometimes try to perform at a

level that satisfies at least the minimum expectations that their strategic constituencies

impose on them (Hall, 1975).

Pelham and Wilson’s (1999) development model is based on the management

literature and, specifically, on the conventional theories involving industrial,

organizational, and business policy. The model defines the expected relationships

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between small-firm performance and market structure, organizational structure, and firm

strategy. They illustrated the relationships predicted by the management literature;

however, management theories do not agree on the direction of

influence of these variables.

Park and Mason (1990) demonstrated a weak fit of existing models of

performance to observed relationships among business strategy, organizational structure,

and firm performance. They indicated that this is at least partly because the models do not

all take into account some influences on these three variables. Pelham and Wilson’s

(1999) model expands on conventional management theory on firm performance by

taking a more a comprehensive view that incorporates market orientation, along with

other potential determinants of performance that the conventional theory does not address.

Their model applies to small firms in particular. It employs Narver and Slater’s

definition of market orientation: “organization culture…that most effectively and

efficiently creates the necessary behaviors for the creation of superior value for buyers

and, thus, superior performance for the business” (as cited in Pelham & Wilson, 1999, p.

21). The model also incorporates firm-structure variables, including formalization,

coordination, and control systems, based on Robinson and Pearce’s (1984) finding that

formal planning has a strong positive impact on performance.

Top Management

Top Management and the Environment

This section discusses literature that links top management’s adaptability to a

changing environment, about which the managers are uncertain. Özsomer, Calantone,

and Benedetto (1997) stated that a key role of management is to deploy resources

available to the firm in a way that minimizes the impact of environmental threats. A firm

interprets its environment and adapts its strategy to respond to those elements of the

environment that it believes are fixed (Bourgeois, 1985; Porter, 1980, 1985). Smart and

Vertinsky (1984) indicated that it is important to study the nature of human perception in

the evaluation of environmental uncertainty. Weick (1969) noted that individual

perceptions need not correspond to any objective reality. Managers will “enact” an

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environment that is consistent with their psychological mind-set. An environment that

one organization perceives as simple, static, and having little uncertainty may be

perceived by another organization as complex, dynamic, and having a high degree of

uncertainty. Organizations and different parts of the same organization will respond

differently to an identical environment (Starbuck, 1973).

Environments are neither certain nor uncertain in themselves, but are simply

perceived differently by representatives of organizations (Achrol, Reve, & Stern, 1983;

Pfeffer & Salanak, 1978). Uncertainty, complexity, and other factors are not constant

features of a firm’s environment; rather, they are dependent on the prior beliefs of

individual organization members (Starbuck, 1973). Individual tolerances for ambiguity

and uncertainty thus become critical factors in determining organizational responses to

environmental stimuli (Smart & Vertinsky, 1984).

Managers’ perceptions of environmental conditions may play a key role in the

process of structural adaptation. Aldrich and Pfeffer (1976) argued that some

environments may severely constrain managerial choices and that managers must

correctly perceive the nature and dictates of those environments. Hambrick (1982)

discussed the central role of environmental scanning and managerial perceptions of the

environment in strategy planning. Pelham (1999) noted that a market-oriented firm’s

managers may not be familiar with objective measures of the general competitive

environment, but could be well informed about the needs and/or satisfaction levels of

customers and the capabilities of immediate competitors. Khandwalla (1976) found that,

when managers perceived their environments as being dynamic and uncertain, their

strategies were more likely to be extensive, comprehensive, and involved. Environmental

turbulence strongly influences the relative importance of both the entrepreneurial and

marketing orientations (Davis & Morris, 1991).

Weick (1969) argued that organizations come to know their environments only

through managers’ perceptions. Similarly, Miles, Snow, and Pfeffer (1974) indicated that

organizations respond to what they perceive, so that unnoticed events do not affect

organizations’ decisions and actions. Yasai-Ardekani (1989) determined that managers’

perceptions of environmental conditions were critical to structural adaptations to

environments. Various studies have found that a high degree of innovativeness, risk

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taking, and proactiveness in certain environmental conditions appear to facilitate

environmental responsiveness, whereas other conditions produce results which are less

entrepreneurial (Baklnoff & Brannon, 1984; Brockhaus & Nord, 1979; Kent, 1986).

Bagozzi (1975), Hunt (1976), and McCarthy and Perreault (1987) determined that the

argument regarding the nature and scope of marketing has created at least one general

conclusion–that successful marketing concerns exchange processes between

organizations and their environments.

Researchers have identified most external environments of firms (e.g., legal,

technological, economic, supplier, customer, competitive, financial, and social

environments) as dynamic, threatening, and complex (Ansoff, 1979; Drucker, 1980;

Jenkins, 2005; Khandwalla, 1977; Miller & Friesen, 1983; Ottesen & Grønhaug, 2004).

Environmental turbulence has many implications. Hayes and Abernathy (1980), Jain

(1983), and Stevenson and Gumpert (1985) found that the greater the environmental

turbulence perceived by managers, the more likely the managers were faced with small

decision windows, diminishing opportunity streams, changing decision constituencies,

increased resource specialization, lack of predictable resource needs, fragmented markets,

a great risk of resource and product obsolescence, and a general lack of long-term control.

The above discussion is the basis for the hypothesis in the present study that perceived

market turbulence and perceived competitive intensity positively affect top

management’s willingness to adapt to a changing market.


will be significantly and positively related to each component of top

management’s willingness to adapt to a changing market (i.e., emphasis and risk

aversion).

Top Management and Business Strategy (Market Orientation)

In this section, the construct of top management is linked with business strategy,

with an emphasis on market-orientation strategy. In research based on the work of

Downey (1974) and Miles, Snow, and Pfeffor (1974), Anderson and Paine (1975)

addressed the subject of management’s perceptions and strategic behavior. They argued

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that researchers need to recognize that managers depend on their perceptions of both the

environment and internal properties of the firm and have considerable leeway in making

strategic choices to meet various contingencies. They found that managers’ perceptual

interpretations of the environment as either certain or uncertain, combined with either a

high or low perceived need for internal change, were an important aspect of a firm’s

contingency plan. They also determined that these perceptions influenced a firm’s

mission, objectives, strategies, organizational structure, and thus performance.

The research of Gupta and Govindarajan (1984) indicated that different

strategies result from dealing with task environments that vary in uncertainty levels and

that operationalizing particular strategies requires different amounts of risk with respect

to the associated uncertainty. They found that, compared to “harvest” strategies, “build”

strategies, which have higher external dependencies and environmental conflict,

necessitated greater willingness to take risks. A harvest strategy, as defined in the Boston

Consulting Group (BCG) growth-share matrix, means simply maintaining current

business (reaping profits) without any further investment; this strategy is found most in

mature businesses (D. J. Lee, personal communication, March 6, 2005). The BCG

growth-share matrix maps a business unit’s position within two important determinants

of profitability: market growth and market share compared to the unit’s largest

competitor. Market growth serves as a proxy for competitive advantage (NetMBA.com,

2005). Henricks (1997) and Harrigan and Porter (1983) stated that the harvest strategy is

a technique that entrepreneurs can use to maximize profits from a slow-growing product

line. Prahalad, as cited by Henricks (1997), recommended harvesting as a basic

competitive strategy. According to Hill and Jones (2001), a harvest strategy requires a

company to cut all new investments in capital equipment, advertising, R&D, and the like.

They also suggested this strategy as the best choice when a company wishes to exit a

declining industry and, perhaps in the process, optimize cash flow.

Although much of the literature has focused on the consequences of market

orientation and the assessment of scales for measuring market orientation, several works

have examined the antecedents of market orientation. Jaworski and Kohli (1993), Harris

and Piercy (1998), and Narver and Slater (1990) indicated key management behaviors

that are essential to organizations that seek to become market oriented. Jaworski and

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Kohli (1993) identified diverse organizational abilities that are characteristic of market-

oriented businesses. Their work and that of others have examined various organizational

changes directed at building market-oriented organizations (Day, 1994; Lings, 2004;

Pulendran, Speed, & Widing, 2000; Qu & Ennew, 2003; Tay & Morgan, 2002; Zebal,

2003).

Piercy (1992) stated that top management needs to support risk taking, but that

researchers had ignored this issue. Jaworksi and Kohli (1993) indicated that top

managements’ support of risk taking is needed to shape an organization’s values toward

risk taking. Response to changing market needs often requires introducing new products

and services to match changing customer needs and expectations. New products, services,

and programs tend to be more salient than established ones, but often have a

correspondingly high risk of failure. Biggadike (1979) found that businesses that

emphasized new products and activities faced high uncertainty because the market

response to these changes was unknown. Researchers have noted that product breadth is

also associated with high uncertainty, as it results in confronting a complex task

environment (Chandler, 1962; Govindarajan, 1988; Gupat, 1987).

Jaworski and Kohli (1993) found that the amount of emphasis senior managers

placed on market orientation had an effect on both the acquisition of and responsiveness

to information and that market orientation required risk taking on the part of senior

managers. Kohli and Jaowrski (1990) posited that if top management shows a

willingness to take risks and accept occasional failures as being natural, junior managers

would more likely suggest and introduce new offerings in response to changes in

customers’ needs. Jaworski and Kohli (1993) concluded that the amount of weight

placed by top management on market orientation seemed to influence a firm’s degree of

market orientation and its intelligence generation, intelligence dissemination, and market

responsiveness. Moreover, market orientation appears to require a certain level of risk

taking by top management.

The literature reviewed in this section suggests that the degree to which firms use

market-orientation strategies is positively affected by the degree to which the firms’ top

managers are willing to take risks as well as the degree to which the managers are

sensitive to, or emphasize, market forces. This notion led to the following hypothesis.

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Hypothesis 7: The two components of top management’s willingness to

adapt to a changing market (i.e., emphasis and risk aversion) will have

significant positive effects on each component of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination, response

design, and response implementation).

Research and theory have suggested a positive association between structural

organicity and the use of a participative top-management style; for example, in Burns and

Stalker’s (1961) study of the structural correlates of innovative behavior, participative

management was commonly observed among organizations with organic structures.

Adler and Dockerty (1998) confirmed that as environmental changes become more

manifold, less predictable, and more rapid at the same time, it becomes increasingly

important that all subunits and all individual employees in the corporation are capable

and motivated for change. Such uncertainties force managers to keep their resources in a

highly liquid condition, so that they can easily adapt to unpredictable circumstances by

reallocating their capital, by migrating to other contexts, by exchanging their personnel,

and by redefining procedures and organizational structures. In addition, the managers

must to promote higher levels of functional differentiation, so that more specialized roles

and subunits are available for expanding or redirecting the range of tasks and activities.

This notion led to the following hypothesis.

Hypothesis 8: The two components of top management’s willingness to adapt to

a changing market (i.e., emphasis and risk aversion) will have significant positive

effects on organicity of organizational structure (i.e., will lead to more

specialization and less formalization and centralization).

Top Management and Firm Performance

Many studies have addressed risk taking and its effect on performance at the firm

level by using various financial indicators as alternatives for the firm’s level of risk

(Aaker & Jacobson, 1987; Bowman, 1980). No study, however, has used perceptual

measures of top management’s risk-taking propensities. Gupta (1984) suggested that top

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management’s characteristics are related to firm strategies and performance. And many

researchers have attempted to explain a variety of strategy formulation and

implementation and performance issues using top management’s characteristics

(Hambrick & Mason, 1984; Gupta. 1984). The results of these studies suggested that the

characteristics of a company’s top managers have important consequences for firm

performance. Knight, Durham, and Locke (2001) conducted a laboratory experiment to

test the effects of many variables, including risk assessment, on task performance. They

found a positive relationship between managerial risk assessment and task performance.

Thus, showed that managerial risk proclivities can have a positive influence on certain

types of organizational outcomes related to performance.

The discussion above provides evidence that top mangers’ willingness to take

risks positively affects the performance of their organizations. This led to the hypothesis

in the present study that top mangers’ risk aversion would positively affect their stores’

performance. On the other hand, the literature provides no evidence on the question of

whether or how the degree of top managers’ sensitivity to, or emphasis on, market force

would influence their organizations’ performance. The present study proposes, however,

that an organization’s performance would be positively influenced by the degree of its

top managers’ emphasis on market forces. This proposition is based on the following

line of reasoning. As noted earlier in this chapter, market orientation has been shown to

improve business performance (Day & Wensly, 1988; Kohli & Jaworski, 1990; Pelham

& Wilson, 1996). As also noted earlier, the degree of top managers’ emphasis on market

forces positively effects market orientation (Harris & Piercy, 1998; Jaworski & Kohli,

1993). If top managers’ emphasis on market orientation positively affects performance,

then the degree of managers’ emphasis on market forces may positively affect

performance. Thus, the following hypotheses were formulated.

Hypothesis 9: The two components of top management’s willingness to adapt to


effects on the degree of satisfaction with store performance.

Hypothesis 9-a: The two components of top management’s

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willingness to adapt to a changing market (i.e., emphasis and risk

aversion) will have significant positive effects on the degree of

satisfaction with store performance relative to other stores in the

industry.

Hypothesis 9-b: The two components of top management’s

willingness to adapt to a changing market (i.e., emphasis and risk

aversion) will have significant positive effects on the degree of

satisfaction with store performance relative to key competitors.

Relationship Among Top Management, Environment, and Organizational Structure

This section links top management, environment, and structure. The following

discussion emphasizes managers’ perceptions of the environment as they relate to

organizational structure. Objective and perceptual approaches in studies on relationships

between environment and structural adaptations have produced inconclusive results.

These studies typically have relied on the concept of environmental uncertainty, assumed

that all firms had the same structural responses to environmental uncertainty, and

provided only a partial view of structural adaptations. Objective and perceptual

approaches have supposed one-way causality. The models employed have assumed that

organizations adjust their structures to meet requirements forced by their environments.

Working from such models, researchers have sought to empirically estimate the

relationship between environments and organizational structure (Yasai-Ardekani, 1986).

Yasai-Ardekani (1986) was critical of two-component unidirectional models. He

stated that these models had been unsuccessful in showing the complexity of

relationships between environments and organizational structures. A more complete

model would include objective environmental attributes and managers’ perceptions as

separate components of structural adaptation. Yasai-Ardekani also contended that

managers’ perceptions of their firms’ environments arbitrate between environments and

organizational structure. Perceptions influence decisions about altering structural

properties of organizations to meet the requirements imposed by environments. Although

variations in objective environments affect perceptions, individuals’ characteristics and

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organizational structures also influence decisions to change structural properties of

organizations.

Some studies have used published industry data to represent environments and

have tried to establish links between environments and organizational structures (Child,

1975). Child used erratic industry sales to characterize a changeable environment, and

R&D intensity to represent environmental complexity. He disputed the use of perceptual

measures of environment. He determined that organizational attributes influenced

managers’ perceptions of their firms’ environments, and he concluded that perceptual

data confused environmental characteristics with companies’ own characteristics. On the

other hand, Weick (1969) argued that organizations come to know environments only

through managers’ perceptions. In the same way, Miles, Snow, and Pfeffer (1974)

indicated that organizations respond to what they perceive and that unobserved events do

not affect organizations’ decisions and actions; therefore, they stated that, unless

perceived, objective environmental attributes would not affect organizational structures.

They added that perceptions are important to structural adaptations. Yet, research

focusing on objective approaches has often failed to include managers’ perceptions.

Yasai-Ardekani (1986) pointed out that the assumption that perceptions strongly

affect structural adaptations requires the additional assumption that all organizations

perceive objective environmental attributes similarly. He also stated that organizations

might perceive the same environmental attributes differently. Starbuck (1976)

commented that an environment that one organization perceives as unpredictable,

complex, and evanescent might be seen by another organization as static and easily

understood. In fact, Miles, Snow, and Pfeffer’s (1974) study of publishing companies

discovered that top managers in some organizations perceived no changes or

uncertainties in their environments, whereas top managers in other organizations

perceived continuous changes and great uncertainty. Lawrence and Lorsch (1967) and

Duncan (1972b) empirically investigated the relationships between environments and

organizational structures. They emphasized that managers’ perceptions about their

environments lie at the heart of structural adaptations; however, they failed to note that

factors other than environments also influence perceptions.

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Schoonhoven (1981) indicated that different findings from various studies have

caused scholars to raise serious questions about the causal links between environment and

structure. Even as far back as the 1970s, Huber, O’Connell, and Cummings (1975)

proposed reciprocal links between environmental uncertainty and organizational structure,

and Bourgeois, McAllister, and Mitchell (1978) provided persuasive arguments for

supporting such reciprocal linkages. From a perceptual perspective, it has been argued

that environmental characteristics become known to decision makers only through

perceptual processing and that such perception is fundamentally influenced by the

structure within which the focal manager functions (Child, 1972; Miles, Snow, & Pfeffer,

1974; Yasai-Ardekani, 1986). Paswan, Dant, and Lumpkin (1998) determined that the

underlying principle of the above findings is that, as the perception of environmental

uncertainty increases, firms would become more responsive to retaining resources and

would exercise increasingly greater control over their operations.

Firm Performance Measures

Numerous studies have confirmed positive relationships between market

orientation and various performance measures. Chakravarthy (1986) found that no single

measure of profitability identified excellent firms. One common feature of research into

the effect of a market orientation on company performance is the incorporation of

subjective measures of performance as dependent variables. The term “subjective” is

used to mean that a company’s performance rating is derived using ordinal scales with

anchors such as “very poor” to “very good,” or “much lower” to “much higher,”

compared to competitors. These contrast with an “objective” measure that would be an

actual percentage figure for sales growth or profitability. Jaworski and Koli (1996)

pointed out that the reliance on subjective performance measures was a limitation of the

research to date (Hartenian & Gudmundson, 2000; Olsen, 2001; Styles, 1998).

Many researchers found a significant relationship between market orientation and

performance (Avlonitis & Gounair, 1997; Appiah-Adu, 1998; Balakrishnan, 1996; Deng

& Dart, 1994; Deshpande & Farley, 1998b; Deshpandé, Farley, & Webster, 1993;

Greenly, 1995b; Jaworski & Kohli, 1993; Narver & Slater, 1990; Pelham & Wilson,

91

1996; Pitt, Carvara, & Berthon, 1996Slater & Narver, 1993). Appiah-Adu (1998) and

Greenly (1995) that the environment moderated the relationship. Many studies have used

objective performance measures (Au & Tse, 1995; Diamantopoulos & Hart, 1993b;

Esslemont & Lewis, 1991; Jaworski & Kohli, 1993; 1996; Ruekert, 1992; Tse, 1998a).

Jaworski and Kohli (1993; 1996) used subjective and objective performance measures.

They found positive association for subjective measure but not objective measures.

Studies that used or included objective performance measures, Ruekert (1992),

Diamantopoulos and Hart (1993) found a significant relationship, Esslemont and Lewis

(1991) and Tse 1998a) found no relationship, and Au and Tse (1995) only a weak

relationship. Dawes (1999) observed that the substantive implications of this body of

research appear to depend heavily on the validity of subjective performance measures.

Dawes (1999) pointed out several reasons for using subjective measures. The

first is that managers may be hesitant to report actual performance if they consider it to be

commercially sensitive or confidential (Dess & Robinson, 1984). Second, subjective

measures may be more appropriate than objective measures for comparing profit

performance in cross-industry studies. Third, because companies’ profit levels can vary

considerably across industries, a subjective measure of company performance may be

more appropriate than an objective measure in cases where research has not established

the relationship between firm performance and other variables pertinent to business

operations. Managers can take the relative performance of their industry into account

when responding to subjective-measurement questions, such as “rate the profit

performance of your firm relative to others in your industry” (Dawes, 1999, p. 67). A

fourth reason is that a company’s profitability may vary over time due to variation in its

level of investment in R&D or marketing activity, which might have long-term effects

and mean that profitability or other performance measures at one point in time may not

accurately reflect the underlying financial health of a company. And finally, significant

numbers of studies that have examined the relationship between these two types of

measures have shown a strong correlation between objective and subjective measures

(Covin, Slevin, & Schultz, 1994; Dess & Robinson, 1984; Hart & Banbury, 1994; Pearce,

Robbins, & Robinson, 1987; Venkatraman & Ramanujam, 1985).

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On the basis of the strong role that a market orientation theoretically plays in

generating superior customer value, market orientation would be expected to positively

affect a firm’s total profits by positively affecting both the firm’s sales growth and its

return on investment. Researchers gathered both objective and subjective data on

multiple aspects of performance, such as sales growth, market share, and profitability

(Dess & Robinson, 1984; Hart & Banbury, 1994; Pearce, Robinns, & Robinson, 1987).

They found significant relationships between the two types of performance measures.

Balabanis, Stables, and Phillips (1997) analyzed the link between past levels of

market orientation and current performance, using data that they gathered at the same

point in time. The authors mentioned that a shortcoming to their research was the

inability of executives to accurately report or recall their organizations’ level of market

orientation from five years ago. Pelham and Wilson (1996) measured current levels of

market orientation and performance, along with numerous other control or moderator

variables during the same period, with a time lag of one year. They found that market

orientation was positively related to current profitability when they lagged other

independent variables by one year, and also when they lagged the previous year’s

profitability by one year. This finding provides strong evidence that a market orientation

affects current performance, rather than simply being related to it. Pelham and Wilson’s

study is a valuable contribution, though the focus of their study was only on small firms.

Narver and Slater (1990) and Kohli and Jaworski (1990) conceptualized market

orientation as a uni-dimensional construct, but one comprised of several different

components. In spite of that, both of those studies used a single aggregated measure of

market orientation to examine its relationship with performance, based on the assumption

that each component contributed equally to the construct (Kohli & Jaworski, 1990;

Narver & Slater, 1990). Almost all the studies in Table 12 also used this approach.

Greenley (1995a) described different types of market orientation, including customer-

focused, competitor-focused, and comprehensive market orientation. His study was

conducted under the assumption that the components differed among firms. He found

little difference in performance between firms utilizing the different forms of market

orientation. This finding indicates that the components of market orientation do not have

a highly interrelated relationship with performance; otherwise there would be greater

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differences between firms with a customer or competitor focus compared to a

comprehensive market orientation (Dawes, 2000).

Kohli and Jaworski (1990) and Jaworski and Kohli (1993) hypothesized that three

industry characteristics–market turbulence, technological turbulence, and competitive

intensity–moderate the market orientation/performance relationship. Empirical results

have failed to support these hypotheses, leading Jaworski and Kohli to conclude that

either the market orientation/performance relationship is not robust across environments,

or the statistical tests lacked sufficient power to detect the effects.

