using supply chain management to leverage a firm's market orientation

Using supply chain management to leverage a firm’s market orientation

James H. Martina,*, Bruno Grbacb

aDepartment of Management, Marketing, and Logistics, Boler School of Business, John Carroll University, 20700 North Park Boulevard,

University Heights, OH 44118, USAbDepartment of Business Administration, School of Economics and Business, University of Rijeka, Rijeka, Croatia

Received 18 August 2000; received in revised form 9 May 2001; accepted 28 June 2001

Abstract

Building supplier relationships and becoming more market oriented have similar building blocks and have similar effects. Strong supplier

relationships tend to impact the firm’s performance, in part, because the firm can respond to customer needs in a more timely fashion.

Supplier relationships tend to be stronger in firms where there is cross-functional sharing of supplier and customer information. Market

orientation is an organizational culture that focuses the company on generating market information, cross-functionally sharing that market

information, and rapidly responding to that market information to positively impact the performance of the firm. This study explored whether

the positive effects of strong supplier relationships are enhanced in market-oriented firms. Results support the notion that supplier

relationships are one way of leveraging a firm’s market orientation through improved customer responsiveness. Cross-functional sharing of

information appears to be the link that ties market orientation and stronger supplier relationships together.

D 2002 Elsevier Science Inc. All rights reserved.

Keywords: Market orientation; Firm performance; Supplier relationship; Customer responsiveness; Cross-functional coordination

1. Introduction

Effective supply chain management (SCM) can improve

a firm’s performance through several means including

building strong supplier relationships that enhance a firm’s

ability to respond to its customers more effectively. Devel-

oping a stronger market orientation can improve a firm’s

performance because the firm is focusing its efforts on

responding and adapting to its market’s needs more effec-

tively than its competitors are adapting to the market’s

needs.

Recently, researchers have begun to examine the linkages

between market orientation and certain aspects of SCM [1–

3]. The current study considers the possible synergies

created by firms with a strong market orientation and

effective SCM. The concern is whether firms can capitalize

on a strong market orientation through strong supplier

relationships. Specifically, the possibility that SCM effec-

tiveness can be enhanced in firms with a strong market

orientation and that SCM may be one way to leverage a

well-developed market orientation to improve performance

was the focus of this research. The foundation for a

theoretical model is described by first discussing how a

firm creates competitive advantages through supplier rela-

tionships and then how market orientation works to affect

the performance of the firm. The common elements between

these two processes are explored to develop a model that

suggests translating a strong supplier orientation into strong

supplier relationships is one way to enhance the effect of a

strong market orientation on performance. Using results

from a survey, several research propositions are addressed

regarding the overlapping role of supplier relationships and

market orientation in affecting performance. Fig. 1 displays

the proposed connections between elements of market

orientation and strength of supplier relationships.

1.1. Supplier relationships

SCM produces a competitive advantage that positively

impacts the performance of the firm [4–6]. To create a

competitive advantage, SCM is increasingly emphasizing

intrafunctional, cross-functional, and interorganizational

coordination of activities [7,8]. The competitive advantage

0019-8501/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved.

PII: S0019 -8501 (01 )00192 -4

* Corresponding author. Tel.: +1-216-397-4473.

E-mail addresses: [email protected] (J.H. Martin), [email protected]

(B. Grbac).

Industrial Marketing Management 32 (2003) 25–38

created by SCM includes the creation of efficiencies in the

supply chain oriented toward providing better customer

value than competitors [6]. Within the supply chain domain,

customer value is created through two mechanisms: redu-

cing costs and increasing responsiveness to customers’

needs [5]. The creation of customer value through SCM

results in a positive impact on the firm’s profitability and

customer loyalty [9]. Proposition 1 captures these two

mechanisms.

Proposition 1: Strength of supplier relationships will be

positively and directly related to firm performance and

directly and positively related to responsiveness to

customers’ needs and competitors’ actions (in Fig. 1:

C!E and C!D).

In addition to logistics management, activities within the

supply chain will increasingly include the development and

maintenance of supplier information databases and the use

of supplier information to manage supplier relationships

[8,10]. Within the supply chain, a company has suppliers

who may have their own suppliers and customers who may

have customers of their own [6]. Building effective supplier

relationships that are oriented toward the creation of cus-

tomer value requires a company to maintain and use

information about suppliers, but also requires information

about the company’s customers, end users, and competitors.