Organizational Structure

Firm Performance and Organizational Structure

Research has shown that firm structure may have a powerful effect on the

performance of new business ventures (Sandberg, 1986). Negandhi and Reimann (1972),

who used a sample of 30 Indian manufacturing firms, examined the relationship between

decentralization, performance, and the competitiveness of the firms. They measured

performance on the basis of financial criteria, including profit and sales growth, and

behavioral criteria such as morale, turnover, and interdepartmental relations. They

determined that decentralization was positively related to effectiveness under all

conditions, but the strength of the relationship differed by the degree of competition.

They concluded that decentralization and performance were weakly related under non-

competitive conditions. They also concluded that structure is generally important under

competitive conditions (Negandhi & Reimann). Most likely, operations must be

decentralized in dynamic competitive situations in order to fit with the environment. It is

not clear whether low performance causes centralization, or vice versa. Decentralization

is one of the structural variables used by most researchers. Research has shown no direct

support for the notion that organic or decentralized organizations perform better than

centralized organizations under uncertain environments (Mohr, 1971; Pennings, 1975).

Lorsch and Morse (1974) found that high performers on routine tasks had

mechanistic organizations and that high performers on non-routine tasks had organic

structures. They also concluded that the low performers had mechanistic structures for

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non-routine tasks, and organic structures for routine ones. Burns and Stalker (1961) and

Lawrence and Lorsch (1967) found that mechanistic structures that stressed

standardization and formalization control were especially common and often associated

with superior performance. Burns and Stalker (1961) argued that in a dynamic

environment, formalization decreases organizational adaptability to environmental

changes and increases the risk of organizational failure. Several empirical studies of

mature organizations support an inverse correlation between formalization and

performance in dynamic environments (Glisson & Marin, 1980; Wally & Baum, 1994).

Tse (1991) conducted an empirical analysis of organizational structure and financial

performance in the restaurant industry. She found that companies with a high degree of

formalization, a high degree of specialization, and low centralization had a higher

average return on assets and sales than did companies with other structural configurations.

Specialization, the concentration of tasks assigned to any one individual, is one of

the critical structural features of a formal type of organization (Pugh et al., 1963). Role

formalization and functional specialization are interrelated as the former relates to the

formal recognition and delineation of tasks within the organization and the latter captures

the extent to which individual team members focus their efforts on a narrower or broader

set of tasks. According to Burns and Stalker (1961), specialization increases coordination

costs and decreases the flexibility of the organization and therefore its ability to react to

environmental changes. The relationship between specialization and performance has

received little attention from empirical researchers, however, and is still undetermined

(Dalton, Todor, Spendolini, Fielding, & Porter, 1980).

The discussion above, mixed ideas and results on the relationship between

organicity of organizational structure and performance when examined in different

industries and different environmental conditions. It appears, however, that an organic

organizational structure leads to worked better performance than a mechanistic structure

in unstable environmental conditions. An organic organizational structure has a higher

level of specialization in function and lower levels of formalization and centralization

than does a mechanistic structure. On this basis, hypothesis 10 and its two subhypotheses

were formulated.

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Hypothesis 10: Organicity of organizational structure will have significant positive

effects on the degree of satisfaction with store performance; that is, specialization will

positively affect satisfaction with store performance, and formalization and centralization

will negatively affect satisfaction with store performance.

Hypothesis 10-a: Organicity of organizational structure will have significant

positive effects on the degree of satisfaction with store performance relative to

other stores in the industry; that is, specialization will positively affect \

satisfaction with store performance, and formalization and centralization will

negatively affect satisfaction with store performance relative to other stores in the

industry.

Hypothesis 10-b: Organicity of organizational structure will have significant

positive effects on the degree of satisfaction with store performance relative to key

competitors: that is, specialization will positively affect satisfaction with store

performance, and formalization and centralization will negatively affect


The present research applies the above hypothetical relationships in the context of

South Korean apparel retailing firms, in order to discover the effect of each construct on

the South Korean apparel retailing industry under the current competitive conditions

since market opening.

Summary

According to previous research, the constructs of the model developed for this

study – environment, business strategy, organizational structure, top management’s

willingness to adapt to a changing market, and store performance – are interrelated and

interactive. This chapter presented a review of the literature pertaining to the

relationships among those above constructs. Some of the studies reviewed have linked

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two, three, or four of the constructs, but no studies to date have linked all five of the

constructs.

The chapter also discussed subjective and objective performance measures. The

review of the literature revealed that several studies have shown a positive correlation

between objective and subjective measures and that several good reasons exist for using

subjective measures, such as the unwillingness of top management to reveal confidential

performance information.

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CHAPTER 4

METHODOLOGY

Research Questions and Hypotheses

The objectives of this research, as stated in Chapter 1, are to determine (a) the

interrelationships among the different components of South Korean retailers’

management strategies, (b) the effects of perceived environmental uncertainty on the

components of South Korean retailers’ management strategies, (c) the impact of the

components of South Korean retailers’ management strategies on their stores’

performance, and (d) the market-orientation strategies that South Korean retailers have

implemented to survive and prosper in the competitive environment they currently face.

To fulfill these objectives, several research questions are addressed as follows.

1. Do factors in the external environment influence the extent to which South

Korean retail stores use a market-orientation strategy?

2. Do factors in the external environment influence the organizational structure of

South Korean retail stores?

3. Do factors in the external environment influence the performance of South

Korean retail stores?

4. Does the external environment influence top management’s willingness to adapt

to changes in the South Korean retailing market?

5. Does the use of a market-orientation strategy influence the organizational

structure of South Korean retail stores?

6. Does the use of a market-orientation strategy influence South Korean retail stores’

performance?

7. Do the organizational structures of South Korean retail stores influence the stores’

performance?

8. Does the use of a market-orientation strategy influence the organizational

structures and performance of South Korean retail stores?

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9. Are the causal relationships among the constructs in the proposed model

applicable to South Korean retail stores?

In addition to the research objectives and questions, this study is guided by three

underlying propositions. The first underlying proposition is that certain direct

relationships exist among the constructs in the proposed model. The second is that there

are certain indirect relationships, in which a construct influences another construct

through a mediate construct, and that there are causal relationships among the constructs.

Finally, certain congruencies among the examined variables help to improve performance

of business organizations. From these underlying propositions, the hypotheses below

were derived from the strategic-management literature. Chapter 3 presents a discussion

of literature that supports these hypotheses. Figure 2 provides a diagram of the research

hypotheses.

Hypothesis: Causal relationships will be found among the strategic management

constructs, including perceived environmental uncertainty, top management's

willingness to adapt to a changing market, market-orientation strategy, organicity

of organizational structure, and store performance.


will have significant positive effects on each component of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination, response design,

and response implementation).


will have significant positive effects on organicity of organizational structure (i.e.,

will lead to more specialization, and less formalization and centralization).

Hypothesis 3: Perceived market turbulence and perceived competitive


with store performance.

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Figure 2 Research Hypotheses in the Proposed Model H 3 H 1 H 5 H 6 H 2 H 4 H 7 H 10 H 8 H 9

ENVIRONMENT


Market Turbulence


BUSINESS STRATEGY

Market Orientation Strategy



Response Design


STORE PERFORMANCE


Compared to other stores

in the retail industry

Compared to the store’s

key competitors

TOP MANAGEMENT


Emphasis

Risk Aversion

ORGANIZATIONAL

STRUCTURE


Formalization

Centralization

Specialization

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Hypothesis 3-a: Perceived market turbulence and perceived competitive intensity

will have significant positive effects on the degree of satisfaction with store


Hypothesis 3-b: Perceived market turbulence and perceived competitive


with store performance relative to key competitors.

Hypothesis 4: The three components of market-orientation strategy (i.e.,

intelligence generation, intelligence dissemination, response design, and

response implementation) will have significant positive effects on organicity of

organizational structure (i.e., will lead to more specialization and less


Hypothesis 5: The three components of market-orientation strategy (i.e.,


response implementation) will have significant positive effects on the

degree of satisfaction with store performance.

Hypothesis 5-a: The three components of market-orientation strategy (i.e.,



degree of satisfaction with store performance relative to other stores in the

industry.

Hypothesis 5-b: The three components of market-orientation strategy (i.e.,



degree of satisfaction with store performance relative to key competitors.


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will be significantly and positively related to each component of top

management’s willingness to adapt to a changing market (i.e., emphasis and risk

aversion).

Hypothesis 7: The two components of top management’s willingness to adapt to a

changing market (i.e., emphasis and risk aversion) will have significant positive

effects on each component of market-orientation strategy (i.e., intelligence

generation, intelligence dissemination, response design, and response

implementation).



effects on organicity of organizational structure (i.e., will lead to more




effects on the degree of satisfaction with store performance.

Hypothesis 9-a: The two components of top management’s willingness to




Hypothesis 9-b: The two components of top management’s willingness to



performance relative to key competitors.



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other stores in the industry; that is, specialization will positively affect

satisfaction with store performance, and formalization and centralization will

negatively affect satisfaction with store performance relative to other stores in the

industry.






Research Design

The overall purpose of this research is to investigate the effects of perceived

environmental conditions, such as those brought about by market opening and other

changes in the economy, on the strategic management and financial performance of South

Korean retail stores. The model (see Figure 1) represents an integration of relationships

among pertinent constructs determined from the review of literature, especially drawing

from the models of Jaworski and Kohli (1993) and Kwock (1999). Besides showing the

pertinent constructs and the relationships among them, Figure 1 indicates the variables

that are used to operationalize the constructs in the model.

South Korean retail stores were selected for the study for the following

methodological and practical reasons: (a) South Korean retailing companies are

recognized as forming a major industry that is affected by the external environment; (b)

stores operated by these companies are believed to provide a diverse set of strategic

management types that are expected to create varying responses from the research

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participants; and (3) no prior research has analyzed strategic management in this industry.

Background on the Operationalization of Constructs in the Proposed Model

Figures 1 and 2 show the constructs and related variables used in this research. In

order to obtain valid empirical results, the constructs had to be defined and measured

appropriately. The constructs include perceived environmental uncertainty, that is, top

management’s perception of environmental uncertainty; top management’s willingness to

adapt to a changing market; organicity of organizational structure; market-orientation

strategy; and store performance. Among these, store performance is the ultimate

dependent or endogenous construct, and organicity of organizational structure and

market-orientation strategy are the two mediate endogenous constructs. The model

proposes that these constructs would influence store performance. The independent or

exogenous constructs are perceived environmental uncertainty and top management’s

willingness to adapt to a changing market. Thus, it was hypothesized that these

exogenous constructs would influence the mediate endogenous constructs, which in turn

would influence store performance.

Exogenous Constructs


According to Selznick (1948), the business environment includes all events,

including physical and social factors, that could influence a business or the decision-

making behavior of individuals in an organization (as cited in Duncan, 1972a). As

discussed in Chapter 2, the business environment can be categorized into the internal and

external environments. According to whether the decision makers in an organization

consider environment in their strategic planning, both the internal and external

environments can be objective or perceived (Bourgeois, 1980b). This study focuses only

on the perceived external environment. Environmental uncertainty as perceived by a

firm’s top management is important in an investigation of the relationships among the

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components of strategic management because the dimensions of environment are closely

related to degrees of uncertainty, which relate to all the external events that affect the

organization and evolve from the dynamic and complex relationships of all the variables

comprising the environment, and because perceptions of the environment vary according

to the type of management in an organization.


Although researchers have analyzed the process by which managers come to

perceive, interpret, and act upon environmental information, an increasing number have

attempted to understand the cognitive aspects of organizational life (Daft & Weick, 1984;

Eisenhardt, 1989; Isabella, 1990; Thomas & McDaniel, 1990). Ireland, Duane, Hitt, and

Porras (1987) studied differences in environmental uncertainty perceptions across

managerial levels. They found significant differences in uncertainty perceptions between

top and lower managerial levels in organizations, but not between top and middle

managers. In the case of strategic management, one of the major problems has been the

increasing turbulence and uncertainty of many firms’ external environments, which can

lead to misperceptions by top management of environmental changes. How top

managers perceive the environment affects the strategic decisions they make for their

firms and, by implication, the firms’ performance (Analoui & Karami, 2002; Ansoff &

McDonnell, 1990; Daft & Weick, 1984; Hambrick & Mason, 1984; Hatten & Scendel,

1975; Papadakis & Barwise, 2002; Smircich & Stubbart, 1985; Talaulicar, Grundei, &

Werder, 2005; Yasai-Ardekani, & Nystrom, 1996).

Duncan (1972a) observed that, as the rate of change increases in the environment,

top managers become more uncertain and less confident about courses of action

anticipated in the future. Even though managers recognize the external environment’s

importance and attempt to collect as much information as possible, they may face the

uncertainty that accompanies a fast-changing environment. The way top managers

interpret the environment leads them to create organizational structures capable of

responding to characteristics of the environment and to the environmental demands.

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Mediate Endogenous Constructs

Market-Orientation Strategy

Market-orientation scales differ in their conceptual definitions and measurement

(Cadogan & Diamantopoulos, 1995; Farrell, 2002; Kara, Spillan, & DeShields, 2005;

Kohli & Jaworski, 1990; Lichtenthal & Wilson, 1992; Lings & Greenley, 2005; Matsuno,

Mentzer & Rentz, 2005; Narver & Slater, 1990; Ruekert, 1992). In the late 1980s and

early 1990s, Narver and Slater (1990), Kohli and Jaworski (1990), and Deshpandé, Farley,

and Webster (1993) developed three different but syntactically similar scales that

measured the extent of a firm’s market orientation. Since then, many studies have found

a positive relationship between market orientation and firm performance.

The MARKOR scale. The MARKOR scale is one of the most widely used

market-orientation scales for empirical investigation (Jaworski & Kohli, 1993; Selnes,

Jaworski, & Kohli, 1996; Siguaw, Simpson, & Baker, 1998). This scale, which derives

from Kohli and Jaworski’s (1990) definition of market orientation, focuses on a set of

specific behaviors as a basis of measurement. By concentrating on key intelligence-

based activities, Kohli and Jaworski’s construct appears capable of tapping a firm’s

specific behavioral responses to critical aspects of the market orientation-competition,

customer, regulatory, societal, and macroeconomic forces (Day & Wensley, 1988;

Jaworski & Kohli, 1996; Kohli, Jaworski, & Kumar, 1993). The structure-conduct-

performance paradigm (Thorelli, 1977; Vermon, 1972) and constituency-based theory

(Anderson, 1982; Connolly, Conlon, & Deutsch, 1980; Kotler, 1972; Pfeffer, 1978;

Pfeffer & Salancik, 1978; Sturdivant, 1977; Zeithaml & Zeithaml, 1984) provide strong

support for an operationalization of a market environment that includes multiple

stakeholders; however, the MARKOR scale is operationalized to represent a limited

number of stakeholder domains. The MARKOR scale focuses on domains for

understanding the market environment, but it mostly captures customers and competitors

and does not address specifically how other market factors suggested in the literature,

such as the legal and regulatory environment and the macroeconomic environment, may

influence competition and customers (Jaworski & Kohli, 1996; Kohli, Jaworski, &

Kumar, 1993). For the purpose of this study, a modified version of the MARKOR scale

106

was used to measure market orientation.


In the present study, organizational structure is considered an organizational

component. David (1997) defined organizational structure as “a collection of people in a

division of labor working together to achieve a common purpose or common direction”

(p. 5). Organizational theory has extensively covered the dimensions and determinants of

organizational structure. Campbell, Bownas, Peterson, and Dunnette (1974) identified 63

different organizational structure qualities. Their definition of organizational qualities

relates those qualities to physical characteristics, such as size/sub-unit size, span of

control, flat/tall hierarchy, and administrative intensity, which can be utilized as tools for

strategy implementation. Structuring, on the other hand, includes policies and activities,

such as specialization, formalization, and centralization that prescribe or restrict the

behavior of organization members. From the viewpoint of organization theorists, these

dimensions of structuring are critical to the definition of structure. The present research

focuses on the specialization, formalization, and centralization, aspects of structuring

because business strategies and organization theorists suggest that structuring is a core

concept of organizational structure and that structure is a sub-category of strategy

implementation.

For the purpose of this study, the three dimensions of organizational structure–

specialization, formalization, and centralization–are used as the indicators of the degree

to which a firm has a mechanistic versus organic structure. Those three dimensions of

organizational structure are the ones that researchers have most commonly examined.

Centralization is defined as the locus of decisions about structure (Pugh, Hichson,

Hinings, & Turner, 1969). A measure of the degree of centralization is the degree of

participation in decision making at lower organizational levels (Aiken & Hage, 1968).

Formalization can be characterized as the degree to which norms, rules, and regulations

are explicit to an organization’s members (Hage & Aiken, 1970). It can be measured by

the extent to which rules, procedures, communication methods, and regulations are

written and made available (Pugh et al., 1968). Pugh et al. suggested that specialization,

which is similar to complexity, has to do with the division of labor, the distribution of

107

official duties among a number of positions, and the degree of individual expertise in an

organization. It can be measured through an assessment of the existence of various

functional activities, including advertising, personnel hiring and training, purchasing and

inventory control, financial resource management, operations and quality control,

research and development, and administrative procedures (Tse, 1988). A number of

researchers have examined the three dimensions of structure mentioned above

(Cunningham & Rivera, 2001; Fredrickson, 1986; Krokosz-Krynke, 1998; Miller &

Dröge, 1986; Paszkowska, 1998; Reimann, 1973; Schaffer, 1986; Tse, 1988; Vasiu &

Vasiu, 2004). The measures of these dimensions that were described above were applied

to measuring the organicity of South Korean retail stores in the present study.

Ultimate Endogenous or Dependent Construct

Store Performance

This study focuses on the performance of South Korean retail stores, of which

some may be independent and others may be part of companies that operate multiple

stores and possibly additional types of businesses. The stores’ performance were

assessed using performance measures normally associated with firm performance.

Generally, the choice of firm performance measures depends on the purpose and

context of the research. Performance has been conceptualized and measured under

various schemes, depending on such factors as the research questions, disciplinary focus,

and data availability. In this research, the economic or financial performance of a store is

measured according to several performance measures that were discussed in the previous

chapter. It is important to note that business performance is a multidimensional construct

and may be characterized in a number of ways, including effectiveness, efficiency and

adaptability. Further, performance on one dimension may run counter to performance on

another dimension. Therefore, in this study, different measures were used to obtain a

comprehensive view of the performance of the business while reducing the impact of

individual bias of any particular dimension (Schlegelmilch & Ross, 1987; Shoham &

Ross. 1993). It is difficult to compare absolute performance across companies (Dess,

Ireland, & Hitt, 1990). Because of this difficulty, respondents were asked about their

108

stores’ return on investment, earnings growth, sales growth, market share, return on assets

(ROA), and cash flow compared to those of other stores in their industry. Each

respondent was also asked his/her level of satisfaction with his/her store’s ROA, cash

flow, return on investment, earnings growth, sales growth, and market share relative to

those of the store’s key competitors. Measurement of these performance-related variables

affords a multi-dimensional view of performance.

This study uses the approach of gathering performance data through respondents’

self-reports because acquisition of secondary data on financial performance was expected

to be severely restricted. Firm-level financial data are not generally publicly available,

and firms are known to be sensitive about releasing any performance-related data (Dess

& Robinson, 1984).

It is important to define and measure the variables properly to have reliable and

valid results. Table 3 summarizes the operationalization of the constructs utilized in this

study. Efforts were made to define the variables in accordance with previous research

and arrive at appropriate measurement methods.

Data Collection Methods

Researchers have utilized various data collection methods, including field

experiments, laboratory experiments, judgment tasks, and critical simulation (McGrath,

Martin, & Kulka, 1982). Each of these methods has advantages and disadvantages. In

selecting a research method, it is important to maximize generalizability, have control

over variables, and have existential realism. This study utilized a population-sampling

survey method to satisfy these objectives with regard to the stated hypotheses and

conditions. The advantage of such a sample survey method is that it maximizes effective

sampling of the population units under study, thus maximizing population generalizability.

On the other hand, according to McGrath et al., the sample survey method has relatively

low levels of precision and realism of context.

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Table 3 Summary of Operationalization of Constructs

Kind

Constructs

Measures

Sources

Exogenous


2 Scales (10 items) - Market Turbulence

- Competitive Intensity

- Jaworski & Kohli (1993)

- Khandwalla (1972)

- Khandwalla (1977)

Top Management’s Willingness to Adapt to a Changing Maket

2 Scales (6 items) - Top-Management Emphasis

- Top-Management Risk Aversion


(table continues)

110

Table 3 (continued).

Kind

Constructs

Measures

Sources

Endogenous


4 Scales (14 items) - Market Orientation (Intelligence Generation) - Market Orientation (Intelligence Dissemination) - Market Orientation (Response Design) - Market Orientation (Response Implementation)



3 Scales (10 items) - Formalization

- Centralization

- Specialization

- Khandwalla (1976/77)

- Aiken & Hage (1968)

- Ferrell & Skinner (1988)

- Inkson, Pugh, & Hickson (1970)

- Pugh & Hickson (1976)

- Khandwalla (1974)

(table continues)

111


Kind

Constructs

Measures

Sources

Endogenous

Store Performance

6 items

- Return on Investment

- Earnings Growth

- Sales Growth

- Market Share

- ROA

- Cash Flow

- Boyd (1991)

- Miller & Friesen (1984)

- Powell (1995)

- Ramanujam, Venjatraman, &

Camillus (1986)

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Sampling and Sample Size and Selection

The unit of analysis is South Korean retail stores that carry apparel products. The

questionnaire was sent to such retailers in major cities and towns within cities in South

Korea, Seoul, Deajeon, Suwon, Daegu, and Busan, in order to have a large enough

sample size. These cities were selected because they are a relatively high level of

economic development and a relatively high density of retail stores tat offer apparel, and

they are fashion-oriented. The retailers to which the questionnaire was sent include

department stores, discount stores, specialty stores, membership stores, chain stores, and

boutiques. The retailers were systematically selected from A National Department Store

Yearbook, Fashion Retail Guide Book, and Korea Fashion Brand Yearbook. The protocol

for selecting the retailers was to choose every fourth one listed in each of the three

directions just mentioned, but to the extent possible, to avoid duplication and retailers

known to be no longer in business, the next one on a list was selected and the selection of

every fourth retailer was resumed from the next one.

The sample needed to include at least approximately 200 respondents because a

minimum of about 200 responses is required for the structural equations statistical

technique that was used in the main part of the data analysis. Past studies that have used

this technique in analyzing other industries have had response rates of 10.5% to 30.7%

(Crawford-Welsch, 1990). The expected response rate in the present study was 20-25%,

which required a target sample size of approximately 1,000. A total of 1,000 firms was

systematically drawn from the sample pools in the manner described above, and a

questionnaire was sent to each of those.

Data Collection Process

The primary data collection was through self-administered, mailed questionnaires

that were sent to top managers in the retail stores. In the pilot test of the questionnaire

(described later), it was determined that it took about 15 minutes to complete the

questionnaire. The mailing to each manager included a cover letter (see Appendix B), the

questionnaire (see Appendix G), and a postage-paid return envelope. The cover letter

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indicated the nature of the research, a request for cooperation, and an outline of benefits

to the organization, which included a summary of the research results. In addition, the

letter requested that the recipient or another of the store’s top managers complete the

questionnaire. The questionnaire contained questions that so what information

concerning the operational profile of each store, such as the store’s age and number of

employees, and the recipient’s perception of the store’s business environment, the

business strategies the store employed, and the store’s structure and performance. The

questionnaire and cover letter were written in English and also translated into Korean,

with the translated version sent to the Korean retailers. The questionnaire also was

translated back into English to ensure that no meaning was lost when translated into

Korean. The researcher went to South Korea to distribute and collect the questionnaires.

The questionnaires were sent by mail to stores that did not have FAX numbers, but

otherwise were sent by FAX. The mail system in South Korea is not dependable, making

it preferable to send the material by FAX. The respondents were able to return the

questionnaires by FAX or mail.

To increase the response rate, Dillman’s (1978) total design method was used.

One week after the questionnaires were mailed to the stores, a reminder phone call was

made to each. Permission for research with human subjects was obtained from the

Institutional Review Board (IRB) at Virginia Polytechnic Institute and State University

prior to the collection of any data, including in the pilot test (see Appendix A).

The Questionnaire

The questionnaire used to collect the data was structured in terms of question

format, order of questions, layout, and length. The questionnaire contained questions

about the respondents’ and stores’ demographics, as well as questions to measure the

research variables. Modifications of existing scales were used to measure the research

variables concerning the sample stores’ organizational characteristics in terms of

formalization, centralization, and specialization, overall performance, market orientation,

top management’s willingness to adapt to a changing market,, and perceived

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environmental uncertainty. One type of modification to the original scales was the

elimination of some items to make the questionnaire as short as possible and still enable

the measurement of each variable with no fewer than three items. Most eliminated items

were more applicable to manufacturing firms than to retailers. The other modifications

were in the wording of items to use terms applicable to this study (e.g., store, rather than

firm or business unit) and to replace colloquial expressions with equivalent phrases

considered more meaningful to a Korea (e.g., “well established,” rather than “tried and

true”). Discussion of the measure for each variable follows below. The questionnaire

contained six sections. The actual questionnaire is in Appendix D.

Respondent and Store Demographic Information

The first section of the questionnaire contained the seven questions shown below,

which were designed to obtain demographic profiles of the respondents and their stores

and to help ensure each respondent’s appropriateness for the study in terms of being in a

position to have knowledge about the information requested later in the questionnaire.

Section A

What is your title in your store?…………………………………............................_____________

How long have you been employed in the store where you currently work?.....…._____________

How long have you been employed in the retailing industry in Korea?..................._____________

Is your store the only store in your company?……………………_________ Yes _________ No

What year did your store open? …………………..……………………………...._____________

What is the current number of employees in your store?………………..……......_____________

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Has the number of employees in your store increased, decreased, or

stayed the same since the store opened?…………...………………..…………...._____________


Two scales comprising four and six items, respectively, measured the two

components of perceived environmental uncertainty: perceived market turbulence and

competitive intensity. The response format for each item was a 5-point Likert scale from 1

= strongly disagree to 5 = strongly agree. The scale to measure perceived market

turbulence addressed the degree to which an organization’s customers and their preferences

or purchase criteria were perceived to change over time. The four perceived market-

turbulence items were adapted from ones developed and utilized by Jaworski and Kohli

(1993). The intensity of competition faced by a firm was measured according to the

perception of the respondent from that firm. The motivation for the use of perception,

rather than the actual level of competition, arose from the argument by Lawrence and

Lorsch (1967) that it is the perception of competition, rather than its actual level, that

influences the decisions that managers make in response to their organizations’ operating

environment. This study adopted the method used by Khandwalla (1972; 1977) in which

intensity of competition was measured using perceptions of top management. The

perceived competitive-intensity scale measured the respondents’ perceptions of the degree

of competition in South Korea’s retailing industry. The market-turbulence and

competitive-intensity scales are as follow.

Section B Please indicate the extent to which the following items describe your store’s market, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.

A. Market Turbulence Strongly disagree Strongly agree

Sometimes our customers are very price sensitive, but on other occasions, price is relatively unimportant to them ..................................................................... 1 2 3 4 5

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Strongly disagree Strongly agree We are witnessing demand for our products and services from customers who never bought them before ............. 1 2 3 4 5 New customers tend to have product-related needs that are different from those of our existing customers.................................................................. 1 2 3 4 5 Our customers tend to look for new products all the time............ 1 2 3 4 5 B. Competitive Intensity

Strongly disagree Strongly agree

Many promotion wars occur in our industry ................................ 1 2 3 4 5 Anything that one competitor in our industry can offer, others can match readily............................................................... 1 2 3 4 5 One hears of new competitive moves in our industry almost every day .................................................. 1 2 3 4 5 The current business environment is threatening the survival of our store............................................. 1 2 3 4 5 Tough price competition is threatening our store......................... 1 2 3 4 5

Competitors’ product quality or novelty is threatening our store ..................................................................... 1 2 3 4 5


A six-item scale adapted from scales developed by Jaworski and Kohli (1993) was

used to measure top management’s willingness to adapt to a changing market. The first

three items in this scale shown below addressed top-management emphasis, in terms of

the verbal reinforcement the managers provided for market-oriented activities. The last

three items in the scale measured top managers’ risk aversion, in terms of their intentions

toward innovative action in the face of risk and uncertainty. All items in this scale were

scored on a 5-point scale ranging from strongly disagree to strongly agree. The last item

was reverse coded.

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Section 3.

Please indicate the extent to which the following items describe your management style, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.


I believe that our store’s survival depends on its adapting to market trends.................................................... 1 2 3 4 5

I often tell employees to be sensitive to the activities of our competition ................................................... 1 2 3 4 5

I believe that serving customers is the most important thing our business does ................................................ 1 2 3 4 5 I believe that it is worth taking high financial risks for high rewards ................................................................... 1 2 3 4 5

Top managers in my store like to take big financial risks ............ 1 2 3 4 5 Top managers in my store like to implement plans only if they are very certain that they will work........................... 1 2 3 4 5


Market orientation was measured with a 14-item scale adapted from one

developed by Jaworski and Kohli (1993). Three items in the scale relate to market-

intelligence generation, five to intelligence dissemination, three to response design, and

three to response implementation. Of the six responsiveness items, three measured the

extent to which an organization developed plans in respond to market intelligence

(response design), and the remaining three measured the actual implementation of these

plans (response implementation). Woven into the items in the scale that measure the four

components – generation, dissemination, response design, and response implementation –

are issues related to the needs and preferences of customers or end-users and to

competitors’ moves. The 14 items in the scale are shown below. Each item was scored on

a 5-point scale ranging from “strongly disagree” to “strongly agree.”

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Section 4. Please indicate the extent to which the following items describe your store, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number. A. Market Orientation (Intelligence Generation)


In my store, we do a lot of in-house market research................... 1 2 3 4 5 We collect industry information through informal means (e.g., lunch with industry friends, talks with trade partners) .............................................................. 1 2 3 4 5 We periodically review the likely effects of changes in our business environment (e.g., regulation) on customers................................................................................. 1 2 3 4 5 B. Market Orientation (Intelligence Dissemination)

Strongly disagree Strongly agree A lot of informal talk among employees in our store concerns our competitors’ tactics or strategies ............................. 1 2 3 4 5 We have interdepartmental meetings at least once a quarter to discuss market trends and developments ......................................................................... 1 2 3 4 5 Marketing personnel in our store spend time discussing customers’ future needs with other functional departments in the store ..................................... 1 2 3 4 5 When something important happens to major customers or market segments, all the store’s employees know about it in a short period ....................................................................1 2 3 4 5 Data on customer satisfaction are disseminated at all levels in our store on a regular basis.................................... 1 2 3 4 5 C. Market Orientation (Response Design)

Strongly disagree Strongly agree It takes us a long time to decide how to respond to our competitors’ price changes ................................... .1 2 3 4 5

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Strongly disagree Strongly agree We periodically review our product development efforts to ensure that they are in line with what customers want .................................................................... 1 2 3 4 5 Several departments in my store get together periodically to plan responses to changes taking place in our business environment .................................... 1 2 3 4 5 D. Market Orientation (Response Implementation)

Strongly disagree Strongly agree If a major competitor were to launch an intensive campaign targeted at our store’s customers, we would implement a response immediately............................. 1 2 3 4 5 When my store finds out that customers are unhappy with the quality of our service, we take corrective action immediately ......................................... 1 2 3 4 5 We are quick to respond to significant changes in our competitors’ pricing structures........................................... 1 2 3 4 5


A three-item scale, adapted from one developed by Khandwalla (1976/77), was

used to measure organicity of organizational structure. Three structural variables –

formalization, centralization, and specialization – are considered in this study. Organicity

is the extent to which an organization is structured organically versus mechanically.

Compared to a mechanical structure, an organic structure tends to be more open; has less

structural complexity, fewer rules, and extensive decentralization; is more prone to rich,

horizontal interaction; and has less rigid definitions of methods, duties, and powers

(Bantel, 1993; Marsden, Cook, & Kalleberg, 1994).

Organizational specialization was measured with four items that were adapted from

ones developed by Inkson, Pugh, and Hickson (1970), Pugh and Hickson (1976), and

Khandwalla (1974). These items were scored on a 5-point scale, as shown below.

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Section 5. A. Specialization

Please indicate, for each pair of statements below, the extent to which you believe the statement at the left or the right describes the management philosophy in your store. Circle the most appropriate number from 1 to 5 for each pair of statements.

In general, the management philosophy in my store favors…

Highly structured channels of Open channels of communication communication and highly with important financial and restricted access to important operating information flowing financial and operating throughout the organization. information. 1 2 3 4 5

A strong emphasis on holding A strong emphasis on altering

fast to well established management practices as the business practices, despite changes environment changes, without too in business conditions. 1 2 3 4 5 much concern for past practices.

Tight formal control of most Loose, informal control and heavy operations by means of dependence on informal sophisticated control and relationships and norms of information systems. 1 2 3 4 5 cooperation for getting work done.

A strong emphasis on ensuring A strong tendency to let the that employees adhere closely requirements of the situation and to their formal job the employee’s personality define descriptions. 1 2 3 4 5 proper on-the-job behavior.

Formalization and centralization were measured with items adapted from widely

used scales that were developed by Aiken and Hage (1968) and Ferrell and Skinner (1988),

with the latter based on earlier work by John (1984). The three-item formalization scale

shown below measured the extent to which jobs in the organization were codified and

emphasized observing rules. These items were scored on a 5-point scale ranging from

“strongly disagree” to “strongly agree”. The first and third items were reverse coded. The

three-item centralization scale to measure the degree of hierarchical authority in a store is

shown below. These three items were scored on a 5-point scale ranging from “strongly

disagree” to “strongly agree”.

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B. Formalization Please indicate the extent to which the following items describe your store, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.

Strongly disagree Strongly agree Employees in our store are allowed to make their own decisions without checking with anybody else ............ 1 2 3 4 5 My usual experience with our store involves doing things “by the rule book”.................................................... 1 2 3 4 5 Many activities in my store are not covered by formal procedures.................................................................... 1 2 3 4 5 C. Centralization

Strongly disagree Strongly agree Even small matters in our store must be referred to someone higher up for a final answer........................................... 1 2 3 4 5

Any major decisions that employees make must have the approval of top managers ....................................................... 1 2 3 4 5 Employees who want to make their own decisions would be quickly discouraged ...................................... 1 2 3 4 5

Store Performance

Section 6 of the questionnaire was designed to measure financial performance

using a set of well established perceptual measures of financial performance from the

literature (Boyd, 1991; Miller & Friesen 1984; Powell, 1995; Ramanujam, Venkatraman,

& Camillus, 1986). In the first part of this section, the respondents were asked to rate

their degree of satisfaction with their stores’ performance in six categories (return on

investment, earnings growth, sales growth, market share, return on assets, and cash flow)

relative to other stores in their industry. The second part of Section 6 of the questionnaire

asked the respondents about their degree of satisfaction with their stores’ financial

performance in the same six categories noted above in comparison to their stores’ key

competitors.

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Section 6 Please rate your degree of satisfaction with your store’s overall performance in each of the following areas compared to other stores in your industry, with 1 = highly dissatisfied and 5 = highly satisfied. Circle the most appropriate number. Highly Highly dissatisfied satisfied

a. Return on investment...................................................... 1 2 3 4 5

b. Earnings growth ............................................................. 1 2 3 4 5

c. Sales growth ................................................................... 1 2 3 4 5

d. Market share ................................................................... 1 2 3 4 5

e. Return on assets.............................................................. 1 2 3 4 5

f. Cash flows ...................................................................... 1 2 3 4 5

Please indicate, your degree of satisfaction with your store’s performance in each of the following areas compared to the store’s key competitors, with 1 = highly dissatisfied and 5 = highly satisfied. Circle the most appropriate number. Highly Highly dissatisfied satisfied

g. Return on investment...................................................... 1 2 3 4 5

h. Earnings growth ............................................................. 1 2 3 4 5

i. Sales growth ................................................................... 1 2 3 4 5

j. Market share ................................................................... 1 2 3 4 5

k. Return on assets.............................................................. 1 2 3 4 5

l. Cash flow……………………………………………….1 2 3 4 5

Pilot Test of the Survey Instrument

Before distributing the primary survey, a pilot test was conducted by sending the

questionnaire to a sample of managers in 10 South Korean retail stores and to five faculty

members in a major university in South Korea. A pilot test of a measurement instrument

can help insure that the instrument measures what is intended for a study, check for

reliability, and improve the quality of the questionnaire (Conant & Mokwa, 1986). In the

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pilot test in this research, managers in the retail firms were asked to complete the self-

administered questionnaire in Korean and provide comments relating to content, wording,

comprehension, time to complete the questionnaire, and appropriateness of questions.

The five South Korean faculty members were asked to review the questionnaire in

Korean for content, wording, comprehension, and appropriateness of questions with their

knowledge of research methodology and strategic management and South Korean

retailing industry.

Reliability and Validity of the Survey Questionnaire

Reliability and validity are important issues in the measurement of research

variables. Neuman (2003) explained that both issues concern the accuracy of measures

or indicators. It is virtually impossible to achieve perfect reliability and validity.

Reliability

Reliability is the degree to which the measure of a variable contains error (Stone,

1978). It deals with an indicator’s dependability. A dependable indicator provides

information that does not vary as a result of the characteristics of the indicator, instrument,

or measurement design itself. According to Stone, the definition of reliability can be

approached in three ways. First, if the same set of objects is measured again and again

with the same or a comparable measuring instrument, the same or similar results will be

obtained each time. The second approach involves the question of whether the measures

obtained from a measuring instrument are the “true” measures of the property. This

question addresses the accuracy of an instrument. Finally, one may inquire into the error

of measurement. Measurement errors can be either systematic or random. Systematic

variance of a measure biases the results toward high or low, or positive or negative values.

Random, or error, variance is self-compensating in that obtained values tend to be first

one way and then the next.

Neuman (1994) identified three types of reliability: stability, representative, and

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equivalence. Stability reliability addresses the question of whether or not a measure

delivers the same answer across different time periods. This is examined by the test-

retest method. Representative reliability concerns sub-populations. It addresses the

question of whether a measure delivers the same answer across different sub-populations.

Neither stability nor representative reliability were addressed in this study, largely due to

financial and time limitations. Finally, equivalence reliability concerns multiple

indicators, that is, the question of whether different indicators yield consistent results.

This study addressed equivalence reliability by using Cronbach’s alpha statistical test.

Validity

Validity refers to the degree to which a measure actually measures what it is

supposed to measure (Nunnally, 1967). Neuman (1994) explained that it refers to the

degree of fit between a construct and the indicators of the construct, or how well the

conceptual and operational definitions fit with each other. In this study, face and content

validity were assessed. A specialist group judged face validity in terms of whether the

indicators in the questionnaires really measured the constructs they were intended to

measure. This was part of the pilot test. The specialist group consisted of university

faculty members who were familiar with research methodology and with strategic

management and the South Korean retailing industry. As is face validity, content validity

is a judgmental question (Stone, 1978). Content validity involves the question of whether

a measure of a construct represents the full content of the definition of the construct. To

address the content validity issue in a study, the main variables are measured by several

attributes (Churchill, 1979; Farh, Hoffman, & Hegarty, 1984). To reduce the threat to

content validity in the present study, the questions included in the questionnaire to

measure the variables had a basis in the literature. In addition, the specialist group of

competent judges mentioned above assessed the questions for content validity.

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Statistical Analysis

The data analysis to address the research objectives and test the hypotheses

involved the use of descriptive statistics, condition indices, Pearson correlations, the

variance inflation factor (VIF), Cronbach’s alpha, goodness of fit, and path analysis with

structural equations modeling (SEM). Table 4 summarizes the statistical techniques that

were used. The Statistical Package for the Social Sciences (SPSS) and Analysis of

Moment Structures (AMOS) program were used in the data analysis. The descriptive

statistics calculated in this study include averages, frequency distributions, standard

deviations, and correlations of the response values in Section A of the questionnaire to

provide profiles of the respondents and their stores. In addition, Pearson correlation

coefficients between the research variables, as well as the variance inflation factor and

the condition number of each variable, were calculated to help detect multicollinearity.

Preliminary Data Analysis

According to Pedhazur (1982), multicollinearity is a threat to the interpretation of

the influence of independent variables on the dependent variable in a regression.

Multicollinearity is a result of strong correlations between independent variables

(Wesolowsky, 1976). Multicollinearity exists when the predictors are highly correlated

with each other (typically above .90) (Allison, 1999). If independent variables are highly

correlated, the influence of each of those variables on the dependent variable may be

misinterpreted.

The presence of multicollinearity between independent variables makes it

impossible to separate the effects of two (or more) of them on a dependent variable. If

two variables are significantly collinear, it becomes impossible to determine which of the

variables accounts for the variance in the dependent variable. The problem primarily

occurs when independent variables are more highly correlated with each other than they

are with the dependent variable (Lynch, 2003). The examination of the correlations

(continuous and ordinal variables) and associations (nominal variables) between

independent variables was the first diagnostic tool for detecting the multicollinearity

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Table 4

Statistical Analysis Technique

Objective of Use

Related Hypotheses

Descriptive Statistics

To describe the sample and summarize the raw data

N/A

Cronbach’s Alpha

To evaluate the reliability of indicators of constructs

N/A

Pearson Correlations

To examine the correlations between the of independent variables in regression

N/A

Variance Inflation Factor (VIF)

To detect multicollinearity

N/A

Goodness of Fit

To determine the goodness of fit between the hypothesized model and the sample data

N/A

Structural Equations Modeling (SEM)

To examine relationships among the constructs

H1-10

127

problem (“Multicollinearity in Logistic,” n.d.). Collinearity among more than two

independent variables cannot be detected, however, by viewing a correlation matrix of

the independent variables. Correlation matrices will not reveal higher-order collinearity

(“Condition Indicies,” 2003). A better diagnostic tool for detecting mulitcollinearity is

the variance inflation factor (VIF), which represents the inflation that each regression

coefficient experiences above the ideal. The VIF is better for detecting mulitcollinearity

because it builds in the regressing of each independent on all the others. Inspection of the

correlation matrix reveals only bivariate multicollinearity, with the typical criterion being

bivariate correlations > .90. The VIF for the ith independent variable equals 1/1-Ri2,

where Ri2 is the square of the coefficient of multiple determination of regression, which is

produced by regressing variable Xi against the other independent variables. The ith

independent variable has a strong linear association with the remaining independent

variables when its VIF value is large. A VIF value can range from 1 to infinity. If a VIF

is larger than 10, critical multicollinearity is indicated (Myers, 1990). A variable with a

low condition index is said to be well conditioned, and one with a high condition index is

said to be ill conditioned (“Condition Number,” 2005). A condition index can range

between 0 and 100 .Condition indices between 30 and 100 indicate moderate to strong

collinearity.

Cronbach’ alpha was used to assess the reliability of the measures. Cronbach’s

alpha measures how well a set of variables measures a single unidimensional latent

construct. When data have a multidimensional structure, Cronbach’s alpha will be low.

A Cronbach’s alpha reliability coefficient of .60 or higher was considered acceptable in

this study.

It is important to determine whether a models used in a study adequately reflects

the sample data. This is called "goodness of fit". Goodness of fit is a statistical test in

which the validity of one hypothesis is tested without specification of an alternative

hypothesis (Bock, 1998). The task is to determine the goodness of fit between the

hypothesized model and the sample data. In this study, goodness of fit was tested by

three types of measures: absolute goodness-of-fit measures, incremental fit measures, and

parsimonious fit measures.

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Data Analysis for Hypothesis Testing

The following describes the statistical analysis conducted to test the research

hypotheses that are listed earlier in this chapter. A structural equations model (SEM) was

used to test hypotheses 1-10. An analysis under SEM is for examining a series of

dependence relationships simultaneously in a research model. This technique provides a

straightforward method of dealing with multiple relationships simultaneously, while

providing high statistical efficiency. SEM develops a systematic and holistic view of

problems by assessing the relationships among a set of variables comprehensively (Hair,

Anderson, Tatham, & Black, 1995). SEM is used to evaluate a system of non-

manipulated constructs and to infer causal relationships among the constructs (Billings &

Wroten, 1978). In applying SEM in testing hypotheses 1-10, ordinary least squares

regression was used to estimate causal relationships among the indicated set of variables.