However, having information is not enough to drive

supplier relationships. SCM is contingent on having a

culture that fosters cross-functional sharing of information

[6]. The cross-functional sharing of information makes it

easier for different functional areas of the firm (e.g.,

marketing, engineering) to work with suppliers [11]. For

example, Lambert and Cooper [6] suggest that the kind of

information and the frequency of information updating that

is shared interorganizationally will have a strong influence

on the efficiency of supplier relationships. To be willing to

share information with suppliers, the company must have a

culture for sharing information internally across functional

areas of the firm. In addition, because the information

shared with suppliers is likely to be quite variable in its

functional source, a company that uses information for

cross-functional coordination should have people from

different functional areas who can easily work with suppli-

ers, thus fulfilling various interfaces that strengthen the

relationship with suppliers. Finally, in a recent survey of

logistics managers, cross-functional collaboration was an

essential antecedent leading to enhanced distribution per-

formance, indicating the importance of cross-functional

collaboration in SCM [11]. Proposition 2 states the import-

ance of cross-functional sharing of information in building

supplier relationships.

Proposition 2: Cross-functional sharing of information

will be directly and positively related to stronger supplier

relationships. Supplier- and customer-oriented informa-

tion will be indirectly and positively related to stronger

supplier relationships through cross-functional sharing of

information (in Fig. 1: B!C and A!B!C).

1.2. Market orientation

Market orientation, as the embodiment of the marketing

concept, has been characterized as a culture of the organiza-

tion that produces superior value for customers and outstand-

ing performance for the firm [12–15]. Market orientation has

also been described as the implementation of the marketing

concept, that is, a set of activities designed to satisfy customer

needs better than competitors are able to satisfy customer

needs [16–20]. Whether the focus of market orientation is on

the organization’s culture or on implementation of the mar-

keting concept, there is general agreement regarding the

elements of market orientation. Those elements include

ongoing and systematic information collection regarding

customers and competitors, cross-functional sharing of

information and coordination of activities, and rapid respon-

siveness to competitor actions and changing market needs.

Fig. 1. Overlap between market orientation and supplier relationship development.

J.H. Martin, B. Grbac / Industrial Marketing Management 32 (2003) 25–3826

A number of researchers have examined the link between

market orientation and performance. Several studies have

supported a link between market orientation and profitab-

ility, and market orientation and sales growth across a wide

range of industries and types of businesses [13,18,21–27].

The link between market orientation and innovation appears

to be a more complex relationship with some studies

showing a relationship [14,21,28–32] and some arguing

that there is a very weak link if at all [33–38]. Lukas and

Ferrell [39] indicate that this relationship may be contingent

on the type of innovation the firm is pursuing.

How does a strong market orientation improve the

performance of the firm? To understand this, market ori-

entation should be viewed as a process of elements rather

than as a single construct with multiple dimensions. The

logic is that a market orientation produces competitive

advantages in the form of a rapid response to the market’s

needs and does this faster than competitors. Being respons-

ive means responding to customer complaints, responding

to anticipated changing market needs, and responding to

anticipated competitor actions in a direction that will drive

long-term profitability. Being able to respond to the market

and satisfy customer needs better than competitors should

form the foundation for success by producing greater

customer loyalty, growth in customers, and increased prof-

itability. Proposition 3 states the relationship between

responsiveness and performance.

Proposition 3: Responsiveness to customer needs and

competitors’ actions will be positively and directly

related to performance of the firm (in Fig. 1: D!E).

To accomplish this increase in performance from an

increase in responsiveness, the firm must focus its efforts

on collecting, maintaining, and using exceptional levels of

customer and competitor knowledge [12,32]. One of the key

themes in much of the market orientation literature is that an

integral component of the market orientation process is how

the firm uses the information. Cross-functional sharing of

information and coordination of activities disburses market

information throughout the organization. This dissemination

of information also communicates the firm’s central focus

on adapting to and satisfying the market’s needs [15]. The

information dissemination process educates all areas in the

organization regarding the market’s needs and competitor

activities so that as opportunities, problems, or threats arise,

the organization is primed to respond. Thus, firms with

more market information should perform better than firms

with less market information because firms with more

market information should be more likely to share that

information cross-functionally.