The details of the data analysis under SEM are presented in the next chapter.

Summary

This chapter presented the design of the proposed model on the strategic

management process, which is based on an extensive review of the relevant literature.

The hypotheses and research framework were also discussed. Following this was a

discussion of how the constructs and variables were selected and operationalized for the

investigation of the relationships among the constructs. Then, the data collection and

sampling procedure, as well as the survey instrument were described. Finally, this

chapter indicated the statistical techniques used for the preliminary data analysis and for

testing the hypotheses. The results of the statistical analysis and hypotheses testing are

presented in the next chapter.

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CHAPTER 5

RESEARCH RESULTS AND DISCUSSION

The purpose of this research is to determine (a) the interrelationships among the

different components of South Korean retailers’ management strategies, (b) the effects of

perceived environmental uncertainty on the components of South Korean retailers’

management strategies, (c) the impact of the components of South Korean retailers’

management strategies on their stores’ performance, and (d) the market-orientation

strategies that South Korean retailers have implemented to survive and prosper in the

competitive environment they currently face. This chapter presents and discusses the

results of the data analysis and hypothesis testing. The chapter also presents the

conclusions drawn from the results. The chapter includes the following sections: (a)

return rate of the survey; (b) profile of the sample; (c) instrument reliability; (d)

preliminary analysis of the measured variables; (e) results of the hypothesis testing; (f)

discussion of the results; and (g) the conclusions.

Return Rate of the Survey

A self-administrated, questionnaire was sent by mail in July 2005 to a ststematic

sample of 1,000 apparel retail stores in Seoul, Busan, Suwon, Daejeon, and Daegu, with

100 retail stores per city. Reminder phone calls were made a week after mailing the

questionnaire.

A total of 427 surveys was returned, for a 42.7% response rate. Initially, 229

completed surveys were returned, including 75 from Seoul, 76 from Suwon, 48 from

Daejeon, and 30 from Busan. Another 198 were returned after the follow-up phone calls,

including 50 from Seoul, 24 from Suwon, 8 from Busan, and 116 from Daegu. Of the

427 returned surveys, 27 were unusable for the final data analysis and were eliminated

(see Table 5). After eliminating those from respondents who did not meet the sample

criteria and those completed incorrectly, 400 were kept for data analysis, for an overall

response rate of 40.0%. The retained questionnaires included some that were considered

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Table 5

Survey Response Rates by City

Cities

Initial Respondents

(Non-respondents)

Final Respondents

Seoul

125 ( 75)

114

Suwon 100 (100) 94

Busan 38 (162) 34

Daejeon 48 (152) 48

Daegu 116 ( 84) 110

Total

427 (573)

400

Note. The final respondents were those who remained after eliminating unusable questionnaires.

131

useable even though they did not have all the questions answered. The computer

programs used for each part of the statistical analysis replaced missing values for

variables included in the respective statistical procedures.

Demographic Profile of the Sample

This section describes the demographic characteristics of the overall sample of the

400 respondents whose responses were used in the final data analysis. The largest

portion of the respondents’ was shop managers (53.3%), followed by presidents (16.3%),

sales persons (15.8%), and assistant managers (6%) (see Table 6). Even though they are

not considered top managers, the sales persons were included for the data analysis

because they are presumed to have enough knowledge to answer the questions because

top managers in Korean stores often keep sales persons apprised of details of the stores’

operations and performance. As with any other respondent, a sales person who did not

know the answer to a question could leave it blank. The most common lengths of time

the respondents had been employed in the stores where they currently worked were, in

order by frequency, less than one year (17.2%), two years (14.8%), three years (13.0%),

one year (7.3%), and four years (7.3%) (see Figure 3). In terms of years of employment

in retailing in Korea, 29.8% of the respondents had worked in this industry for five or

fewer years, 10.3% had worked for 10 years in this industry, and 27% of them had

worked in the industry for more than 10 years (see Figure 4).

Most of the stores where respondents worked had opened between 2000 and 2003

(35%) (see Figure 5), and most had less than five employees (60.8%) (see Figure 6).

When the respondents were asked whether the number of employees in their stores had

increased, decreased or stayed the same since the store opened, 46.8% said the number

had stayed the same, 31.3% said it had increased, and 17.0% said the number of

employees had been decreased since their stores opened. To the question about whether a

respondent’s store was the only in the company, 56% said their stores were not the only

stores in their companies and 42% said they were.

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Table 6

Respondents’ Job Titles

Respondents’ Job Titles

Frequency

Percent

Assistant Manager

24

6.0

Auditor 1 0.3 Deputy Manager 4 1.0 Director 1 0.3 Executive Director 1 0.3 General Manager 8 2.0 Manager 13 3.3 President 65 16.3 Senior Executive Director 1 0.3 Secretary 1 0.3 Shop Manager 213 53.3 Sales Person 63 15.8 Treasurer 1 0.3 No Response 4 1.0

Total

400

100.0

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Figure 3. Respondents’ Years of Employment in the Stores Where They Currently Worked

Years Figure 4. Respondents’ Length of Employment in the Korea Retailing Industry

0.00 5.00 10.00 15.00 20.00 25.00 30.000

10

20

30

40

50

60

70

Freque

ncy

Years

0.00 5.00 10.00 15.00 20.00 25.000

10

20

30

40

50

60

70

Freque

ncy

134

Figure 5. Years When the Respondents’ Stores Opened

1975 1980 1985 1990 1995 2000 20050

20

40

60

80

100

Freque

ncy

Years Figure 6. Number of Employees per Store

1 3 5 7 9 10 13 16 27 98 150

190

250

400

500

800

2004

2600

5000

7000

0

5

10

15

20

25

Perce

nt

Number of Employees

135

Instrument Reliability

Cronbach’s alpha values were computed to test the internal consistency aspect of

reliability of the multi-item scales measuring perceived environmental uncertainty, top

management’s willingness to adapt to a changing market, market-orientation strategy,

organicity of organizational structure, and store performance. All of these five scales had

alpha values greater than .60 (see Table 7). A scale is considered to have good reliability

if it has an alpha value greater than .60 (Schuessler, 1971). Reliability estimates between

0.6 and 0.7 represent the lower limit of acceptability for reliability estimates (Hair et al.,

1998). The determination was made, therefore, to use an alpha value greater than 0.6 to

indicate reliability in this study. The coefficients shown in Table 18 indicate good

reliability for the five multi-item variables (i.e., perceived environmental uncertainty, top


organicity of organizational structure, and store performance.)

Table 7

Cronbach’s Alpha Coefficients

Scales

Cronbach’s

Alpha

Perceived Environmental Uncertainty (10 items total)

0.69

Top Management’s Willingness to Adapt to Changing Market (6 items total)

0.67

Market Orientation Strategy (14 items total)

0.81

Organicity of Organizational Structure (10 items total)

0.64

Store Performance (12 items total)

0.94

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Mean Ratings and Standard Deviations of the Variables

The research variables are perceived environmental uncertainty, top


organicity of organizational structure, and store performance. Tables 8-11 show the mean

ratings (scores) and standard deviations for each of these variables and for the items

(statements) in the questionnaire for measuring the variables. The tables list the items in

the order they appeared in the questionnaire. The response format for each item was a 5-

point scale, ranging from strongly disagree (1) to strongly agree (5), for all but the

specialization component of organicity of organizational structure. A 5-point scale was

also used to measure specialization, but this scale measured the degree to which either of

two dichotomous statements in each items described the management philosophy in a

respondent’s store.


Perceived environmental uncertainty includes two factors: market turbulence,

with four items; and competitive intensity, with six items. Table 8 shows the mean scores

and standard deviations for those 10 items and for the two perceived environmental

uncertainty factors. As shown in the table, the mean scores for market turbulence and

competitive intensity are both in the mid range of the scale, although that for market

turbulence (3.47) slightly exceeds that for competitive intensity (3.28). Overall, the

respondents tended to agree that their stores’ customers were price sensitive at times, but

not at other times (m = 3.34). Somewhat more strongly, they agreed that their stores were

witnessing demand for their products and services from customers who never bought

them before (m = 3.48). This suggests that they perceived customers as not being loyal to

just one store. The two remaining items for market turbulence received the highest mean

scores (3.52 and 3.53). The respondents agreed, on average, that the product-related

needs of their stores’ new customers tended to differ from those of their existing

customers and that their stores’ customers were always looking for new products.

When it comes to competitive intensity in the retailing industry, the following two

137

Table 8

Means and Standard Deviations for Perceived Environmental Uncertainty Perceived environmental uncertainty

Means

SD

Market turbulence

3.47

1.09

Sometimes our customers are very price sensitive, but on other occasions, price is relatively unimportant to them.

3.34

1.12

We are witnessing demand for our products and services from customers who never bought them before.

3.48

1.07

New customers tend to have product-related needs that are different from those of our existing customers.

3.52

1.12

Our customers tend to look for new products all the time.

3.53

1.05

Competitive intensity

3.28

0.94

Many promotion wars occur in our industry.

3.68

1.13

Anything that one competitor in our industry can offer, others can match readily.

3.67

1.15

One hears of new competitive moves in our industry almost every day.

3.56

.99

The current business environment is threatening the survival of our store.

2.76

1.12

Tough price competition is threatening our store.

3.06

1.18

Competitors’ product quality or novelty is threatening our store.

2.93

1.22

138

items received the highest and nearly equal mean scores: many promotion wars occur in

the industry (m = 3.68); and anything that one competitor could offer, others could match

readily (m = 3.67) (see Table 19). The respondents agreed somewhat less strongly with

the statement that one hears of new competitive moves in their industry almost daily (m =

3.58). Finally, three items dealing with competitive intensity received mean scores in the

2.76 to 3.06 range and all involve threats to the respondents’ stores. Those threats are the

current business environment in general, tough price competition, and competitors’

product quality or novelty. All together, it appears that the respondents perceived a

medium amount of competitive intensity in the retailing industry.


Top management’s willingness to adapt to a changing market includes two factors

with three items each: top-management emphasis; and top-management risk aversion.

Table 9 shows the mean values and standard deviations for those six items and for the

two factors of top management’s willingness to adapt a changing market. As shown in

the table, the mean scores for top-management emphasis are somewhat above the mid

range of the scale. The emphasis with the highest mean score is a belief that serving

customers is the most important thing the respondents’ businesses do (m = 4.13). In

addition, the respondents expressed a belief that their stores’ survival depended on

adapting to market trends (m = 3.74). Perhaps related to this, they also said that they

often tell employees to be sensitive to the activities of their stores’ competition (m = 3.47).

For top-management risk aversion, note that the last item shown in the Table 9

was reverse coded; thus, for all three items, the higher the score, the more the willingness

to take risks and; conversely, the lower the score, the more the risk aversion. The

respondents fairly strongly agreed that high financial rewards were worth high financial

risks (m = 3.24). They agreed less strongly that their stores’ top managers liked to take

big financial risks (m = 3.00), but even less strongly that the top managers liked to

implement plans only if they were certain to work (m = 3.30). Taken together, and

considering the overall mean score of 2.98 for top-management risk aversion, it appears

the stores’ managers were not big risk takers but nor were they very averse to accepting

139

Table 9

Means and Standard Deviations for Top Management’s Willingness to Adapt to a Changing Market Top management’s willingness to adapt to a changing market

Means

SD

Top-management emphasis

3.78

1.08

I believe that our store’s survival depends on its adapting to market trends.

3.74

1.10

I often tell employees to be sensitive to the activities of our competition.

3.47

1.10

I believe that serving customers is the most important thing our business does.

4.13

1.03

Top-management risk aversion

2.98

1.05

I believe that it is worth taking high financial risks for high rewards.

3.24

1.08

Top managers in my store like to take big financial risks.

3.00

1.06

Top managers in my store like to implement plans only if they are very certain they will work.

3.30

1.02

Note. The last item in top-management risk reversion was reverse coded.

140

some risk.


Market-orientation strategy includes four factors: intelligence generation, with

three items; intelligence dissemination, with five items; response design, with three

items; and response implementation, with three items. As shown in Table 10, the mean

scores for intelligence generation, intelligence dissemination, response design, and

response implementation are all in the mid range of the measurement scale, although that

for one item in response design is below 3.00.

Intelligence generation has a mean score of 3.32. The intelligence-generation

item with the highest mean score is a lot of in-house market research in the respondents’

stores (m = 3.45). Along with this, the respondents tended to agree that their stores’

personnel periodically reviewed the effects of changes in their business environment on

customers (m = 3.36) and collected industry information through informal means (m =

3.16).

Intelligence dissemination has a mean score of 3.41. The intelligence-

dissemination items address the means of disseminating information among store

personnel, the types of information disseminated, and the extent of information

dissemination among store personnel. These three issues are intermixed in the

intelligence-dissemination items. On the basis of the mean scores for the first three items

listed under intelligence dissemination in Table 10, the most common way of

disseminating intelligence in the respondents’ stores was interdepartmental meetings at

least quarterly, followed by discussions of marketing personnel with other functional

departments and lastly informal talk among store employees. Types of information

disseminated among store personnel are included in each intelligence-dissemination item

(see Table 10). It is not surprising that the most common types of information

disseminated were the most general, that is, market trends and developments as well as

important things happening to major customers or market segments. These are contained

in the second and fourth intelligence-dissemination items listed in Table 10. The next

most common types of disseminated information were customer-satisfaction data and

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Table 10

Means and Standard Deviations for Market-Orientation Strategy Market-orientation strategy

Means

SD

Intelligence generation

3.32

1.08

In my store, we do a lot of in-house market research.

3.45

1.05

We collect industry information through informal means.

3.16

1.16

We periodically review the likely effects of changes in our business environment (e.g., regulation ) on customers.

3.36

1.02

Intelligence dissemination

3.41

1.15

A lot of informal talk among employees in our store concerns our competitors’ tactics or strategies.

3.15

1.10

We have interdepartmental meetings at least once a quarter to discuss market trends and developments.

3.56

1.25

Marketing personnel in our store spend time discussing customers’ future needs with other functional departments in the store.

3.44

1.04

When something important happens to major customers or market segments, all the store’s employees know about it in a short period.

3.52

1.14

Data on customer satisfaction are disseminated at all levels in our store on a regular basis.

3.49

1.09

(table continues)

142

Table 10 (continued). Market-orientation strategy

Means

SD

Response design

3.47

1.11

It takes us a long time to decide how to respond to our competitors’ price changes.

3.14

1.20

We periodically review our product development efforts to ensure that they are in line with what customers want.

3.67

1.13

Several departments in my store get together periodically to plan responses to changes taking place in our business environment.

3.60

0.99

Response implementation

3.59

1.10

If a major competitor were to launch an intensive campaign targeted at our store’s customers, we would implement a response immediately.

3.56

1.11

When my store finds out that customers are unhappy with the quality of our service, we take corrective action immediately.

3.85

1.06

We are quick to respond to significant changes in our competitors’ pricing structures.

3.37

1.14

Note. The first item in response design was reverse coded.

143

customers’ future needs. Less so, but still common, were competitors’ tactics or

strategies, contained in the first item listed under intelligence dissemination in the table.

The means scores for the last two items under intelligence dissemination in Table 10

(3.52 and 3.49) suggest fairly widespread dissemination of customer-related information

among store employees. The manner of stating the other three items in this section allow

less definite conclusions about how widespread the respondents considered the

information dissemination; for example, the interdepartmental meetings in the second

item may or may not have involved all store employees.

Response design has a mean score of 3.47. The response-design item with the

highest score is periodically review product development efforts to ensure that they are in

line with what customers want (m = 3.67). In addition, the respondents tended to agree

that several departments in their stores get together periodically to plan responses to

changes in the business environment (m = 3.60). The response-design item with the

lowest mean score is it takes a long time to decide how to respond to competitors’ price

changes (m = 3.14). Note that, because this item was reverse coded, the respondents

tended to disagree with this statement.

Response implementation has a mean score of 3.59. The most common type of

response to market intelligence that the sample stores implemented appears to have been

immediate corrective action when customers were found to be unhappy with the quality

of the service a store (m = 3.85). Somewhat less, but still relatively common responses to

market intelligence were implementing an immediate response if a major competitor

launched on intensive campaign aimed at a store’s customers (m = 3.56) and responding

quickly to significant changes in competitors’ pricing structures (m = 3.37).


Organicity of organizational structure includes three factors: formalization, with

three items; centralization, with three items; and specialization, with four items. Table 11

shows the mean values and standard deviations for those 10 items. As shown in the table,

the mean scores for formalization, centralization, and specialization range from 3.06 to

3.26, which are in the mid range of the scale. This range of mean scores suggests that the

144

Table 11

Means and Standard Deviations for Organicity of Organizational Structure Organicity of organizational structure

Means

SD

Formalization

3.06

1.12

Employees in our store are allowed to make their own decisions without checking with anybody else.

3.05

1.17

My usual experience with our store involves doing things “by the rule book.”

3.38

1.06

Many activities in my store are not covered by formal procedures.

3.14

1.13

Centralization

3.26

1.16

Even small matters in our store must be referred to someone higher up for a final answer.

3.56

1.16

Any major decisions that employees make must have the approval of top managers.

3.39

1.23

Employees who want to make their own decisions would be quickly discouraged.

2.83

1.08

Note. The first and third formalization items were reverse coded. (table continues)

145

Table 11 (continued). Organicity of organizational structure

Means

SD

Specialization

3.24

1.24


Highly structured channels of communication and highly

restricted access to important financial and operating information.

Versus

Open channels of communication with important financial operating information flowing throughout the organization.

3.22

1.26

A strong emphasis on holding fast to well established

management practices, despite changes in business conditions. Versus

A strong emphasis on altering practices as the business environment changes, without too much concern for past practices.

3.42

1.22

(table continues)

146


Organicity of organizational structure

Means

SD

Specialization

3.24

1.24


Tight formal control of most operations by means of

sophisticated control and information systems. Versus

Loose, informal control and heavy dependence on informal relationships and norms of cooperation for getting work done.

3.09

1.16

A strong emphasis on ensuring that employees adhere closely

to their formal job descriptions. Versus

A strong tendency to let the requirements of the situation and the employee’s personality define proper on-the-job behavior.

3.23

1.32

147

structures of the respondents’ stores were fairly formalized, centralized, and specialized

and thus somewhat more mechanistic than organic. In the formalization category, the

respondents tended to agree that they had experienced doing things “by the rule book” in

their stores (m = 3.38). In addition, given the reverse coding of the first and third

formalization items, the respondents tended to disagree that their stores’ employees could

make their own decisions without checking with anybody else (m = 3.05) and that many

activities in their stores were not covered by formal procedures (m = 3.14).

The overall mean score of 3.26 for centralization suggests a moderate degree of

centralized decision making in the respondents’ stores. This mean score is, however, the

result of some ambivalence on the part of the respondents. Although they indicated the

need to refer even small matters to someone higher up for a final answer (m = 3.56), they

agreed somewhat less strongly that employees’ major decisions required top managers’

approval (m = 3.39) and even less strongly that employees would be quickly discouraged

from making their own decisions (m = 2.83).

In considering the mean scores for specialization in Table 11, it is important to the

bottom item on the right and with the 1-5 scale between them. This means, in terms of

Table 11, that the higher (lower) the score, the stronger a respondent’s indicated belief

that the bottom (top) item described the management philosophy in that individual’s store.

Further, this means that the lower the score, the less specialization a store’s management

philosophy favored, and conversely, the higher the score, the more specialization was

favored in terms of labor division in the store.

The mean score of 3.22 for the first specialization pair indicates a slight leaning

toward a management philosophy that favors open channels of communication with

important financial operating information flowing throughout a store organization. The

mean score of 3.42 for the second specialization pair suggests that somewhat more

tendency toward specialization, in leaning toward a philosophy that favors a strong

emphasis on altering practices as the business environment changes, without much

concern for past practices. On the other hand, the mean score of 3.09 for the third

specialization pair indicates respondents’ neutral position on whether their stores’

management philosophy favored tight, formal control or loose, informal control. Finally,

the mean score of 3.23 for the fourth specialization pair indicates respondents’ slight item

148

in each listed pair on the left and leaning toward believing that their stores’ management

philosophy favored letting the requirements of situations and employees’ personalities

define proper on-the-job behavior.


Satisfaction with store performance includes two factors, each with six items:

compared to other stores in the industry; and compared to key competitors of a

respondent’s store. The two factors include the same six measures of store performance.

Table 12 shows the mean scores and standard deviations for the 12 components of store

performance and for the two store performance factors. Overall, the respondents tended

to be satisfied with their stores’ performance compared to other stores in the industry (m

= 3.11) and to the stores’ key competitors (m = 3.10). The mean scores differed little for

the different performance measures within and between the two factors, ranging only

over 3.00 and 3.21; however, the respondents expressed the most satisfaction with market

share, whether compared to other stores in the industry (m = 3.21) or to key competitors

(m = 3.17).

Pearson Correlations for Measured Variables

This section reports the Pearson correlations between the measured constructs that

compose each of the research variables. The correlations are examined to see linear

relationships between the variables or constructs.

The presentation of the correlation coefficients begins with those between the

constructs of each of the variables, which include perceived environmental uncertainty,

top management’s willingness to adapt to a changing market, market-orientation strategy,

organicity of organizational structure, and store performance. Then, the correlations

among all the constructs are presented. Note that the sample size for each construct is

400. Despite missing responses from participants in some cases for each construct,

149

Table 12

Means and Standard Deviations for Satisfaction with Store Performance Satisfaction with store performance

Means

SD

Compared to other stores in your industry

3.11

1.03

Return on investment

3.06

.96

Earnings growth

3.08

1.01

Sales growth

3.17

1.09

Market share

3.21

1.08

Return on assets

3.10

0.98

Cash flow

3.03

1.05

Compared to the store’s key competitors

3.10

1.02

Return on investment

3.00

1.03

Earnings growth

3.09

0.99

Sales growth

3.02

0.98

Market share

3.17

1.06

Return on assets

3.05

1.02

Cash flow

3.00

1.05

150

AMOS, the computer program used for the correlation analysis provided values for the

missing responses through the full-information maximum likelihood method. The

correlation coefficients indicated in the text and tables in this section were calculated

after replacing the missing values.