Cross-functional sharing of market information should

lead to improved performance of the firm because it allows

the firm to respond better and faster to customers’ needs or

problems and to competitive threats. The ability to respond

to customer needs or problems because of the widely

disseminated customer information should produce greater

loyalty, profitability, and sales. The relationship between

competitor information and performance is not as straight-

forward. Jaworski and Kohli [18] and Slater and Narver

[24,25] suggest that anticipating competitor actions (e.g.,

price cuts or marketing campaigns targeted at the company’s

customers) and responding to those actions can reduce the

impact of a competitor’s actions on the company’s custom-

ers. On the other hand, Armstrong and Collopy [40] found

that companies with an extreme level of competitor orienta-

tion, in which the company continuously responds to com-

petitors in an effort to hurt competitors, tended to have

lower levels of return on investment than companies that

were less competitor oriented. Because of the mixed results

from previous research on the effects of a competitor

orientation, specific, individual predictions about the effects

of customer and competitor information orientations cannot

be made. Therefore, Proposition 4 will assume both

information orientations will have similar effects.

Proposition 4: Information orientation (customer and

competitor) will have a positive effect on responsiveness

to customers and competitors indirectly through cross-

functional sharing of information. Cross-functional

sharing of information will be directly and positively

related to customer and competitor responsiveness and

will indirectly affect performance through the firm’s

responsiveness to customer needs and competitor actions

(in Fig. 1: A!B!D and B!D!E).

1.3. Overlap between SCM and market orientation

A very limited amount of research has been conducted

that has explicitly explored the relationship between sup-

plier relationships and market orientation. Siguaw et al. [2]

examined the effects of a supplier’s market orientation on a

distributor’s market orientation and found that higher levels

of market orientation in suppliers leads to higher levels of

market orientation among the suppliers’ distributors and

leads to higher levels of distributor performance. Similarly,

Baker et al. [1] found a strong correlation between a

reseller’s market orientation and the degree to which the

reseller’s supplier relationship exhibited trust, commitment,

and cooperation. Steinman [3] examined the gap between

supplier and customer perceptions of the supplier’s market

orientation and found that the longer the supplier relation-

ship existed with those buyers, the more likely suppliers and

buyers tended to converge on an agreeable level of supplier

market orientation. Extending this research, the current

study explored the relationship between supplier relation-

ships and market orientation within a firm to determine if

the potential connection between these processes can pro-

vide a significant impact on the performance of the firm.

The overlap between the supplier relationship side of

SCM and market orientation is especially apparent in two

areas. Both constructs require an orientation toward

information collection with respect to customers and com-

petitors. In addition, SCM requires an orientation toward

J.H. Martin, B. Grbac / Industrial Marketing Management 32 (2003) 25–38 27

information collection regarding suppliers. Both constructs

also have empirical support for suggesting that cross-func-

tional dissemination of information facilitates the use of

information in responding to customers and competitors and

facilitates the formation of supplier relationships. Proposi-

tion 5 suggests the direct and indirect effects of cross-

functional sharing on a firm’s responsiveness to customers

and competitors.

Proposition 5: In addition to being directly related to

responsiveness to customers’ needs and competitors’

actions (as stated in Proposition 4), cross-functional

sharing of information will also be indirectly related to

responsiveness through stronger supplier relationships

(in Fig. 1: B!D and B!C!D).

The significant degree of overlap between SCM and

market orientation suggests firms that are more market

oriented and are pursuing supplier relationships may experi-

ence a synergistic effect on their performance. That is, for

firms that are more market oriented, pursuing supplier

relationships may be an additional means for leveraging

their market orientation by improving the firm’s responsive-

ness to customer needs and additionally affecting the firm’s

profitability through other means such as inventory man-

agement and logistics. Although captured in the relation-

ships specified in Propositions 1 and 3, Proposition 6

directly states the expected relationships:

Proposition 6: In addition to being directly and

positively related to performance (as stated in Proposi-

tion 1), the strength of supplier relationships will be

indirectly and positively related to performance through

the firm’s responsiveness to customer needs and

competitor actions (in Fig. 1: C!E and C!D!E).

To summarize, a linear set of linkages between the

strength of supplier relationships and elements of the market

orientation process is being proposed. Fig. 1 displays these

linkages, and the propositions being made describe a series

of intervening effects between the three information orien-

tations (customer, supplier, and competitor) and perform-

ance outcomes. Those intervening effects include cross-

functional dissemination of information, strength of supplier

relationships, and responsiveness to customers and compe-

titors.

To test the proposed relationships stated in Propositions

1–6 and displayed in Fig. 1, mediating, or indirect, effects

as well as direct relationships must be tested. Baron and

Kenny [42] and James and Brett [43] state that the proper

test for indirect, or mediating effects is to establish three

relationships. First, the independent variable must be a

significant predictor of the dependent variable. For example,

customer-oriented information, as an independent variable,

must be correlated with profit as a dependent variable.

Second, the independent variable must be a significant

predictor of the mediator variable. For example, customer-

oriented information as an independent variable, must be

correlated with cross-functional sharing of information as a

mediator variable. Third, in a hierarchical regression equa-

tion with the independent variable entered first and the

mediator variable entered second, the mediator must be a

significant predictor of the dependent variable. If the inde-

pendent variable in this regression equation is nonsignificant

when the mediator is added to the regression equation, there

is evidence of complete mediation. If the independent

variable is significant, but its b is reduced, then there is

evidence of partial mediation. With multiple mediator var-

iables, such as the case with the current study, the analysis is

extended. For example, cross-functional sharing of informa-

tion, strength of supplier relationships, and responsiveness

to customer needs and competitor actions are all mediators

in the full model displayed in Fig. 1. Each mediator is

included in the analysis sequentially to observe possible

mediation effects between the dependent variable and the

previously entered variables. Additionally, this analysis will

determine the effect of previously entered variables on each

subsequent mediator variable.

2. Method

2.1. Sample description

To explore the previously stated propositions, a single

wave, cross-sectional survey of a broad sample of industries

was conducted. The sampling frame included several lists of

manufacturers, wholesalers, and industrial service firms

from the state of Ohio. Questionnaires were sent to the

CEOs/presidents of 1200 firms randomly selected from

these lists. Fifty-eight questionnaires were returned as non-

deliverable. From the remaining 1142 delivered question-

naires, 301 were returned from respondents. Nineteen of

those questionnaires were discarded because large sections

of the questionnaire were incomplete, leaving 282 usable

responses for a 24.7% response rate. Responding managers

returned questionnaires over a 4-week time period. Potential

nonresponse bias was assessed by comparing returned

questionnaires in each of the 4 weeks on key variables.

No significant differences were found across the 4 weeks on

any of the key variables, reducing concerns about a non-

response bias.

Of the 282 responding companies, 52% identified them-

selves as primarily manufacturers, 30% as wholesaler/dis-

tributors, and 18% as service firms. Fifty percent of

respondents represented firms with 20 or fewer employees

and 12% of respondents had over 100 employees. Twenty

percent of the sample were from firms with less than US$1

million in sales revenue, 43% reported revenue between

US$1 million and US$5 million, 32% reported revenue

between US$5 million and US$50 million, and 5% re-

ported revenue over US$50 million. The mean age of com-

pany in our sample was 30.85 years with a standard

deviation of 25.77 and were distributed as 23% were 10

years or less, 32% were between 11 and 25 years, 28%


were between 26 and 50 years, and 17% were between 51

and 155 years.

2.2. Measures

Measures were selected and developed based on past

research and, where necessary, were adapted to fit the

current situation. The elements of market orientation (cus-

tomer-oriented information, competitor-oriented informa-

tion, cross-functional information dissemination, response

to competitors, and responsiveness to customers) were

measured using 5-point scales adapted from previously

published studies [13,17,18]. All scaled items for the

different measures are included in Appendix A.

Customer-oriented information was assessed with six

items and exhibited an internal consistency reliability coef-

ficient of .70. Competitor-oriented information was meas-

ured with four items and had a coefficient a of .85. Cross-

functional information dissemination was measured with six

items that had a coefficient a of .84.

Two items were used to assess responsiveness to com-

petitors: (1) responsiveness to a competitor’s price change;

(2) responsiveness to a competitor’s new marketing cam-

paign that is targeted at the company’s customers. These two

items were not correlated with one another and so these two

items were treated as individual measures of competitor

responsiveness. Three items were used to measure customer

responsiveness and had a coefficient a of .72.

Supplier-oriented information was measured with one

item (maintain a detailed database of suppliers with respect

to their responsiveness and ability to meet our needs).