Three of the variables include only two constructs. One such variable is

perceived environmental uncertainty, whose two constructs – market turbulence and

competitive intensity – are significantly and positively correlated (r = 0.297). This

indicates that the stronger (weaker) respondents’ perception of market turbulence, the

more strongly (weakly) they perceived competitive intensity in the retailing industry.

Another variable with two constructs is top management’s willingness to adapt to a

changing market. Its two constructs – top-management emphasis and risk aversion – are

positively and significantly correlated (r = 0.104). This indicates that the more (less) risk

the top managers in the respondents’ stores were willing to take, the more they

emphasized market-oriented activities. The third two-construct variable is satisfaction

with store performance, for which satisfaction with performance relative to other stores in

the Korean retailing industry and relative to key competitors are significantly and

positively correlated (r = 0.777). This indicates that the higher (lower) the respondents’

satisfaction with their stores’ performance compared to other stores in the retailing

industry, the higher (lower) their satisfaction with the performance compared to key

competitors.

Table 13 shows the correlation matrix for the four constructs of market-

orientation strategy. The results show positive and significant correlations among these

four constructs. Thus, for example, the greater (lesser) the stores’ market intelligence

generation, the greater (lesser) their market intelligence dissemination, market response

design, and market response implementation.

Table 14 shows the correlation matrix for the three constructs of organicity of

organizational structure: centralization, formalization, and specialization. Centralization

and formalization are each significantly correlated with one of the other two organicity

constructs. The positive correlation between centralization and specialization indicates

counterintuitively that the more (less) centralized the decision making in the stores, the

more (less) specialization occurred in the stores. The negative correlation between

151

Table 13 Pearson Correlation Coefficients for Market-Orientation Strategy

MOSIG

MOSID

MOSRD

MOSRI

MOSIG

1.000

MOSID

0.500**

1.000

MOSRD

0.262**

0.212**

1.000

MOSRI

0.314*

0.344**

0.334**

1.000

Note. The correlation coefficients were calculated after replacing missing values. MOSIG: market-orientation strategy – intelligence generation MOSID: market-orientation strategy – intelligence dissemination MOSRD: market-orientation strategy – response design MOSRI: market-orientation strategy – response implementation **. p < 0.01, two-tailed

Table 14

Pearson Correlation Coefficients for Organicity of Organizational Structure

OOSCEN OOSFOR

OSSSPE

OOSCEN

1.000

OOSFOR

-0.001

1.000

OSSSPE

0.148**

-0.138**

1.000

Note. The correlation coefficients were calculated after replacing missing values. OOSCEN: organicity of organizational structure –centralization OOSFOR: organicity of organizational structure –formalization OOSSE : organicity of organizational structure –specialization *. p < 0.05, **. p < 0.01, 2-tailed

152

formalization and specialization indicates that the more (less) formalization in the stores’

structures, the less (more) specialization of functions in the stores.

Correlation Coefficients Among the Constructs

Finally, the correlation matrix for all the constructs in the measured variables

indicated that 50 of the 78 correlations among the constructs were statistically significant

at p < 0.01(see Table 15). This result implies strong relationships among the constructs,

which is one of the preliminary conditions for structural equation modeling.

Multicollinearity Diagnostics

The collinearity among the independent variables was examined through variance

inflation factors (VIF) and condition indices. The presence of multicollinearity between

independent variables makes it impossible to separate the effects of two (or more) of

them on a dependent variable. If two variables are significantly collinear, it becomes

impossible to determine which of the variables accounts for variance in the dependent

variable. The problem primarily occurs when independent variables are more highly

correlated with each other than they are with the dependent variable (Lynch, 2003).

Collinearity among more than two independent variables cannot be detected by viewing a

correlation matrix of the independent variables. Correlation matrices will not reveal

higher order collinearity (“Condition Indicies,” 2003). Thus, the VIF and the condition

number of the independent variables were examined.

A condition index k = ( maxλ / minλ )1/2 meaning that it equals the square root of the

largest eigenvalue ( maxλ ) divided by the square root of the smallest eigenvalue ( minλ ). A

variable with a low condition index is said to be well conditioned, and one with a high

condition index is said to be ill conditioned (“Condition Number,” 2005). Condition

indices between 30 and 100 indicate moderate to strong collinearity. The condition index

for each independent variable in this study is below 33, which is acceptable (see Table

16). VIF is calculated by 1/(1-R2i) where R2

i is the squared multiple correlation for the

153

Table 15

Correlation Among the Constructs of the Five Research Variables

MT

CI

TOP EMP

TOP RA

MOS

IG

MOS

ID

MOS RD

MOS

RI

OOS FOR

OOS CEN

OOS SPE

SPI

SPC

MT 1.000 CI .297*** 1.000 TOPEMP -.019 .164** 1.000 TOPRA .066 .144** .104** 1.000 MOSIG .129** .232** .182** .245** 1.000 MOSID .075 .331** .142** .283** .500** 1.000 MOSRD .186** .069 .126 * .085 .262** .212** 1.000 MOSRI .030 .276** .145** .212** .314** .344** .344** 1.000 OOSFOR .063 -.034 .012 -.040 .071 .047 .161** -.168** 1.000 OOSCEN .088 .249** .128* .167** .256** .311** .101* .231** -.001 1.000 OOSSPE .088 .082 .097 .197** .162** .216** .111* .131** -.138** .148** 1.000 SPI .032 .073 -.114 * .238** .238** .186** .082 .213** -.082 .213** .058 1.000 SPC .001 .057 -.035 .230** .230** .142** .038 .115* -.008 .116* .012 .777** 1.000 Note. The correlation coefficients were calculated after replacing missing values. MT: market turbulence; CI: competitive intensity; TOPEMP: top-management emphasis; TOPRA: top-management risk aversion; MOSIG: market

orientation strategy – intelligence generation; MOSID: market orientation strategy – intelligence dissemination; MOSRD: market orientation Strategy – response design; MOSRI: market orientation strategy – response implementation; OOSFOR: organicity of organizational structure - formalization OOSCEN: organicity of organizational structure –centralization; OOSSEP: organicity of organizational structure – specialization; SPI: satisfaction with

store’s performance compared to other stores in the retailing industry; SPC: satisfaction with store’s performance compared to the competitors.

* p < 0.05, ** p < 0.01, two-tailed.

154

Table 16 Collinearity Diagnostics on the Independent Variables – Condition Indices

Variables

Eigenvalue

Condition Index

Constant

9.587

1.000

Market-orientation strategy


0.103

9.639


0.071

11.628

Response design

0.062

12.403


0.052

13.650

(table continues)

155


Variables

Eigenvalue

Condition Index


Formalization

0.042

14.261

Centralization

0.030

17.950

Specialization

0.025

19.598

Store performance

Compared to other stores in the retailing industry

0.012

27.981


0.009

30.166

Note. The dependent variables are perceived market turbulence, perceived competitive intensity, and two components of top management’s willingness to adapt to a changing market (i.e., emphasis and risk aversion).

156

regression of Xi on the other X independent variables. A VIF value of 10, is used to

determine whether collinearity is a problem (Lynch, 2003). The VIF for each

independent variable in this study is less than the standard comparison score of 10, which

indicates mulitcollinearity is not serious (see Table 17).

Incomplete Data

Missing data are almost always a problem in research. Item non-response,

differential attrition of respondents, failure to obtain measurements at equal time intervals,

and unbalanced panel designs used to be difficult to analyze at best and were threats to

the validity of a study. A related technical problem, which is strongly related to validity

threats, is that most multivariate statistical methods require complete data (Little,

Schnabel, & Baumert, 2000). McArdle (1994) noted that missing data can lead to

negative consequences and problems. Because incomplete data can seriously bias

conclusions drawn from an empirical study, they must be addressed, regardless of the

reason for the missing data. The extent to which such conclusions can be biased depends

on both the amount and pattern of missing values.

Incomplete data are sometimes handled by deleting entire records, or pairs of

variables, with missing values. Sometimes a researcher substitutes sample means for the

missing values. These approaches tend to improvise the data so they can be analyzed by

methods designed for complete data, but the use of improvised data has little theoretical

justification (Little & Rubin, 1987; Rubin, 1976).

By far, the most popular method today for dealing with incomplete data is full-

information maximum likelihood (ML) estimation. This is a theory-based approach to

the treatment of missing data (Arbuckle, 1996; Little & Rubin, 1989). ML estimates of

means and covariances are obtained by maximizing with respect to first and second

moments. An ML estimate uses all the information of the observed data, including

information about the mean and variance of missing portions of a variable, given the

observed portions of other variables (Little, Schnabel, & Baumert, 2000). AMOS, the

computer program used in this research for the data analysis to test the hypotheses under

a structural equations model (SEM), uses ML estimation to replace any missing data.

157

Table 17

Collinearity Diagnostics on the Independent Variables – Variance Inflation Factors

Variables

Variance Inflation (VIF)

Market-orientation strategy


1.478


1.498

Response design

1.228


1.372


Formalization

1.145

Centralization

1.179

Specialization

1.097

Store performance

Compared to other stores in the retailing industry

3.142


2.977

Note. The dependent variables are perceived market turbulence, perceived competitive intensity, and two components of top management’s willingness to adapt to a changing market (i.e., emphasis and risk aversion).

158

Because SEM is based on the hypothesis that the covariance matrix follows a

Whishart distribution, complete data are required for calculating the probability density

(Bentler & Chou, 1987; Boomsna, 1985). The Wishart distribution is any of a family of

probability distributions for nonnegative-definite matrix-valued random variables

(Wikipedia, 2005). Betler and Chou (1987), and Boomsma (1985) discussed various

problems that can arise when the covariance structure is based on incomplete data. The

data for the present study are incomplete, with a total of 61 missing values. Table 18

shows the number of missing values for each variable that was replaced by ML with the

AMOS program before performing the SEM analysis.

Overall Fit of the Measurement Model

An absolute-fit index directly assesses how well an a priori model reproduces the

sample data (Rick, 1995). The fit index consists of several statistics, including chi-square,

the non-centrality parameter (NCP), the goodness-of-fit index (GFI), the standardized

root mean square residual (RMSR), and the root mean square error of approximation

(RMSEA). The overall fit of the measurement model in this study was assessed by three

types of measures: absolute goodness-of-fit measures, incremental fit measures, and

parsimonious fit measures. The results of these measures are presented in Table 19.

One type of measure of absolute goodness of fit is likelihood ratio chi-square

statistics. For the model in this study, the chi-square (χ2) value is 166.153 with 55

degrees of freedom and a probability of less than .0001 (p < .0001), which suggests that

the fit of the data to the hypothesized model is not entirely adequate. This statistic

indicates, nevertheless support for believing that the differences between the predicted

and actual matrices are not significant, indicative of an acceptable fit. One of the first fit

statistics to address the problem was the χ2/degrees of freedom ratio (Wheaton, Muthén,

Alwin, & Summers, 1977). A χ2/degrees of freedom ratio less than 3 suggests a well-

fitted model. For the model in this study, the χ2 /degree of freedom ratio is 3.021,

indicating the model is well fitted.

Another measure of absolute goodness of fit is the root mean square residual

159

Table 18

The Research Variables and the Number of Missing Values Replaced for Each

Variables

Missing Values Replaced

Valid Cases

MT1

0

400

MT2 1 400 MT3 0 400 MT4 7 400 CI1 2 400 CI2 1 400 CI3 1 400 CI4 2 400 CI5 1 400 CI6 1 400 TOPEMP1 1 400 TOPEMP2 3 400 TOPEMP3 3 400 TOPRA1 5 400 TOPRA2 8 400 TOPRA3 6 400 MOSIG1 1 400 MOSIG2 2 400 MOSIG3 3 400 MOSID1 5 400 MOSID2 0 400 MOSID3 0 400 MOSID4 1 400 MOSID5 0 400 MOSRD1 0 400 MOSRD2 1 400 MOSRD3 0 400 MOSRI1 1 400 MOSRI2 5 400 MOSRI3 1 400 OOSFOR1 0 400 OOSFOR2 7 400 OOSFOR3 4 400 OOSCEN1 1 400 OOSCEN2 2 400 OOSCEN3 4 400 OOSSPE1 15 400 OOSSPE2 15 400 OOSSPE3 16 400 OOSSPE4 17 400 SPI 12 400 SPC 6 400 Note. MT: market turbulence; CI: competitive intensity; TOPEMP : top management emphasis; TOPRA: top management risk aversion; MOSIG : market orientation strategy – intelligence generation; MOSID: market orientation strategy– intelligence dissemination; MOSRD: market orientation strategy – responsive design; MOSRI: market orientation strategy – responsive implementation; OOSCEN : organicity of organizational structure –centralization; OOSFOR : organicity of organizational structure – formalization; OOSSEP : organicity of organizational structure – specialization; SPI: degree of satisfaction with store’s performance compared to other stores in retailing industry; and SPC: degree of satisfaction with store’s performance compared to key competitors.

160

Table 19 Goodness-of-fit Measures for the Measurement Model

Measures

Goodness-of-fit Statistics

Absolute fit measures

Chi-square 166.153 with 55 df = 3.021 (p < .0001)

NCP 111.153

GFI .944

RMR .033

RMSEA .071

Incremental fit measures

AGFI .908

NFI .838

Parsimonious fit measures

PNFI .591

PGFI .571

CFI .882

IFI .885

RFI

.770

Note. NCP = non-centrality parameter; GFI = goodness-of-fit Index; RMSR = root mean residual; RSMEA = root mean square error of approximation; AGFI = adjusted goodness-of-fit index; NNFI = non-normed fit index; NFI = normed fit index; PNFI = parsimonious normed fit index; PGFI = parsimonious goodness-of-fit index; CFI = comparative fit index; IFI = incremental fit index; and RFI = relative fit index

161

(RMR), which represents the average residual value derived from fitting the variance-

covariance matrix for a hypothesized model, Σ(θ), to the variance-covariance matrix of

the sample data. The standardized RMR represents the average value across all

standardized residuals, and ranges from 0 to 1.00; in a well-fitting model this value will

be small, say, .05 or less. The RMR value of .033 shown in Table 18 for the model in this

study is less than the critical value of .05. Yet another absolute fit statistic is the root

mean square error of approximation (RMSEA). This was first proposed by Steiger and

Lind (1980) and was only recently recognized as one of the most informative criteria in

covariance structure modeling. The RMSEA takes into account the error of

approximation in the population and asks the question, “How well would the model, with

unknown but optimally chosen parameter values, fit the population covariance matrix if it

were available?” (Browne & Cudeck, 1993, pp. 137-138). Any discrepancy, as measured

by the RMSEA, is expressed per degree of freedom, thus making the index sensitive to

the number of estimated parameters in the model. Values less than .05 indicate good fit,

and values as high as .08 represent reasonable errors of approximation in the population

(Browne & Cudeck). MacCallum, Browne, and Sugawara (1996) elaborated on these cut

points and noted that RMSEA values ranging from .08 to .10 indicate mediocre fit and

those greater than .10 indicate poor fit. Given these criteria, the RMSEA value of .068

for the model in this study is acceptable.

The goodness-of-fit index (GFI) measures the relative amounts of variance and

covariance in sample data that are jointly explained by a hypothesized model (Mulaik,

James, Van Alstine, Bennett, Lind, & Stilwell, 1989). The AGIF differs from the GFI

only in that it adjusts for the degrees of freedom in the specified model. The GFI and

AGFI can be classified as absolute indexes of fit (Hu & Bentler, 1995). Both indexes

range from 0 to 1.00, with values close to 1.00 indicating good fit. The values of GFI

(.944) and AGIF (.908) for the model in this study are close to the recommended level of

1.00 (see Table 19). In addition, Bentler and Bonett’s (1980) normed fit index (NFI) has

become the practical measure of choice for incremental fit, as evidenced by the current

“classic” status of their original paper (Bentler, 1992); however, because the NFI tends to

underestimate model fit in cases of small samples, Bentler (1990) revised the NFI to take

sample size into account and proposed the parsimonious comparative fit index (CFI).

162

The values of both the NFI and CFI range from 0 to 1.00. A value greater than .90 for

either was originally considered to represent a well-fitting model (Bentler, 1992), but a

revised cutoff value close to .95 has been recommended (Hu & Bentler, 1999). The

values of NFI (.838) and CFI (.882) for the model in this study are each close to the

recommended level of .95, thus indicating marginally acceptable fit.

Another index of fit shown in Table 30 is the parsimonious goodness-of-fit index

(PGFI), which James, Mulaik, and Brett (1982) introduced to take into account the

complexity of a hypothesized SEM in assessing its overall fit to the sample data. Mulaik,

James, Van Altine, Bennett, Lind, and Stulwell (1989) noted that PGFI values in the .50

range are not unexpected. Thus, the PGIF value of .571 found for the model in this study

would seem to be consistent with the other fit statistics mentioned above. The relative fit

index (RFI) represents a derivate of the NFI; as with both the NFI and CFI, the RFI

coefficient values range from 0 to 1.00, with values close to .95 indicating superior fit

(Hu & Bentler, 1999). The incremental index of fit (IFI) was developed by Bollen (1989)

to address the issues of parsimony and sample size, which were known to be related to

the NFI. As such, its computation is basically the same as the NFI, except that degrees of

freedom are taken into account. Thus, it is not surprising that the IFI value of .885 for the

model in this study is consistent with the CFI value of .882 in reflecting a well-fitting

model. The parsimonious normed fit index (PNFI) is a modification of Bentler-Bonett's

normed fit index that takes parsimony of the model into account (James, Mulaik, & Brett).

The Bentler-Bonnet normed fit index for the model in this study is close to 1 which

confirms that the proposed model works well. The PNFI uses the same parsimonious

factor as the parsimonious GFI. Thus, the PNIF value of .591, the IFI value of .885, and

the RFI value of .770 for the model in this study are indicating good fit.

In summary, the values of the goodness-of fit measures found for the model in

this study indicate no reason to reject this model. The results for the overall fit measures

led to the conclusion that the model fit well and represented a reasonably close

approximation of the sample data.

163

Results and Discussion of the Hypothesis Testing

The hypotheses developed in this study were tested by utilizing structural

equations modeling (SEM). The effects of exogenous constructs on endogenous

constructs and of endogenous constructs on other endogenous constructs, as well as

relationships among exogenous constructs, can be tested in SEM simultaneously. In the

present study, the four exogenous variables are the two components of perceived

environmental uncertainty (market turbulence, competitive intensity) and the two

constructs of top management’s willingness to adapt a changing market (top-management

emphasis and risk aversion). The nine endogenous variables are the four components of

market-orientation strategy (intelligence generation, intelligence dissemination, response

design, response implementation), the three components of organicity of organizational

structure (centralization, formalization, specialization), and the two components of

satisfaction with store performance (compared to other stores in the Korean retailing

industry, compared to a store’s key competitors). This section presents the results of the

data analysis to test the hypothesized relationships between the research variables, as

shown in Figure 10. The following presentation of the results is according to the stated

hypotheses. The overall research hypothesis, labeled H, encompasses each of the other

hypotheses; that is, all the other hypotheses are subsumed under H.

H : Causal relationships will be found among the strategic management constructs,

including perceived environmental uncertainty, top management's willingness to adapt to

a changing market, market-orientation strategy, organicity of organizational structure, and

store performance (see Figure 2).

Brief comments about hypothesis H follow the presentation of the results for all

the other hypotheses.

Perceived Environmental Uncertainty and Market-Orientation Strategy

Hypothesis 1: Perceived market turbulence and perceived competitive intensity will have

164

significant positive effects on each component of market-orientation strategy (i.e.,


implementation).

Although the results indicate a lack of support for hypothesis 1 as stated, the

coefficients on the components of perceived environmental uncertainty are significant

and positive in five of the eight tested cases (see Figure 7). In only one instance do the

results indicate a positive effect of market turbulence on market-orientation strategy.

That one instance is the positive effect of market turbulence on response design. This

means that the more (less) market turbulence the store managers perceived, the more

(less) they designed responses to address market forces. On the other hand, competitive

intensity is significantly and positively related to each of the four components of market-

orientation strategy. Competitive intensity positively affected intelligence generation and

dissemination as well as response design and implementation. The first and second of

these effects imply that the more (less) the perceived competitive intensity, the more

(less) the store managers gathered information about the market and the more (less) the

intelligence dissemination in the stores about the market. The findings of positive

relationships between at least some aspects of perceived environmental uncertainty and

market-orientation strategy are consistent with Jaworski and Kohli’s (1993) findings on

such relationships.

It was hypothesized that both perceived market turbulence and perceived

competitive intensity would positively affect each component of market-orientation

strategy (i.e., intelligence generation, intelligence dissemination, response design and

response implementation). The hypothesized positive effect of perceived market

turbulence and perceived competitive intensity on the components of market-orientation

strategy is based on the work by many researchers (Greenly, 1995; Jaworski & Kohli,

1993; Kim, 2004; Kohli & Jaworski, 1990; Lush & Lacziak, 1987; Slater & Narver,

1994). None of these researchers, however, had examined these relationships in the

context of Korean retailers, much less Korean apparel retailers.

As noted previously, the results in the present study do not fully support the

hypothesized relationships in the case of Korean apparel retailers. The finding of a

165

Figure 7. Research Results for Hypothesis 1

.048 .299*** -.032 .363*** .178*** -.007 -.075 .399*** Note. The numbers in the figure are the coefficients on the independent variables (shown on the

right) that were estimated by regression. Hypothesis supported

Hypothesis not supported.

***. p < .001, two-tailed.



Market Turbulence


Response Design


166

positive effect of perceived market turbulence on response design implies that top

managers in Korean apparel stores are increasingly (decreasingly) driven to develop

plans to respond to market intelligence, the more (less) turbulent, or unstable and

unpredictable, the stores’ business environment as perceived by the managers. This result

makes sense in that the top managers would seek to adjust their stores’ strategies to match

changes in the market, even if predicting future changes is difficult. By the same token, it

makes sense that the top managers would see little need to develop plans for change

when their stores’ business environment seemed stable; in essence, they could maintain

the status quo.

The results for hypothesis 1 also indicate positive effects of perceived competitive

intensity on three components of market-orientation strategy (i.e., intelligence generation,

intelligence dissemination, response design and response implementation). These results

imply that top managers in Korean apparel stores are increasingly (decreasingly) driven

to employ most of the full range of actions of a market-orientation strategy, the more

(less) intensely competitive their stores’ business environment as perceived by the

managers. In other words, the stronger the competition as perceived by the top managers,

the more the managers focused on protecting their stores’ customer markets and from

competitors by first generating market intelligence, then disseminating that intelligence

throughout their organizations, and acting on the intelligence by implementing plans in

respond to the competition. The mangers’ actions to respond to market conditions could

encompass cross-functional coordination in their stores and the inclusion of employees at

all levels of their organizations in activities to ensure customer satisfaction and

responsiveness to changing customer needs.