Strength of supplier relationship was measured with three

items: (1) we have a strong relationship with our suppliers;

(2) we work closely with our suppliers on an ongoing basis

so we can revise our purchasing to match our customer

needs; (3) our suppliers respond rapidly to our changing

needs. This measure exhibited an internal consistency reli-

ability coefficient of .78.

Four aspects of a firm’s performance were assessed:

profitability, sales growth, relative sales growth, and cus-

tomer loyalty. Following standard practices in surveys of

this type, a two-item perceptual scale was used to measure a

firm’s profitability [18]. The inter-item correlation for this

scale was .78. To measure sales growth, respondents were

asked to indicate their company’s average sales growth over

the past three years. Relative sales growth was assessed with

a one-item scale (our company is probably growing faster

than most of our competitors). Customer loyalty was meas-

ured with a two-item scale: (1) compared to our competitors

our customer satisfaction is very high; (2) compared to our

competitors we have a very high rate of repeat buying

among our customers) that had an inter-item correlation of

.80. Although objective measures of performance would be

desirable, obtaining such measures from privately held firms

is difficult. Therefore, subjective measures of performance

were developed and, based on previous research, were

expected to provide comparable measures of performance

to objective measures [21,22,41].

3. Analysis and results

Table 1 displays the means, standard deviations, and

correlations among the variables depicted in Fig. 1. Exam-

ination of Table 1 shows a pattern of correlations that fully

supports the pursuit of the mediator regression analysis

according to the guidelines of Baron and Kenny [42] and

James and Brett [43].

To test for the mediation effects depicted in Fig. 1, two

sets of regression analyses were conducted. The first set of

analyses explored the mediated effects of the independent

variables (customer-, competitor-, and supplier-oriented

information measures) on performance outcomes (profit,

customer loyalty, sales growth, and relative sales growth)

using cross-functional sharing of information, strength of

supplier relationships, and responsiveness to customers and

competitors as possible mediating influences. The first set of

analyses consisted of four hierarchical regression analyses,

one for each of the four performance measures as the

dependent variable. Because there were multiple variables

Table 1

Means, standard deviations, and intercorrelations among variablesa

Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12

1. Supplier-oriented information 3.42 1.28 – .39 .26 .39 .50 .27 .07 .08 .21 .30 .05 .18

2. Customer-oriented information 19.6 4.39 – .52 .55 .36 .35 .12 .30 .26 .36 .25 .31

3. Competitor-oriented information 12.0 3.87 – .38 .18 .19 .09 .25 .24 .24 .21 .32

4. Cross-functional information 23.3 4.92 – .45 .48 .20 .18 .31 .47 .29 .34

5. Supplier relationship 11.6 2.35 – .45 .20 .09 .35 .43 .10 .24

6. Customer responsiveness 13.1 1.95 – .11 .28 .31 .51 .22 .25

7. Response to competitor price change 3.27 1.1 – .07 .12 .10 .05 .13

8. Response to competitor campaign 3.44 1.21 – .08 .14 .02 .11

9. Profitability 6.45 1.96 – .39 .26 .51

10. Customer loyalty 8.23 1.46 – .28 .35

11. Sales growth 2.95 1.80 – .51

12. Relative sales growth 3.47 1.09 –

a Correlations at .18 and above are significant at P< .01. Correlations at .12 and above are significant at P < .05.


as predictors, the analysis looked for the sequential medi-

ating effects of entering each mediator on the previously

entered variables. In this part of the analysis, the three

information orientation measures were entered in Block 1,

followed by cross-functional sharing of information in

Block 2, and strength of supplier relationship in Block 3

of the analyses. Responsiveness to customers and respon-

siveness to a competitor’s price change and to a compet-

itor’s campaign were entered in the last block of the

analyses. Evidence of mediation in this set of analyses

would be exhibited by examining the effect of entering

each mediator on the regression coefficients of the previ-

ously entered variables.

3.1. Results from regression analyses with performance as

the dependent variable

Propositions 1, 3, 4, and 6 were concerned with the

relationships between performance and the predictor varia-

bles in Fig. 1. The first set of analyses focused on the

relationships with performance as the dependent variable.

Table 2 provides the results from the first set of analyses.

Because each performance measure was associated with a

different pattern of relationships, the results will be dis-

cussed for each performance measure separately.

3.1.1. Profit performance

The final regression equation with profit performance as

the dependent variable and all independent and mediating

variables entered was significant (R2=.201, F = 7.54,

P < .001). The first block entered in the analysis, informa-

tion orientation, was significant as a set of predictors

(F = 8.53, P < .001). Within the information orientation

block, customer-oriented information (b=.155, P < .05) and

competitor-oriented information (b =.150, P < .05) were

significant predictors and supplier-oriented information

was not a significant predictor. The next two blocks of the

analysis entered cross-functional sharing of information and

strength of supplier relationship, both of which were sig-

nificant predictors (R change2 = .028, Fchange = 7.90, P < .005;

and R change2 = .051, Fchange = 14.99, P < .001, respectively).

Cross-functional sharing of information acted as a mediator

of customer-oriented information (b for customer-oriented

information was reduced from .155 to a nonsignificant

.072). Strength of supplier relationship appeared to be a

mediator of cross-functional sharing (b for cross-functional

sharing of information was reduced from .210 to a non-

significant .123). Responsiveness to customers and com-

petitors was significant as a block (R change2 = .027, Fchange =

2.68, P < .05). Within this block, responsiveness to custom-

ers was the only significant predictor (b=.186, P < .01) and

appeared to partially mediate the relationship between

supplier relationship and profit performance (b for sup-

plier relationship was reduced from .275 to a significant

.206). Responsiveness to competitors’ price change or

competitors’ campaigns were not significant predictors

of profit performance in this analysis. Interestingly, in

this analysis, competitor-oriented information was not

mediated by cross-functional sharing, strength of supplier

relationship, or responsiveness to customers and remained

a significant, nonreduced predictor of profit performance

after all other predictors were entered into the equation

(b=.154, P < .05).

3.1.2. Customer loyalty performance

The resulting full regression equation with customer

loyalty as the dependent variable was significant (R2=.343,

F = 15.70, P < .001). The information orientation block of

predictors was significant (R change2 = .167, Fchange = 16.48,

P < .001). Within this block, supplier- and customer-oriented

information were significant predictors (b=.158, P < .05,

and b=.254, P < .001, respectively). Competitor-oriented

information was not significantly related to customer loyalty.

Cross-functional sharing of information contributed a sig-

nificant amount of predicted variation (R change2 = .091,

Fchange = 29.95, P < .001) and acted as a mediator for sup-

plier-oriented information (b was reduced from .158 to a

nonsignificant .076) and for customer-oriented information

(b was reduced from .254 to a nonsignificant .105). Supplier

relationship was a significant contribution to the regression

equation (R change2 = .044, Fchange = 15.23, P < .001) and was

a partial mediator for cross-functional sharing of information

(b was reduced from .373 to .295, P < .001). The responsive-

ness to customers and competitors block of predictors was

significant (R change2 = .041, Fchange = 5.01, P < .005) and

partially mediated cross-functional sharing of information

(b was reduced from .295 to a significant .229) and partially

mediated strength of supplier relationship (b was reduced

from .259 to a significant .209). Within this block, respon-

siveness to customers was the only significant predictor

(b=.233, P < .001). Response to competitors’ price changes

and competitors’ campaigns were both nonsignificant.

3.1.3. Sales growth

The resulting overall regression equation with sales

growth as the dependent variable was significant

(R2=.125, F = 4.25, P < .001). The information orientation

block was significant (R change2 = .067, Fchange = 5.79,

P < .001). Within this block, customer-oriented information

was significant (b=.217, P < .005) while supplier- and com-

petitor-oriented information were nonsignificant. Cross-

functional sharing of information contributed an additional

4.2% variation (R change2 = .042, Fchange = 11.29, P < .001)

and mediated the effect of customer-oriented information (bfor customer-oriented information was reduced from .217 to

a nonsignificant .116). Supplier relationship and responsive-

ness to customers and competitors were not significantly

related to sales growth.