The results for hypothesis 1 suggest that top managers in Korean apparel retailing

stores may respond more to competitive intensity than to market turbulence. Market

turbulence usually affects every firm or store in an industry, including competitors, but

when competition becomes intense, it can differentially affect firms or stores in an

industry. Thus, it would not be surprising that the more intense, and perhaps threatening,

top managers perceive the competition, the more they would employ a market-orientation

strategy to attempt to meet, or beat, the competition. In order to survive and prosper in

the saturated Korean apparel retailing industry, top managers may need to act decisively

167

and quickly.

Perceived Environmental Uncertainty and Organicity of Organizational Structure


significant positive effects on organicity of organizational structure (i.e., will lead to more


As for hypothesis 1, the results do not support hypothesis 2 as stated; however,

some significant relationships between perceived environmental uncertainty and the

dependent variables are evident (see Figure 8). Neither market turbulence nor

competitive intensity significantly affected the degree of formalization of the structures of

the respondents’ stores. Market turbulence did positively affect the degree of

specialization, although competitive intensity had no significant effect on the degree of

specialization. Thus, the more (less) the perceived market turbulence, the more (less) the

degree of specialization of functions within the stores. In addition, competitive intensity

positively affected the degree of centralization, but market turbulence did not. Thus, the

more (less) the competitive intensity, the more (less) the centralization of decision

making within the respondents’ stores.

It was hypothesized that perceived market turbulence and competitive intensity

would positively affect each component of organicity of organizational structure (i.e.,

formalization, centralization, and specialization). The testing of hypothesis 2 produced

only two significant results: the positive effects of perceived market turbulence on

specialization and of perceived competitive intensity on centralization. Many researchers

have indicated that a firm in a stable, uncomplicated business environment tends to utilize

a more mechanistic than organic organizational structure, thus, a more centralized and

formalized structure with less specialization, in order to maximize efficiency, and a firm

in a complex, dynamic environment adopts a more organic structure, that is, one that is

decentralized, less formalized, and characterized by more specialization in functions

(Burn & Stalker, 1961; Dill, 1958; Lawrence & Lorsch, 1967; Miles & Snow, 1978). The

positive effect of market turbulence on specialization found in the present study coincides

168


.065 -.120* .008 .288*** .169* .098 Note. The numbers in the figure are the coefficients on the independent variables (shown on the



*. p < .05, ***. p < .001, two-tailed.

Formalization

Market Turbulence


Centralization

Specialization

169

with these arguments, but the remaining results found in testing #2 in regard to apparel

retail stores in Korea run counter to these arguments.

Conditions in the business environment may be of little importance to top

managers in Korean apparel retail stores when it comes to their stores’ organizational

structures, but it may be that the managers have come to expect and live with the

dynamic Korean business environment that has been changing frequently. Changing a

store’s organizational structure requires a great amount of time, effort, and expense on the

part of the store’s managers and other employees. The lack of effects of environmental

uncertainty on most aspects of organizational structure may be because it difficult for a

store to change its organizational structure to catch up with rapid changes in the

environment. When top managers perceive environmental uncertainty, they may only

change minor aspects of their stores’ organizational structure. As seen in the results,

market turbulence as perceived by top management positively affected specialization.

This may imply that when the top managers perceived the market as turbulent, they

delegated more authority to employees in certain specialized functional areas of their

stores to respond quickly to changing consumer preferences without overseeing every

single decision of those employees. On the other hand, the finding of a positive effect of

perceived competitive intensity on centralization may imply increased centralization of

decision making to respond quickly to increased competitive challenges.

A final possibility that may account for this set of results is that top managers in

Korea are naturally reluctant to utilize an organic organizational structure, regardless of

how they perceive the environment, because an organic structure implies a decrease in

top management’s power. Korea is known for its vertical social structure based on age

and social status. The organizational arrangement of Korean companies is highly

centralized with authority concentrated in senior levels. High-ranking individuals tend to

have more power over their subordinates than in the West. Consequently, decision

making in Korea tend to follow a formal process in which senior-level approval is

necessary (Kim, 2005).

170

Perceived Environmental Uncertainty and Store Performance


significant positive effects on the degree of satisfaction with store performance.

Hypothesis 3-a: Perceived market turbulence and perceived competitive intensity



Hypothesis 3-b: Perceived market turbulence and perceived competitive intensity


performance relative to key competitors.

The results indicate that hypotheses 3-a and 3-b are not supported. As shown in

Figure 9, none of the relationships is statistically significant between the components of

perceived environmental uncertainty and those of satisfaction with store performance.

Thus, according to the results, perceived market turbulence and competitive intensity did

not affect the respondents’ degree of satisfaction with their stores’ performance.

The hypothesis that perceived market turbulence and competitive intensity would

positively affect satisfaction with store performance has been tested empirically by only a

few researchers (Januszewsik, Koke, & Winter, 1999; Nickell, Nicolotsas, & Dryen,

1997; Power & Reid, n.d). In the present study, two sub-hypotheses were developed to

test the effect of perceived environmental uncertainty on store performance. These sub-

hypotheses are shown above.

Neither of the two sub-hypothesis is supported by the results. This finding

disagrees with that of Nickell, Nicolotsas and Dryden (1997), who found a positive

relationship between firm performance and the degree of competition in the market and a

negative relationship between market turbulence and performance. Their results may

differ from those in this study because of the use of different performance measures.

Whereas the measure in the present study is satisfaction with performance, Nickell,

Nicolotsas and Dryden contrasted an objective measure with a subjective measure.

171

Figure 9. Research Results for Hypothesis 3 .024 .074 -.013 .068 Note. SPI: satisfaction with store’s performance compared to other stores in the retailing industry;

SPC: satisfaction with store’s performance compared to key competitors. The numbers in the

figure are the coefficients on the independent variables (shown on the right) that were estimated

by regression. Hypothesis supported Hypothesis not supported.

Market Turbulence


SPC

SPC

172

Another possible reason for the discrepant results is the types of industries from

which the samples were drawn. The sample population for the present study is the

apparel retailing industry in Korea, and that for their study was small mature firms in

various industries in Scotland.

Market-Orientation Strategy and Organicity of Organizational Structure

Hypothesis 4: The four components of market-orientation strategy (i.e., intelligence

generation, intelligence dissemination, response design, and response implementation)

will have significant positive effects organicity of organizational structure (i.e., will lead

to more specialization and less formalization and centralization).

The results for hypothesis 4 follow the pattern of those for hypotheses 1 and 2 in

not supporting the hypothesis as stated, but indicating one positive effect of the

independent variables on the dependent variables (see Figure 10). For hypothesis 4, the

results indicate positive effect of intelligence generation on the degree of centralization of

the structures of the respondents’ stores, but no significant effects on formalization and

specialization. The results also indicate that intelligence dissemination positively

affected both centralization and specialization, response design positively affected

formalization, and response implementation positively affected centralization. Thus, the

more (less) the generation of intelligence in the stores, the more (less) centralized the

decision making. And the more (less) the dissemination of intelligence in the stores, the

more (less) centralized the decision making and the more (less) the degree of

specialization of functions within the stores. The more (less) the response design to

address market forces, the more (less) the formalization of store structure. In addition,

the more (less) the response implementation to address market forces, the more (less)

centralized the decision making. The effects just mentioned agree with theoretical

literature which posits a positive association between market orientation and organicity of

organizational structure (Kohli & Jaworski, 1990; Walker & Ruekert, 1987). Indeed, this

theoretical literature was the basis for hypothesis 4. One the other hand, the findings for

hypothesis 4 do not entirely agree with those of Jaworski and Kohli (1993) and other

173


.058 .013 -.206*** .200*** .120* -.036 .188*** .148** .075 .244** .078 .077 Note. The numbers in the figure are the coefficients on the independent variables (shown on the



*. p < .05, **. p < .01, ***. p < .001, two-tailed.



Response Design


Formalization

Specialization

Centralization

174

researchers who found that formalization, centralization, and specialization are inversely

related to market-intelligence generation and dissemination and to response design, but

positively related to response implementation (Deshpande & Zaltman, 1982; Jawoski &

Kohli, 1993; Levitt, 1969; Lundstrom, 1976; Zaltman, Duncan, & Holbeck, 1973). The

findings for hypothesis 4 also disagree with those of Selnes et al. (1996). Selnes et al.

who analyzed data from a Scandinavian sample and found that neither centralization nor

formalization was significantly related to market orientation. The discrepancy between

the results in the present study and the cited ones may be partly because of the different

types of industries from which the samples were drawn. The sample population of the

present study is the apparel retailing industry in Korea, and those in the cited studies were

small business units in various industries in the United States and Scandinavia. In

addition, the structure and hierarchy in Korean companies are different from those in

Western companies. Korea is known for its vertical social structure and highly

centralized business structures with authority concentrated in senior management levels.

Consequently, decision making in Korea follows a formal procedure in which senior-

level approval is necessary. Even if a Korean company uses a type of market-orientation

strategy. The company may maintain a structure characterized by company maintain a

structure characterized by formalization, centralization, and limited specialization.

Market-Orientation Strategy and Store Performance

Hypothesis 5: The four components of market-orientation strategy (i.e., intelligence

generation, intelligence dissemination, response design, and response implementation)

will have significant positive effects on the degree of satisfaction with store performance.

Hypothesis 5-a: The four components of market-orientation strategy (i.e.,


implementation) will have significant positive effects on the degree of satisfaction

with store performance relative to other stores in the industry.

Hypothesis 5-b: The four components of market-orientation strategy (i.e.,

175

intelligence generation, intelligence dissemination, responsive design, and

responsive implementation) will have significant positive effects on the degree of


As for some other hypotheses, hypothesis 5 is not supported as stated, but some

significant effects of the independent variables on the dependent variables are evident

(see Figure 11). Of the four tests of hypothesis 5-a, two produced significant results, and

of the four tests of hypothesis 5-b, only one produced a significant result. As seen in

Figure 11, both intelligence generation and response implementation positively affected

the respondents’ satisfaction with their stores’ performance relative to other stores in the

Korean retailing industry, and intelligence generation positively affected their satisfaction

with their stores’ performance relative to key competitors. Thus, the more (less) that

intelligence was generated in the stores, the more (less) satisfied the respondents were

with their stores’ performance relative to other stores in the Korean retailing industry and

relative to the stores’ key competitors. In addition, the more (less) the stores’ responsive

in implementing actions to address market forces, the more (less) satisfied the

respondents were with their stores’ performance relative to other stores in the Korean

retailing industry.

A basic assumption of research on strategic management is the positive

contribution of strategy to a firm’s performance, regardless of the type of strategy utilized.

This assumption has been tested empirically by many researchers (Dess & Davis, 1984;

Jaworski & Kohli, 1993; Kumar & Subramanian, 1998; Naver & Slater, 1990; Slater &

Narver, 1994b), although the results have not been conclusive. A hypothesis with two

sub-hypotheses was derived to test the effect of market-orientation strategy on

satisfaction with performance relative to other stores in the Korean apparel retailing

industry and to a store’s key competitors.

As hypothesized, intelligence generation was found to positively affect

satisfaction with store performance relative to other stores in the Korean retailing

industry and relative to key competitors, and response implementation was found to

positively affect satisfaction with performance relative to other stores in the Korean

retailing industry. These results suggest that top managers in Korean apparel retail stores

176

Figure 11. Research Results for Hypothesis 5 .160** .048 -.035 .139** .211*** .005 -.048 .653 Note. SPI: satisfaction with store’s performance compared to other stores in the retailing industry;




**. p < .01, ***. p < .001, two-tailed.



Response Design


SPI

SPC

177

were more (less) satisfied with their stores’ performance relative to other stores in the

retailing industry and relative to key competitors, the more (less) they gathered

information pertaining to current and future customer needs and the more (less) they

implemented actions to address customer needs.



Hypothesis 6: Perceived market turbulence and perceived competitive intensity will be

significantly and positively related to each component of top management’s willingness to

adapt to a changing market (i.e., emphasis and risk aversion).

The results do not support hypothesis 6 as stated, but some significant

relationships were found between perceived environmental uncertainty and top

management’s willingness to adapt to a changing market (see Figure 12). Note that,

because the four constructs in hypothesis 6 are all exogenous, no directionality was

hypothesized for the relationships between these constructs. The significant relationships

are the positive ones between competitive intensity and top-management emphasis and

between competitive intensity and top-management risk aversion. Thus, the greater

(lesser) the perceived competitive intensity, the more (less) willing the top managers in

the respondents’ stores emphasized market forces and were willing to take risks.

Various studies have analyzed firms’ innovativeness, risk taking, and

proactiveness under certain environmental conditions (Baklnoff & Brannon, 1984;

Brockhaus & Nord, 1979; Kent, 1986). These studies have shown that the greater the

environmental turbulence perceived by managers, the more likely the managers were to

face small decision windows, changing decision constituencies, resource risks, and a

general lack of long-term control. Certain factors may underlie the results obtained for

the effect of perceived environmental uncertainty on top management’s willingness to

adapt to a changing market. One possibility is the dynamic nature of the Korean business

environment. The Korean business environment has been undergoing many changers

recently, so Korean retail managers might hesitate to take risks to adapt to a turbulent

178


-.062 .174*** .011 .134* Note. The numbers in the figure are the coefficients on the independent variables (shown on the



*. p < .01, ***. p < .001, two-tailed.

Market

Turbulence

Competitive

Intensity

Top Management

Emphasis

Top Management

Risk Aversion

179

market environment. The managers may see a need, however, to take risks in order that

their stores can survive intense competition.




changing market (i.e., emphasis and risk aversion) will have significant positive effects

on each component of market-orientation strategy (i.e., intelligence generation,

intelligence dissemination, response design, and response implementation).

The results of hypothesis 7 in Figure 13 show considerable support for this

hypothesis, but not enough to fully support it as stated. All but one of the eight tested

relationships are significant between market-orientation strategy and top management’s

willingness to adapt to a changing market, and all are positive as hypothesized. On the

basis of those significant results, the top managers in the respondents’ stores were

increasingly (decreasingly) driven to put emphasis on market forces, the more (less) the

intelligence generation and dissemination in their stores and the more (less) their design

and implementation of plans in their stores to respond to market forces. In addition, the

greater (lesser) the top managers’ willingness to take risks, the more (less) the

intelligence generation and dissemination in their stores and the more (less) their

implementation of plans to respond to customer needs. The findings involving risk fully

support the argument of Kohli and Jaworski (1990) that top managers’ risk aversion is

inversely related to market-intelligence generation and dissemination and to response

design and implementation.

According to the results, the willingness of top managers in Korean apparel retail

stores to adapt to a changing market led the managers to encourage employees in their

stores to track changes in the market, share market information with each other, and

respond to changing market needs. Responsiveness to changing market needs often calls

for the introduction of new products and services to match evolving customer needs and

expectations. The top managers in this study appear to demonstrate a sensitivity to

180


.279*** .249*** .181** .270*** .187** .063 .249*** .221*** Note. The numbers in the figure are the coefficients on the independent variables (shown on the



**. p < .01, ***. p < .001, two-tailed.



Top Management

Emphasis

Top Management

Risk Aversion

Response Design


181

customer needs and a willingness to take risks. And further the managers appear to have

been willing to accept occasional failures that accompany risk taking and to introduce

new offerings in response to changes in customer needs.





on organicity of organizational structure (i.e., will lead to more specialization and less


The testing of hypothesis 8 produced several significant relationships between

organicity of organizational structure and top management’s willingness to adapt to

changing markets, but as above, not in every case as hypothesized. Despite the lack of

support for this hypothesis as stated, top-management risk aversion positively affected

specialization (see Figure 14). Given the scoring of the risk-aversion items, this means

the more the top managers were willing to take risks, the more their stores were

specialized in function. A possible reason for the lack of significant for hypothesis of

except in one case, relationships is top managers’ aversion to employ an organic

organizational structure, regardless of how they perceived the environment, because an

organic structure implies a decrease in the top management’s power. The organizational

arrangement in Korean companies is highly centralized with authority concentrated at

senior levels. Korean employees are trained to accept orders, and the company leaves

little room for the imagination of its employees. Employees are not involved in the

decision-making process because it is reserved for the top management only (Janelli,

1993).

Top Management’s Willingness to Adapt to a Changing Market and Store Performance


182


.007 -.030 .188** 2.815 .156** .163 .299*** Note. The numbers in the figure are the coefficients on the independent variables (shown on the



**. p < .01, ***. p < .001, two-tailed.

Formalization

Top Management

Emphasis

Top Management

Risk Aversion

Centralization

Specialization

183


on the degree of satisfaction with store performance.

Hypothesis 9-a: The two components of top management’s willingness to adapt to


effects on the degree of satisfaction with store performance relative to other stores

in the industry.

Hypothesis 9-b: The two components of top management’s willingness to adapt

to a changing market (i.e., emphasis and risk aversion) will have significant


competitors.

As seen in Figure 15, the results do not support hypothesis 9. This indicates that

top-management emphasis and risk aversion did not have significant positive effects on

the respondents’ satisfaction with the performance of their stores relative to other stores

in the Korean retailing industry and to their stores’ key competitors. Note that the results

show some significant effects of top-management emphasis and risk aversion on

satisfaction with store performance, but the effects are negative and thus counter

hypothesis 9. Top-management emphasis negatively affected satisfaction with store

performance relative to other stores in the retailing industry, and top-management risk

aversion negatively satisfaction with store performance relative to key competitors. One

of these results implies that the more (less) the top managers emphasized the market, the

less (more) satisfied they were with their stores’ performance. The other result implies

that more (less) the mangers were willing to take risks, the less (more) satisfied they were

with their stores’ performance relative to key competitors.

It was hypothesized that each component of top management’s willingness to

adapt to a changing market would positively affect satisfaction with store performance

relative to other stores in the Korean retailing industry and relative to key competitors.

Although no prior research has tested this specific hypothesis, the relationship between

firm performance and top management’s willingness to adapt to a changing market has

184


-.171* .106 -.072 -.171* Note. SPI: satisfaction with store’s performance compared to other stores in the retailing industry;




*. p < .05, two-tailed.

Top Management

Emphasis

Top Management

Risk Aversion

SPI

SPC

185

been tested empirically by various researchers (Asker & Jacobson, 1987; Bowman, 1980;

Gupta, 1984; Hambrick & Mason, 1984; Knight, Durham, & Locke, 2001).

The lack of support for hypothesis 9 in the present study is not consistent with the

results of Gupta (1984) and Knight, Durham, and Locke (2001) who found positive

effects of managerial risk proclivities on certain types of organizational outcomes. A

reason for the inconsistency may be that those other researchers’ measured of

performance by actual financial performance, rather than satisfaction with performance.

Another possible reason is the different types of samples used in their studies and in the

present study: samples composed of small business units in various industries in the

United States versus a sample composed of only Korean apparel retail stores.

A possible reason for the negative effect of top-management emphasis on

satisfaction with store performance compared to other stores may be the following. The

Korean retail market is in the throes of greatly increased competition, especially as a

result of opening the market to foreign retailers. Small stores often have difficulty

competing in this changing market. Recall that a high proportion of the respondents’

stores in this research are small. As managers of such stores become increasingly

sensitive to customer and competitor trends, and their awareness of actions taken by other

stores in Korean retailing increases, they may become less and less satisfied with the

performance of their own stores compared to others. A possible reason for the negative

effect of top-management willingness to take risks on satisfaction with stores

performance compared to other stores is the following. In today’s highly competitive

Korean retail market, top mangers who were willing to take risks may have taken some

risks that did not pay off, engendering dissatisfaction with their stores’ performance

relative to other stores. On the other hand, top managers who were unwilling to take

risks may have seen the competitive position of their stores deteriorate as managers in

other stores, perhaps stores with more resources and thus flexibility, were taking risks

that paid off.

Organicity of Organizational Structure and Store Performance


186






other stores in the industry; that is, specialization will positively affect satisfaction

with store performance, and formalization and centralization will negatively

affect satisfaction with store performance relative to other stores in the industry.






The results for hypothesis 10 do not support the hypothesis. As seen in Figure 16,

centralization of store structure positively affected the respondents’ satisfaction with their

stores’ performance relative to other stores in the Korean retailing industry and relative to

the stores’ key competitors. Thus, the more (less) centralized in decision making, the

more (less) satisfied the respondents were with their stores’ performance relative to other

stores in the Korean retailing industry and relative to the stores’ key competitors.

It was hypothesized that organicity of organizational structure Korean retailing

would positively affect satisfaction with store performance relative to other stores in the

industry and relative to key competitors. Although no other study has tested this specific

hypothesis, Tse (1991) conducted an analysis of the relationship between organizational

structure and financial performance in the restaurant industry. She found that companies

with high degrees of formalization and centralization and low degrees of specialization

had higher average sales and return on assets than did companies with other structural

configurations.

The results of the present study partially support those of Tse (1991), although not

187


-.111 .202*** .014 -.025 .114* -.014* Note. SPI: satisfaction with store’s performance compared to other stores in the retailing industry;




*. p < .01, ***. p < .001, two-tailed.

Formalization

Centralization

Specialization

SPI

SPC

188

hypothesis 10 in the present study. The only significant results were the positive effects

of centralization on satisfaction with store performance relative to other stores in the

Korean retailing industry and relative to key competitors. The possible reasons for the

discrepancy between these findings and those of Tse are similar to ones mentioned above.

Not only was Tse’s sample drawn from a different type of industry; she also measured

performance by actual financial figures, rather than satisfaction with performance.

Summary of the Results of Hypothesis Testing

The results of statistical analysis partially supported eight of the 10 hypotheses. A

summary of the hypothesis testing is presented in Table 20. Casual relationship were

found between some of the strategic management constructs, including perceived

environmental uncertainty, Top management’s willingness to adapt to a changing market,

market-orientation strategy, organicity of organizational structure, and store performance.

Environmental uncertainty as perceived by top managers in Korean apparel retailing

stores was found to cause some components of market-orientation strategy and of

organizational structure to respond to changes.