3.1.4. Relative sales growth

The final overall regression equation with relative sales

growth as the dependent variable was significant (R2=.187,


F = 6.93, P < .001). The information orientation block was

significant (Rchange2=.131, Fchange = 12.4, P < .001) with

customer-oriented information (b=.178) and competitor-ori-

ented information (b=.217) being the significant predictors

from this block. Supplier-oriented information was non-

significant. Cross-functional sharing of information acted

Table 2

Results from overall hierarchical regression analysis testing for mediation

Enter in Block 1:

information

orientation

Enter in Block 2:

cross-functional

sharing of information

Enter in Block 3:

supplier relationship

Enter in Block 4:

response to customer

and competitor

Dependent variable: profitability

Predictors

Supplier-oriented information ns ns ns ns

Customer-oriented information .155 (.042) ns ns ns

Competitor-oriented information .150 (.038) .126 (.080) .148 (.035) .154 (.028)

Cross-functional sharing of information – .210 (.005) ns ns

Supplier relationship – – .275 (.000) .206 (.006)

Responsiveness to customer – – – .186 (.010)

Responsiveness to competitor price change – – – ns

Response to competitor campaign – – – ns

R2 .095 .123 .174 .201

R change2 .095 .028 .051 .027

Fchange ( P level) 8.53 (.000) 7.90 (.005) 14.99 (.000) 2.68 (.047)

Dependent variable: customer loyalty

Predictors

Supplier-oriented information .158 (.013) ns ns ns


Competitor-oriented information ns ns ns ns

Cross-functional sharing of information – .373 (.000) .295 (.000) .229 (.001)

Supplier relationship – – .259 (.000) .209 (.002)

Responsiveness to customer – – – .233 (.000)



R2 .167 .258 .302 .343

R change2 .167 .091 .044 .041

Fchange ( P level) 16.48 (.000) 29.95 (.000) 15.23 (.000) 5.01 (.002)

Dependent variable: sales growth

Predictors



Competitor-oriented information ns ns ns ns

Cross-functional sharing of information – .253 (.001) .257 (.001) .224 (.007)

Supplier relationship – – ns ns

Responsiveness to customer – – – ns



R2 .067 .109 .109 .125

R change2 .067 .042 .000 .017

Fchange ( P level) 5.79 (.001) 11.29 (.001) .030 (ns) 1.50 (ns)

Dependent variable: relative sales growth

Predictors



Competitor-oriented information .217 (.002) .189 (.007) .200 (.004) .202 (.004)

Cross-functional sharing of information .236 (.001) .194 (.011) .160 (.044)

Supplier relationship ns ns

Responsiveness to customer ns

Responsiveness to competitor price change ns

Response to competitor campaign ns

R2 .131 .167 .178 .187

R change2 .131 .036 .011 .009

Fchange ( P level) 12.40 (.000) 10.52 (.001) 3.30 (ns) 0.881 (ns)


as a mediator of customer-oriented information (b was

reduced from .178 to a nonsignificant .084) but was not a

mediator for competitor-oriented information. Strength of

supplier relationship and responsiveness to customers and

competitors were not significant predictors of relative sales

growth.

3.2. Results from analyses using each mediator variable as

the dependent variable

To confirm the mediation paths in Fig. 1, a second

set of hierarchical regression analyses were performed to

determine if the intermediate relationships between the

information orientation, cross-functional sharing of

information, strength of supplier relationships, and

responsiveness to customers and competitors supported

the proposed relationships in Fig. 1. The three informa-

tion orientations were entered as the first block for all

analyses. Cross-functional sharing of information was

entered as the second block when responsiveness to

customers and competitors and strength of supplier

relationship were the dependent variables. Strength of

supplier relationship was entered as the third block when

responsiveness to customers and competitors were the

dependent variables. Table 3 presents the results of these

analyses. The results for each dependent variable will be

described.

3.2.1. Responsiveness to competitor price changes

The full regression equation predicting responsiveness to

competitor price changes was significant (R2=.068,

F = 3.646, P < .005). The three information orientations

were not related to responsiveness to competitor price

changes. Cross-functional sharing of information was a

significant predictor of responsiveness to competitor price

changes (R change2 = .02, Fchange = 5.31, P < .05). Strength of

supplier relationship was a significant predictor (R change2 =

.028, Fchange = 7.40, P < .01) and was a significant mediator

of cross-functional sharing of information (b for cross-

functional sharing of information was reduced from .177

to a nonsignificant .116).

3.2.2. Responsiveness to competitor campaigns

The overall regression equation with responsiveness to

competitor campaigns as the dependent variable was

significant (R2=.099, F = 5.59, P < .001). Customer-ori-

ented information was the only significant predictor in

the equation (b=.254, P < .001). None of the other pre-

dictors were significantly related to this dependent vari-

able.