Chapter Summary

This chapter presented and discussed the results of the statistical analysis

performed on the data provided by top managers in the Korean apparel retailing industry.

Several data-related issues, including data collection, sample characteristics, and validity

and reliability were also discussed.

The statistical analysis served several purposes. Analysis of goodness-of-fit was

conducted to test the fit of the model to the sample data, and Pearson correlations

between the variables were calculated to test the validity and reliability of each indicator

and construct. The SEM analysis was conducted to test the hypotheses. The results

partially supported eight out of the 10 hypotheses. The next chapter summarizes the

189

Table 20 Summary of the Results from Testing the Hypotheses

Hypothesis

Description of Hypothesis

Conclusion

H1

Positive effects of perceived market turbulence and competitive intensity on each component of market-orientation strategy.

Partially

Supported

H2

Positive effects of perceived market turbulence and competitive intensity on each component of organicity of organizational structure.

Partially

Supported

H3

Positive effects of perceived market turbulence and competitive intensity on the degree of satisfaction with store performance.

Rejected

H3-a

Positive effects of perceived market turbulence and competitive intensity on the degree of satisfaction with store performance relative to other stores in the industry.

Rejected

H3-b

Positive effects of perceived market turbulence and competitive intensity on the degree of satisfaction with store performance relative to key competitors.

Rejected

H4

Positive effects of the four components of market-orientation strategy on each component of organicity of organizational structure.

Partially

Supported

H5

Positive effects of the four components of market-orientation strategy on the degree of satisfaction with store performance.

Partially

Supported

H5-a

Positive effects of the four components of market-orientation strategy on the degree of satisfaction with store performance relative to other stores in the industry.

Partially

Supported

H5-b

Positive effects of the four components of market-orientation strategy on the degree of satisfaction with store performance relative to key competitors.

Partially

Supported

(table continues)

190


Hypothesis

Description of Hypothesis

Conclusion

H6

Positive effects of perceived market turbulence and competitive intensity on each component of top management’s willingness to adapt to a changing market.

Partially

Supported

H7

Positive effects of the two components of top management’s willingness to adapt to a changing market on each component of market-orientation strategy

Partially

Supported

H8

Positive effects of the two components of top management’s willingness to adapt to a changing market on each component of organicity of organizational structure

Partially

Supported

H9

Positive effects of the two components of top management’s willingness to adapt to a changing market on the degree of satisfaction with store performance.

Partially

Supported

H9-a

Positive effects of the two components of top management’s willingness to adapt to a changing market on the degree of satisfaction with store performance relative to other stores in the industry.

Partially

Supported

H9-b

Positive effects of the two components of top management’s willingness to adapt to a changing market on the degree of satisfaction with store performance relative to key competitors.

Partially

Supported

H10

Positive effects of the three components of organicity of organizational structure on the degree of satisfaction with store performance.

Rejected

H10-a

Positive effects of the three components of organicity of organizational structure on the degree of satisfaction with store performance relative to other stores in the industry.

Rejected

H10-b

Positive effects of the three components of organicity of organizational structure on the degree of satisfaction with store performance relative to key competitors.

Rejected

191

research, draws conclusions, and discusses the implications of the results, as well as

limitations of the study and suggestions for future research.

192

CHAPTER 6

SUMMARY, CONCLUSIONS, IMPLICATIONS, LIMITATIONS, AND

SUGGESTIONS FOR FUTURE RESEARCH

This final chapter summarizes the research, draws conclusions, and discusses

implications of the findings and limitations of the study. The chapter also provides

suggestions for future research.

Summary and Conclusions

This study is an investigation of the effects of environmental conditions, such as

those brought about by Korea’s recent market opening and other changes in its economy,

on the strategic management and financial performance of South Korean apparel retail

stores. No prior research has examined Korean retailers’ strategic management, much

less the effects of environmental conditions on their strategic management and financial

performance. The objectives of the research are to determine (a) the interrelationships

among the different components of the retailers’ management strategies, (b) the effects of

perceived environmental uncertainty on the components of their management strategies,

(c) the impact of the components of South Korean apparel retailers’ management

strategies on their stores’ performance, and (d) the market-orientation strategies that

South Korean retailers have implemented to survive and prosper in the competitive

environment they currently face.

On the basis of theoretical and empirical literature, a strategic management model

was developed to guide the research. The model links perceived environmental

uncertainty to top management’s willingness to adapt to a changing market, organicity of

organizational structure, market-orientation strategy, and store performance. Hypotheses

were formulated concerning the relationships between these variables in the context of

Korean apparel retail stores, and a questionnaire was developed to measure the variables.

The questionnaire was sent to 1,000 top managers in Korean department stores, discount

stores, specialty stores, membership stores, chain stores, and boutiques in Seoul, Busan,

193

Suwon, Daejeon, and Daegu. A total of 400 completed questionnaires was returned, for a

40% response rate. The data gathered were used to test the hypotheses through structural

equations modeling (SEM) using the AMOS program.

The analysis involved testing the effects of the exogenous variables on the

endogenous variables and of endogenous variables on each other, as well as relationships

among the exogenous variables. The exogenous variables are two components of

perceived environmental uncertainty (market turbulence, competitive intensity) and two

components of top management’s willingness to adapt a changing market (top-

management emphasis and risk aversion). The endogenous variables are four

components of market-orientation strategy (intelligence generation, intelligence

dissemination, response design, response implementation), three components of

organicity of organizational structure (centralization, formalization, specialization), and

two components of satisfaction with store performance (compared to other stores in the

Korean retailing industry, compared to a store’s key competitors).

Although the results do not support all the hypotheses, they reveal causality

between some variables in the model. Perceived market turbulence positively affected

market-orientation strategy. Market turbulence positively affected the degree of

functional specialization in the structures of the respondents’ stores. Market-orientation

strategy positively affected the degree of functional specialization in the respondents’

stores. Both intelligence generation and responsive implementation had positive effects

on the respondents’ satisfaction with their stores’ performance relative to other stores in

the Korean retailing industry, and intelligence generation positively affected their

satisfaction with their stores’ performance relative to key competitors. Some significant

relationships were found between perceived environmental uncertainty and top

management’s willingness to adapt to a changing market. In addition, all but one of the

eight tested relationships were significant between market-orientation strategy and top

management’s willingness to adapt to a changing market, and each was positive as

hypothesized. Top-management risk aversion positively affected the degree of functional

specialization in the structures of the respondents’ stores. Formalization of store

structure positively affected the respondents’ satisfaction with their stores’ performance

194

relative to other stores in the Korean retailing industry and relative to their stores’ key

competitors.

The findings of this study contribute to a better understanding of the strategic

management process in the Korean apparel retailing industry by revealing various

relationships among strategic management constructs. A major conclusion is that top

managers in the Korean apparel retailing industry did not perceive the environment as an

important factor contributing to their stores’ performance. In addition, the top managers

appear reluctant to change the organizational structures of their stores.

Environmental conditions as perceived by top managers of Korean apparel retail

stores affect strategic management in the stores in terms of response design, intelligence

generation, intelligence dissemination, specialization, and centralization. Korean apparel

retail stores are highly sensitive to changes in their customers and competitors. When

changes occur in the economy, customers react by either opening or closing their purses

to retailers. Customers are no longer loyal to particular stores, and when competitors

offer better products or services, they switch to competitors. Top managers in toady’s

Korean retail stores must therefore respond to environmental changes or lose out against

their competitors. Korean companies have very hierarchical. Because the hierarchical

structure is embedded in Korean culture, it would be difficult for many Korean

companies to change their structure toward an organic organizational structure, which

according to the literature, is better suited for responding to environmental change than

the mechanistic structure common in Korea. The results of the present study suggest that

top mangers in Korean apparel retail stores have made only minor structural changes in

their stores in the face of environmentl uncertainty. The minor changes consisted of

increased specialization to divide functions among different departments within the stores.

The results showed no statically significant relationships between the components

of perceived environmental uncertainty and those of satisfaction with store performance;

however, they showed positive effects of some components of market-orientation

strategy and organicity of organizational structure on satisfaction with store performance

relative to other stores in their industry and relative to key competitors. The results also

showed that some components of top managements’ willingness to adapt to a changing

market positively influenced satisfaction with store performance.

195

The results of the present study suggest that Korean apparel retailers have

implemented some market-orientation strategies to survive and prosper in the intensely

competitive business environment they currently face. The results imply that top

managers in Korean apparel retail stores are increasingly driven to employ market

intelligence generation, intelligence dissemination, and response implementation the

more their perception of competitive intensity.

Implications of the Research Findings

The research findings on the strategic management process in Korean apparel

retail stores suggest several important implications of the practice of strategic

management in the industry that comprises these stores in Korea. One implication

involves the relatively limited effect of the environment on the strategic management

process in Korean apparel retail stores that was found in this study. Although many

researchers have addressed the importance of business environments to firms

(Diamantopoulos & Hart, 1993a; Jaworski & Kohli, 1993; Singh, 1998; Slater & Narver,

1994a; Tay & Morgan, 2002), the top retail managers who participated in the present

study did not appear to perceive the environment as having an important influence on

their stores’ performance. This top-management perception of the environment may

endanger its business performance in the long run because of possible discrepancies

between customers’ desires and a store’s products and services offered to customers. An

action that may help resolve to this dilemma is to invest more in R&D (West, 1988) that

enables top mangers to become more and continuously informed about the internal and

external environments. Top managers in Korean apparel retailing store may need to

increase their sensitivity to environmental changes by systematically monitoring the

environment. However, a factor that may stand in the way of increased and improved

environmental scanning by many Korean apparel retail stores in the expense of the

scanning. Recall that a high proportion of the respondents’ stores in this study were

small; this pattern is characteristic of much of the retailing industry in Korea. Small

196

stores may lack the resources to invest in market R&D on their own, and may need to

contribute to an R&D investment by a retail trade association.

The results of the statistical analysis indicated only certain effects of perceived

environmental uncertainty on organicity of organizational structure. The results revealed

that although top manages seemed to realize the growing importance of organic

organizational structure to be able to respond flexibility to a complex and uncertain

environment, the managers appeared reluctant to change their stores’ structure. Top

management may be reluctant to delegate decision-making power to lower-level

managers. Also, altering an organizational structure is changing a fundamental feature of

the firm or store, which requires a great amount of money, time, and effort. Furthermore,

it is not certain that a changed structure would yield better efficiency and performance.

In addition, top management is always interested in short-term profitability, whereas

changing an organization’s structure is generally a long-term task that may not pay off in

the short run.

For many years, the foundations of organizational structure have rested on the

traditional “pyramid” form of organization, or a mechanistic structure (Janelli, 1993).

However, a pyramid structure may be too inflexible to keep up with the many pressures.

Under pressure for change, organizational structures are becoming increasingly less rigid,

with an emphasis on employee involvement and customer service. Organizations are

moving toward less unity of command, more delegation and employee empowerment,

and decentralization. Stores in the Korean apparel retailing industry may need to follow

this trend to survive in today’s complex and dynamic environment. Many researchers

have indicated that in unpredictable environment, organic structures allow rapid

organizational response to changing external forces (Burns & Stalker, 1961; Lorsch &

Morse, 1974). And Lawrence and Dyer (1983) suggested that an organic structure is

better suited than a mechanistic structure to coping with or adapting to a turbulent

environment. Even though top managers in Korean retail stores might know that the

modern business environment calls for a less formalized structure, with less centralized

decision making and more specialization of functions among different departments, their

long experience with a hierarchical structure may make it hard to change.

197

Another factor to consider is that the research cited above in support of an organic

organizational structure was conducted in the West. The present study is the first to

examine relationships between strategic management constructs in a Korean context. An

open question is the extent to which an organic structure would work well in Korea’s

currently unstable environmental conditions and in the Korean culture; however, in order

to respond to the external changes, top managers in Korea apparel retailing stores may

need to allow employees greater participation in decision-making process and more

opportunities to share their ideas through a less formalized structure than has been

customary.

Another implication of the result of this study relates to the possibility that many

stores in the Korean retailing industry are practicing market-orientation strategies under

that traditional mechanistic, or pyramid type of, organizational structure. Results in the

present study revealed some significant relationships between market-orientation strategy

and components of organicity of organizational structure, and also between market-

orientation strategy and satisfaction with store performance. As discussed above, the

increasing complexity and high rate of change in Korea’s business environment to day

are bringing ever more pressing challenges to bear on traditional management systems.

More organic and flexible management systems may be required in Korea’s apparel retail

stores in order to improve store performance. Top managers of Korean apparel retailing

stores may need to increase their stores’ market-orientation activities by making their

organizations more flexible in being able to respond to environmental changes.

Limitations and Suggestions for Future Research

As McGrath, Martin, and Kulka (1982) stated, every study has inherent

limitations. The limitations of the present study are discussed here. One of the

limitations involves the generalizability of the results. Due to time and budget constraints,

it was not feasible to select a sample population that was representative of the entire

population of units in Korea’s retailing industry. The data and results may not represent

the whole population of the retailing industry. In addition, this study is industry specific,

198

so the results may not reflect any industry in Korea besides apparel retailing.

Generalizability can be achieved by repeating measures across different contexts. Thus,

it is recommended that the model developed in this study be applied in future studies in

which efforts are made to use truly representative samples and in which a data are

collected from various Korean industries.

A second limitation of this study is the absence of longitudinal characteristics,

which made it impossible to analyze the effects of time lags of market environment,

adapting to environmental changes, implementing strategy, altering organizational

structure, and store performance. A longitudinal study might capture ongoing

transformations that could influence the relationships among the strategic management

constructs. Incorporating longitudinal characteristics in future research may produce

significant findings.

A third limitation of this study is the lack of some potentially relevant variables.

An important variable may be the use of information technology because it may have

effect the strategic management process. Other important variables may be new strategy

and strategy implementation concepts, such as total quality management, restructuring,

and reengineering. The new concepts may have an impact on modern strategies and

organizational structure. Including these variables in future research could achieve a

better understanding of the strategic management process.

A final limitation of this study is the subjective nature of some data; in particular

store performance was measured by top management’s satisfaction level. Utilizing

objective financial data combined with subjective performance data may provide a better

understanding of the relationships among antecedent constructs and the ultimate

dependent construct of store performance.

In spite of its limitations, this study contributes to the understanding of the

strategic management process, the relationships among the constructs in the process, and

the effects of specific constructs on satisfaction with performance. The findings of this

study will be of benefit in planning and implementing strategy by practitioners in Korean

apparel retailing.

199

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APPENDIX A

Human Subjects Approval

268

APPENDIX B

Cover Letter to Managers of South Korean Retail Stores

For the Pilot Test

269

July 4, 2005

Dear Manager,

I would like to express my sincere appreciation in advance to you and your company for

completing the enclosed questionnaire. My name is Eun Jin Hwang. I am a Ph.D. candidate in

the Department of Apparel, Housing, and Resource Management (concentrating in business

analysis of apparel) at Virginia Polytechnic Institute and State University. Currently, I am

conducting a study on the relationship between the market environment and various aspects of

retail organizations. The main focus of the study is to examine how certain aspects of business

strategy and organizational structure relate to a retail store’s financial performance.

In this packet, you will find questionnaire which is sent to only a select group of store managers;

therefore, your answers are very important to the study. Please complete the questionnaire and

make comments on the content, wording, time to complete the questionnaire, and appropriateness

of questions. In addition to completing the survey, please write any comments you have about it

directly on the questionnaire. The success of this study depends greatly on your participation in

filling out the survey completely and in providing comments of the types noted in the previous

sentence.

Yon can be assured that any information you provide is intended for academic research only and

will be kept strictly confidential. In recompense for your time and efforts, a summary report of

the study results will be provided to you. If you have any questions, feel free to contact me at

011-9999-1932 or by e-mail at [email protected].

Thank you again for your time and assistance with this important study.

Sincerely,

Eun Jin Hwang Marjorie Norton, Ph.D

Ph.D. candidate Professor

270

APPENDIX C

Cover Letter to Professors in South Korean Universities

For the Pilot Test

271

July 4. 2005

Dear Professor,

I would like to express my sincere appreciation in advance to you for evaluating the enclosed

questionnaire. My name is Eun Jin Hwang. I am a Ph.D. candidate in the Department of

Apparel, Housing, and Resource Management (concentrating in business and analysis of apparel)

at Virginia Polytechnic Institute and State University. Currently, I am conducting a study on the

relationship between the market environment and various aspects of retail organizations. The

main focus of the study is to examine how certain aspects of business strategy and organizational

structure relate to a retail store’s financial performance.

In this packet, you will find questionnaire which is sent to only a select group of professors;

therefore, your comments are very important to the study. This questionnaire will be sent to

managers of South Korean retail stores. Please make comments on content, wording, expected

comprehension and time to complete the questionnaire, and appropriateness of questions. You

may write your comments directly on the questionnaire or provide a letter with your comments.

The success of this study depends greatly on your participation in providing comments of the

types noted in the previous sentence.

Yon can be assured that any information you provide is intended for academic research only and

will be kept strictly confidential. In recompense for your time and efforts, a summary report of

the study results will be provided to you. If you have any questions, feel free to contact me at

011-9999-1932 or by e-mail at [email protected]. You may also send questions to my advisor, Dr.

Marjorie Norton, at [email protected].

Thank you again for your time and assistance with this important study.

Sincerely

Eun Jin Hwang Marjorie Norton, Ph.D

Ph.D. candidate Professor

272

APPENDIX D

Cover Letter to Managers of South Korean Apparel Retail Stores

for the Final Data Collection

273

July 18, 2005 Dear President, I would like to express my sincere appreciation in advance to you and your company for completing the enclosed questionnaire. My name is Eun Jin Hwang. I am a Ph.D. candidate in the Department of Apparel, Housing, and Resource Management (concentrating in business analysis of apparel) at Virginia Polytechnic Institute and State University. Currently, I am conducting a study on the relationship between the market environment and various aspects of retail organizations. The main focus of the study is to examine how certain aspects of business strategy and organizational structure relate to a retail store’s financial performance.

In this packet, you will find a questionnaire which is sent to only a select group of retail businesses; therefore, your answers are very important to the study. The success of this study depends greatly on your participation in completely filling out the questionnaire.

You, the Chief Executive Officer or President, of your store should complete this questionnaire. If for some reason this is not possible, then the next senior officer in your store’s chain of command should complete it.

Several of the questions ask for information that you may not have at your fingertips. If this is the case, please estimate the information to the best of your ability. If you have any questions, feel free to contact me at 011-9999-1932 or by e-mail at [email protected]. Yon can be assured that any information you provide is intended for academic research only and will be kept strictly confidential. In recompense for your time and effort, a summary report of the study results will be provided to you.

To make responding to this survey as convenient as possible, I am providing a pre-addressed, postage-paid return envelope and FAX number for your use. Please send me the completed questionnaire July 25, 2005.

Thank you again for your time and cooperation. Sincerely, Eun Jin Hwang Marjorie Norton, Ph.D. Ph.D. candidate Professor

274

APPENDIX E

Questionnaire (English)

275

Questionnaire on Retail Management

Section A What is your title in your store?…………………………………................................._____________ How long have you been employed in the store where you currently work?.....…._____________ How long have you been employed in the retailing industry in Korea?..................._____________ Is your store the only store in your company?………………………_________.Yes _________.No What year did your store open? …………………..…………………………………...._____________ What is the current number of employees in your store?…………………..……......_____________ Has the number of employees in your store increased, decreased, or stayed the same since the store opened?…………...………………..……………...._____________ Section B

Please indicate your degree of agreement that the following items describe your store’s market, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.

Strongly Strongly disagree agree

Sometimes our customers are very price sensitive, but on other occasions, price is relatively unimportant to them…...…………...1 2 3 4 5 We are witnessing demand for our products and services from customers who never bought them before……………….....1 2 3 4 5 New customers tend to have product-related needs that are different from those of our existing customers……………………..1 2 3 4 5 Our customers tend to look for new products all the time………………….1 2 3 4 5 Many promotion wars occur in our industry………………………………….1 2 3 4 5 Anything that one competitor in our industry can offer, others can match readily……………………………………………………….1 2 3 4 5 One hears of new competitive moves in our industry almost every day………………………………..………….…1 2 3 4 5 The current business environment is threatening the survival of our store………………………………………….1 2 3 4 5 Tough price competition is threatening our store……………………………1 2 3 4 5

Competitors’ product quality or novelty is threatening our store...………...1 2 3 4 5

276

Section C Please indicate your degree of agreement that the following items describe your store, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.


In my store, we do a lot of in-house market research…………………..1 2 3 4 5 We collect industry information through informal means (e.g., lunch with industry friends, talks with trade partners)………………..1 2 3 4 5 We periodically review the likely effects of changes in our business environment (e.g., regulations) on customers………………...1 2 3 4 5 A lot of informal talk among employees in our store concerns our competitors’ tactics or strategies…………………………………………1 2 3 4 5 We have interdepartmental meetings at least once a quarter to discuss market trends and developments………………………………...1 2 3 4 5 Marketing personnel in our store spend time discussing customers’ future needs with other functional departments in the store.…1 2 3 4 5 When something important happens to major customers or market segments, all the store’s employees know about it in a short period…………………………………………………………………1 2 3 4 5 Data on customer satisfaction are disseminated at all levels in our store on a regular basis…………………………………..1 2 3 4 5 It takes us a long time to decide how to respond to our competitors’ price changes……………………………………………….1 2 3 4 5 We periodically review our product development efforts to ensure that they are in line with what customers want……………………..1 2 3 4 5 Several departments in my store get together periodically to plan responses to changes taking place in our business environment…………………………………………………..1 2 3 4 5 If a major competitor were to launch an intensive campaign targeted at our store’s customers, we would implement a response immediately……………………………………………………..…1 2 3 4 5 When my store finds out that customers are unhappy with the quality of our service, we take corrective action immediately…………1 2 3 4 5 We are quick to respond to significant changes in our competitors’ pricing structures……………………………………………1 2 3 4 5 Employees in our store are allowed to make their own decisions without checking with anybody else…………………..1 2 3 4 5

277


My usual experience with our store involves doing things “by the rule book.”……………………………………………….1 2 3 4 5 Many activities in my store are not covered by formal procedures……….1 2 3 4 5 Even small matters in our store must be referred to someone higher up for a final answer………………………………………..1 2 3 4 5

Any major decisions that employees make must have the approval of a top manager………………………………………..……….1 2 3 4 5

Employees who want to make their own decisions would be quickly discouraged……………………………………..1 2 3 4 5

Section D Please indicate your degree of agreement that the following items describe your management style, with 1 = strongly disagree and 5 = strongly agree. Circle the most appropriate number.


I believe that our store’s survival depends on its adapting to market trends…………………………….………………...1 2 3 4 5

I often tell employees to be sensitive to the activities of our competition…………………………………………….…1 2 3 4 5

I believe that serving customers is the most important thing our business does……………………………………………1 2 3 4 5 I believe that it is worth taking high financial risks for high rewards………1 2 3 4 5

Top managers in my store like to take big financial risks…………………..1 2 3 4 5 Top managers in my store like to implement plans only if they are very certain that they will work………………………………1 2 3 4 5 Section E Please indicate, for each pair of statements below, the extent to which you believe the statement at the left or the right describes the management philosophy in your store. Circle the most appropriate number from 1 to 7 for each pair of statements.

In general, the management philosophy in my store favors… Highly structured channels of Open channels of communication communication and highly restricted with important financial access to important financial and operating information flowing operating information. 1 2 3 4 5 throughout the organization.

278

A strong emphasis on holding A strong emphasis on altering fast to well established management practices as the business practices, despite changes environment changes, without too in business conditions. 1 2 3 4 5 much concern for past practices.

Tight formal control of most operations Loose, informal control and heavy by means of sophisticated control dependence on informal and information systems. relationships and norms of 1 2 3 4 5 cooperation for getting work done.

A strong emphasis on ensuring A strong tendency to let the that employees adhere closely requirements of the situation and to their formal job descriptions. the employee’s personality define . 1 2 3 4 5 proper on-the-job behavior.

Section F

Please rate your degree of satisfaction with your store’s performance in each of the following areas compared to other stores in your industry, with 1 = highly dissatisfied and 5 = highly satisfied. Circle the most appropriate number. Highly Highly dissatisfied satisfied Return on investment…………………………………………………………..1 2 3 4 5

Earnings growth………………………………………………………………...1 2 3 4 5

Sales growth…………………………………………………………………….1 2 3 4 5

Market share…………………………………………………………………….1 2 3 4 5

Return on assets……………………………………………………………..…1 2 3 4 5

Cash flow………………………………………………………………….…….1 2 3 4 5

Please rate your degree of satisfaction with your store’s performance in each of the following areas compared to the store’s key competitors, with 1 = highly dissatisfied and 5 = highly satisfied. Circle the most appropriate number.

Highly Highly dissatisfied satisfied

Return on investment…………………………………………………………..1 2 3 4 5

Earnings growth………………………………………………………………...1 2 3 4 5

Sales growth…………………………………………………………………….1 2 3 4 5

Market share…………………………………………………………………….1 2 3 4 5

Return on assets……………………………..…………………………………1 2 3 4 5

Cash flow……………………………………………………………..………….1 2 3 4 5

Thank you for your time and cooperation in completing this questionnaire!

279

APPENDIX F

Cover Letter to Managers of South Korean Apparel Retail Stores

for the Final Data Collection (Korean)

280

July 18, 2005

메니저님께,

우선 동봉한 설문지에 수록된 모든 질문에 답변해주실 사장님 여러분과 귀사에 진심으

로 감사의 뜻을 표하고자 합니다. 제 이름은 황 은진입니다. 저는 현재 미국 버지니아 주

립 공과대학의 의복, 주택 및 자원 관리 학과에서 박사 학위 과정(주로 의복 사업 분석에

중점을 두고 있음)을 공부하고 있는 학생입니다. 저는 지금 시장 환경이 소매 조직의 다

양한 측면과 이루는 관계에 대해 연구를 수행하고 있습니다. 저의 연구는 주로 사업 전

략과 조직 구조의 특정한 측면이 소매점의 재무 성과와 어떤 상관 관계가 있는지를 조사

하는데 중점을 두고 있습니다.

본 우편물에는 소매 업계에 종사하는 업체 중 일부를 엄선해 이들 업체만을 대상으로 전

달되는 설문지 1장이 동봉되어 있습니다. 따라서 귀하의 설문 응답은 저의 연구에 있어

매우 중요한 자료가 됩니다. 본 연구의 성패는 귀하가 동봉된 설문지의 모든 질문 항목

에 빠짐없이 응답하는지 여부에 따라 결정된다고 해도 과언이 아닙니다.

귀사 소매점에서 최고 경영자 또는 사장의 직책으로 활동 중인 귀하는 본 설문지의 질문

에 빠짐없이 응답하시기 바랍니다. 만약 특정한 사유로 인해 모든 질의에 빠짐없이 응답

하실 수 없는 경우, 귀사의 경영 계통에서 차 상위급에 해당되는 임원이 귀하를 대신해

본 설문에 참여할 수 있도록 해 주십시오.

몇몇 설문 항목에서는 귀하가 쉽게 파악할 수 없는 수준의 정보를 요구하고 있습니다.

이러한 질문의 경우, 해당 사항을 귀하의 능력껏 추정해 기재하시기 바랍니다. 본 설문

에 관한 의문이 있으신 분들은 언제든지 제 전화 011-9999-1932 또는 전자 우편

[email protected]로 문의하시기 바랍니다. 귀하가 제공하는 정보는 학술 연구 목적으로

만 사용되며 비밀은 철저히 유지됩니다. 본 설문에 참여하는데 소요되는 귀하의 시간과

노력에 보답하고자 차후에 본 연구의 결과를 간략히 정리한 요약 보고서를 귀하에게 배

부할 계획입니다.

본 설문 조사에 참여하시는 응답자 여러분들의 편의를 도모하기 위해 이미 주소가 기재

된 우편 요금 선불 반송용 우편 봉투와 팩스 번호를 함께 보냅니다. 설문 응답이 완료된

설문지는 7월 25일까지 제게 보내주시기 바랍니다.

잠깐 시간을 내어 본 설문에 참여해주신다면 고맙겠습니다.

황 은진 Marjorie Norton

(박사 학위 준비 학생) (교수, 박사)

281

APPENDIX G

Questionnaire (Korean)

282

소매점 경영에 관한 설문 사항

A 항 질문

귀 점포에서 귀하의 직책은 무엇입니까?................................................__________________

귀하는 현재 근무 중인 점포에서 일하신 지 얼마나 되었습니까?.................__________________

귀하는 한국 소매 업계에 종사한 지 얼마나 되었습니까?...........................__________________

귀 소매점은 귀사의 유일한 점포입니까?................................................ ____ Yes ____ No

귀 소매점이 첫 영업을 개시한 년도는 언제입니까? .................................__________________

현재 귀 소매점에서 일하는 종업원들은 총 몇 명입니까? ..........................__________________

소매점 영업이 개시된 이후 귀 소매점에서 일하는 종업원들의 수는 증가 내지 감소했습니까?

아니면 변화가 없는 상태입니까? ........................................................__________________

B 항 질문

아래에 나열한 각 항목이 귀 소매점의 시장을 얼마나 잘 설명하고 있는지를 1에서 5까지의 점수

로 평가해 보십시오(참고: 1 = 전혀 그렇지 않다, 5 = 매우 그렇다). 이 때 아래의 점수들 중 가장

해당되는 점수에 동그라미를 치면 됩니다.

전혀 매우

그렇지 않다 그렇다

당사의 고객들은 때때로 가격에 매우 민감한 반응을 보이지만

간혹 가격에 대하여 대체로 무관심한 반응을 보일 때도 있다 .....................1 2 3 4 5

이전에 구입한 적이 없는 새로운 제품 및 서비스를 원하는

고객들의 수요가 있다........................................................................1 2 3 4 5

신규 고객들은 기존 고객들의 경우와는 차별화된

제품 관련 욕구를 갖고 있는 경향이 있다 ...............................................1 2 3 4 5

당사의 고객들은 항상 새로운 제품을 찾는 경향이 있다 ............................1 2 3 4 5

당사가 종사하는 업계의 경우, 판촉 경쟁이 치열한 편이다 ........................ 1 2 3 4 5

당사가 종사하는 업계의 경우, 어떤 경쟁 업체가 제공할 수 있는

제품이 있다면 나머지 업체들도 그 비슷한 제품을

즉시 시장에 내놓을 만한 능력을 갖고 있다 ............................................1 2 3 4 5

당사가 종사하는 업계의 경우, 경쟁 업체의 새로운 움직임

283

내지 동향에 관한 소식을 거의 매일 들을 수 있다 ....................................1 2 3 4 5

전혀 매우


현재의 비즈니스 환경은 당사 소매점의 생존을 위협할 정도로

불리한 실정이다...............................................................................1 2 3 4 5

치열한 가격 경쟁은 당사 소매점을 위협하는 요인이 되고 있다 ..................1 2 3 4 5

경쟁 업체의 품질 또는 혁신은 당사 소매점을 위협하는 요인이 되고 있다.....1 2 3 4 5

C 항 질문

아래에 나열한 각 항목이 귀 소매점을 얼마나 잘 설명하고 있는지를 1에서 5까지의 점수로 평가

해 보십시오(참고: 1 = 전혀 그렇지 않다, 5 = 매우 그렇다). 이 때 아래의 점수들 중 가장 해당되

는 점수에 동그라미를 치면 됩니다.

전혀 매우


당사 소매점의 경우, 당사는 자체 시장 조사 활동을 상당수

수행하고 있다..................................................................................1 2 3 4 5

당사는 비공식적인 수단을 통해 업계 정보를 수집하고 있다.

(예: 업계 동료들과 점심 식사, 거래 협력 업체와의 회의) ..........................1 2 3 4 5

당사는 현재 직면하고 있는 비즈니스 환경의 변화(예: 법규)가

고객들에게 미칠 수 있는 영향을 수시로 검토하고 있다 ............................1 2 3 4 5

당사 소매점의 종업원들간에 이루어지는 비공식 회의 중 상당수는

경쟁 업체의 판매 술책 내지 전략과 관계가 있다 .....................................1 2 3 4 5

당사는 최근의 시장 동향 및 발전 현황을 논의하기 위해

분기별로 최소한 1회 이상 부서간 회의를 개최하고 있다...........................1 2 3 4 5

당사 소매점에 종사하는 마케팅 담당 인력들은 소매점 내 여타

기능 부서와 함께 고객의 향후 욕구 변화를 논의하는데

시간을 할애하고 있다........................................................................1 2 3 4 5

주요 고객 또는 시장 부문에서 중대한 현상 내지 사건이 발생하면

얼마 지나지 않아 소매점 내 모든 종업원들이 그러한 사실을 알게 된다........1 2 3 4 5

당사 소매점의 경우, 고객 만족에 관한 데이터는 모든 조직 계층에

걸쳐 정기적으로 전파되고 있다 ...........................................................1 2 3 4 5

당사의 경우, 경쟁 업체의 가격 변동에 대응할 방법을 결정하는데

상당한 시간이 소요되는 편이다 ...........................................................1 2 3 4 5

284

전혀 매우


당사는 제품 개발을 위한 당사의 노력이 고객의 요구 사항에

부응할 수 있도록 그러한 노력을 수시로 점검하고 있다 ............................ 1 2 3 4 5

당사 소매점 내 몇몇 부서는 당사의 비즈니스 환경에서 발생하고 있는

변화에 대처하기 위한 계획을 수립하기 위해 수시로 협력하고 있다 ............1 2 3 4 5

주요 경쟁 업체 중 한 곳이 당사 소매점을 찾는 고객들을 대상으로

집중적인 캠페인을 벌일 경우, 당사는 이에 즉각적인 대응

조치를 취하는 편이다........................................................................1 2 3 4 5

당사의 소매점에서 고객들이 당사 서비스의 품질에 만족하지 않는다고

판단되면 당사는 이에 즉각적인 개선 조치를 취한다 ................................1 2 3 4 5

경쟁 업체의 가격 결정 구조에서 중대한 변화가 있을 경우,

당사는 이에 즉각적인 대응 조치를 취한다 .............................................1 2 3 4 5

당사 소매점의 종업원들은 다른 제 3 자와의 의논 없이

자체적인 의사 결정을 수행할 수 있다 ...................................................1 2 3 4 5

당사 소매점에서 내가 직면하는 일상적인 경험은

"규칙서"의 내용에 따라 일을 수행하는 것과 관계가 있다 .........................1 2 3 4 5

당사 소매점에서 이루어지는 활동 중 상당수는

공식적인 절차에 포함되어 있지 않다 ....................................................1 2 3 4 5

당사 소매점의 경우, 아무리 작은 일이라도 상위 직책의 누군가에게

보고한 후 최종적인 결론을 도출해야 한다 .............................................1 2 3 4 5

종업원들의 주요 의사 결정 사안은 반드시

최고 경영진의 승인을 거쳐야 한다 .......................................................1 2 3 4 5

자체적인 의사 결정을 원하는 종업원들은

(경영진의 판단에) 쉽게 실망하는 편이다...............................................1 2 3 4 5

D 항 질문

아래에 나열한 각 항목이 귀 소매점의 경영 스타일을 얼마나 잘 설명하고 있는지를 1에서 5까지

의 점수로 평가해 보십시오(참고: 1 = 전혀 그렇지 않다, 5 = 매우 그렇다). 이 때 아래의 점수들

중 가장 해당되는 점수에 동그라미를 치면 됩니다.

전혀 매우


당사 소매점의 생존 여부는 시장 동향에 대한 적응 능력에

285

달려 있다고 생각한다........................................................................1 2 3 4 5

전혀 매우


나는 종업원들에게 당사와 경쟁 관계 있는 업체들의

활동에 대하여 기민하게 대처할 것을 주문할 때가 많다 ............................1 2 3 4 5

고객 서비스는 당사의 비즈니스에서 가장 중요한

부분을 차지하고 있다고 생각한다 ........................................................1 2 3 4 5

많은 보상을 얻기 위해서는 높은 재무 위험이라도

감수해볼 만한 가치가 있다고 생각한다 .................................................1 2 3 4 5

당사 소매점의 최고 경영진들은 상당한 수준의

재무 위험을 기꺼이 감수하는 편이다 ....................................................1 2 3 4 5

당사 소매점의 최고 경영진들은 성공할 것으로 확실시되는

계획만을 기꺼이 실행에 옮기는 편이다 .................................................1 2 3 4 5

E 항 질문

아래에 한 쌍씩 진술된 내용 중 왼쪽 또는 오른쪽의 내용이 귀 소매점의 경영 철학을 얼마나 잘 설

명하고 있는지를 1에서 7까지의 점수로 평가해 보십시오(1=왼쪽 진술 내용에 전적으로 동의, 7=

오른쪽 진술 내용에 전적으로 동의). 이 때 아래의 점수들 중 가장 해당되는 점수에 동그라미를

치면 됩니다.

대체로 당사 소매점의 경영 철학은 매우 조직적인 의사 소통 채널을

선호하는 반면, 주요 재무/영업

정보에 대해서는 매우 제한된

접근 경로를 선호하는 편이다.

1 2 3 4 5

사내 조직 전반에 걸쳐 주요 재무

영업 정보를 전파하는 개방적인

의사 소통 채널을 선호하는

편이다.

비즈니스 환경의 변화에도

불구하고 확고 부동한 경영

방식을 고수하는데 상당히 중점을

두는 편이다.

1 2 3 4 5

대체로 과거의 영업 관행에

얽매이지 않고 비즈니스 환경의

변화에 따라 영업 방식을

바꾸는데 상당히 중점을 두는

편이다.

정교한 통제/정보 시스템을

활용해 대부분의 운영 수단을

공식적으로 철저히 통제하는

1 2 3 4 5

완만하면서도 비공식적인 통제를

선호하는 반면, 과업 완수를 위해

비공식적인 협력 관계 및 규범에

286

편이다. 상당히 의존하는 편이다.

종업원들이 공식적인 업무 사항을

철저히 엄수하도록 하는데

상당히 중점을 두는 편이다. 1 2 3 4 5

주어진 상황에 따른 요구 사항과

종업원의 개성을 통해 현장 작업

수행을 적절히 정의하려는

경향이 강하다.

F 항 질문

다음에 나열한 각 항목에서 귀사가 종사하는 소매 업계의 타 점포와 비교해볼 때 귀사의 영업 실적

에 대한 귀하의 만족도를 1에서 5까지의 점수로 평가해보십시오(1= 매우 불만, 5= 매우 만족). 이

때 아래의 점수들 중 가장 해당되는 점수에 동그라미를 치면 됩니다.

매우 매우

불만 만족

투자 수익률(ROI)..............................................................................1 2 3 4 5

이익 증가율.....................................................................................1 2 3 4 5

매출 증가율.....................................................................................1 2 3 4 5

시장 점유율.....................................................................................1 2 3 4 5

총자산 이익률(ROA) .........................................................................1 2 3 4 5

현금 흐름........................................................................................1 2 3 4 5

다음에 나열한 각 항목에서 귀 소매점의 경쟁 업체와 비교해볼 때 귀 점포의 영업 실적에 대한 귀

하의 만족도를 1에서 5까지의 점수로 평가해보십시오(1= 매우 불만, 5= 매우 만족). 이 때 아래의

점수들 중 가장 해당되는 점수에 동그라미를 치면 됩니다.

매우 매우

불만 만족

투자 수익률(ROI)..............................................................................1 2 3 4 5

이익 증가율.....................................................................................1 2 3 4 5

매출 증가율.....................................................................................1 2 3 4 5

시장 점유율.....................................................................................1 2 3 4 5

총자산 이익률(ROA) .........................................................................1 2 3 4 5

현금 흐름........................................................................................1 2 3 4 5

바쁜 시간에도 불구하고 본 설문에 빠짐없이 응답해주신 데 대해 감사 드립니다!

287

APPENDIX H

Vita

288

Eun Jin Hwang

SUMMARY OF QUALIFICATIONS

4 and half years experience in teaching at universities in Korea. Excellent communication skills Strong computer skills Excellent ability to work in a team-based environment Good ability to communicate effectively in oral and written format

EDUCATION

Ph.D., 2005, Clothing and Textiles, Virginia Polytechnic Institute and State University, Blacksburg, VA – Conferred December 2003

M.S., 1998, Clothing and Textiles, Virginia Polytechnic Institute and State University, Blacksburg, VA – Conferred December 1998

B. A., 1993, Fashion Merchandising, Marymount University, Arlington, VA PROFESSIONAL EXPERIENCE

Kangnam University, Yong In, Korea 2004. 09. 01 – 2005. 02. 28 Part-Time Lecturer, Department of International Trade, School of Economics

& International Trade • International Business

iTree co., Ltd., Seoul Korea 2004. 08. 01 – 2004. 12. 28

Fashion Marketing CRM Consultant, Technical Service Department, Consulting Unit.

Pai Chai University, Daejon, Korea 2000. 09. 01 – 2005. 02. 08

Part-Time Lecturer, College of Fashion and Tourism, Department of Clothing and Textiles

289

• International Fashion Business 2004. 09. 01 – 2005. 02. 28 • Fashion Promotion 2004. 03. 01 – 2004. 08. 31 • International Fashion Business 2003. 09. 01 – 2004. 02. 28 • Fashion Promotion 2003. 03. 01 – 2003. 08. 31 • Clothing Consumer Behavior 2002. 09. 01 – 2003. 02. 28 • International Fashion Marketing 2002. 03. 01 – 2002. 08. 31 • Clothing Consumer Behavior 2001. 09. 01 – 2002. 02. 28 • International Fashion Marketing 2001. 03. 01 – 2001. 08. 31 • Clothing Consumer Behavior 2000. 09. 01 – 2001. 02. 28 • Consumer Behavior 2000. 09. 01 – 2001. 02. 28

Kymyung University, Dagu, Korea 2004. 03. 31 – 2004. 08. 31 Part-Time Instructor, Department of Advertising

• Practice of Publication Media Advertising 2004. 03. 01 – 2004. 08. 31

Konkuk University, Seoul, Korea 2002. 09. 01 – 2004. 02. 28

Part-Time Instructor, College of Art and Human Environment, Division of Apparel & Textile Design • Fashion Production Retailing, Graduate School of Design

2003. 09. 01 – 2004. 02. 28 • Fashion Marketing, Statistics Graduate School of Design

2003. 03. 10 – 2003. 08. 31 • Fashion Business English, College of Design & Human

Environment 2002. 09. 01 – 2003. 02. 28

Hansung Digital University, Seoul, Korea 2003. 09. 01 – 2004. 02. 28 Part-time Instructor, Department of Creative Literature Writing

• Advertising Copy Writing

Yuhan College, Bucheon, Korea 2003. 02. 29 – 2004. 08. 31 Part-Time Instructor,, Department of Distribution Management

290

• Merchandising 2004. 03. 01 – 2004. 08. 31 • Introduction of CRM, Promotion Management

2003. 02. 29 – 2003. 09. 01

Virginia Polytechnic and State University 1996, Spring – 1997, Fall Graduate Assistant,

• Idea Development and Creativity • Basic Apparel Assembly • Oris Gilsson Historic Costume and Textile Collection • Housing

PUBLICATIONS

Dissertation – Strategic Management and Financial Performance in South Korean Apparel Retail Stores

International Textile and Apparel Association Annual Conference, Alexandria, Virginia,

November 1-6, 2005. Special Topic Session, Trade Liberalization through the MFA Phase-Out. Eun Jin Hwang and Marjorie Norton.

South Korea’s Rapid Globalization: Effects of Foreign Direct Investment, Eun Jin

Hwang & Marjorie Norton at Second Annual Interdisciplinary Graduate Student Conference: Broadening Our Scope for a New Millennium, University of Southern California, April 3, 1999.

International Textile and Apparel Association Annual Conference, Santa Fe, New

Mexico, November 10-13, 1999. Poster Session, South Korea’s Market liberalization and Its Retail Industry. Eun Jin Hwang and Marjorie Norton.

Proceedings 1999, 56 Years, International Textile and Apparel Associations, 121-122,

South Korea’s Market Liberalization and Its Retail Industry.

Thesis – Effects of South Korean Market Liberalization on the South Korean Retailing

291

Market, with Dr. Marjorie Norton, December 1998. AWARDS

National Foundation for Advancement in the ARTS-Visual Arts, April 14, 1989

Who’s Who Among American High School Students – Arts Recognition and Talent Search, March 27, 1989

strategic management and financial performance in south korean

Documents