3.2.3. Responsiveness to customers

The overall regression equation with responsiveness to

customers as the dependent variable was significant

(R2=.294, F = 21.19, P < .001). Customer-oriented informa-

tion was a significant predictor (b=.300, P < .001) and

supplier-oriented information was a marginally significant

predictor (b=.120, P < .06) and as a block contributed a

significant amount of variation (R change2 =.147, Fchange =

14.73, P < .001). Competitor-oriented information was not

a significant predictor. Entering cross-functional sharing of

information contributed a significant amount of variation

(R change2 =.098, Fchange = 33.06, P < .001). Cross-functional

sharing of information mediated the effect of supplier-

oriented information (b for supplier-oriented information

was reduced from .120 to a nonsignificant � .050) and

partially mediated the effect of customer-oriented informa-

tion (b for customer-oriented information was reduced

from .300 to a marginally significant .140). Strength of

supplier relationship was a significant predictor of respon-

siveness to customers (R change2 =.049, Fchange = 17.72,

P < .001) and was a mediator for customer-oriented

information (b was reduced from .140 to a nonsignificant

.110) and partially mediated the effect of cross-functional

sharing of information (b was reduced from .387 to a

significant .313).

3.2.4. Strength of supplier relationship

Using strength of supplier relationship as the dependent

variable, the information orientation block of predictors

was significant (R change2 =.265, Fchange = 30.95, P < .001).

Supplier-oriented information (b=.394, P < .001) and cus-

tomer-oriented information (b=.229, P < .001) were both

significant, but competitor-oriented information was not

significantly related to strength of supplier relationship.

Cross-functional sharing of information significantly con-

tributed to the predicted variation (R change2 =.050,

Fchange = 18.85, P < .001) and mediated the effect of cus-

tomer-oriented information on supplier relationship (b was

reduced from .229 to a nonsignificant .114) and partially

mediated supplier-oriented information (b was reduced

from .394 to .340).

3.2.5. Cross-functional sharing of information

All three information orientations predicted a signific-

ant amount of variation in cross-functional sharing of

information (R2=.344, F = 45.37, P < .001). Customer-

oriented information was the strongest predictor (b=.430,P < .001), but supplier-oriented information (b=.200,P < .001) and competitor-oriented information (b=.127,P < .05) were also significantly related to cross-functional

sharing.

In any test of mediating effects in a chain of variables,

Baron and Kenny [42] and Cohen and Cohen [44] also

recommend testing for moderation in addition to medi-

ation. That is, some of the intervening variables may

actually be moderators instead of mediators of the inde-

pendent variable-to-dependent variable relationship. To

test for moderation, two-way interaction terms between

the predictors are included hierarchically in the third


regression equation suggested by Baron and Kenny [42].

Moderator effects were tested for and none were found to

be significant, indicating no moderator effects were occur-

ring.

4. Discussion of results and implications

This study explored the possible synergies between

supplier relationships and market orientation and found

Table 3

Hierarchical regression analyses using mediators as dependent variables

Enter in Block 1:

information orientation

Enter in Block 2:

cross-functional sharing

of information

Enter in Block 3:

supplier relationship

Dependent variable: responsiveness to competitor price change

Predictors

Supplier-oriented information ns ns ns

Customer-oriented information ns ns ns

Competitor-oriented information ns ns ns

Cross-functional sharing of information – .177 (.022) ns

Supplier relationship – – .202 (.007)

R2 .020 .041 .068

R change2 .020 .020 .028

Fchange (significance) 1.72 (ns) 5.31 (.022) 7.40 (.007)

Dependent variable: response to competitor campaign

Predictors

Supplier-oriented information ns ns ns

Customer-oriented information .254 (.001) .250 (.002) .251 (.002)


Cross-functional sharing of information – ns ns

Supplier relationship – – ns

R2 .099 .099 .099

R change2 .099 .000 .000

Fchange (significance) 9.38 (.000) 0.020 (ns) 0.015 (ns)

Dependent variable: responsive to customers

Predictors

Supplier-oriented information .120 (.055) ns ns

Customer-oriented information .300 (.000) .140 (.052) ns


Cross-functional sharing of information – .387 (.000) .313 (.000)

Supplier relationship – – .268 (.000)

R2 .147 .245 .294

R change2 .147 .098 .049

Fchange (significance) 14.73 (.000) 33.06 (.000) 17.72 (.000)

Dependent variable: supplier relationship strength

Predictors

Supplier-oriented information .394 (.000) .340 (.000) –

Customer-oriented information .229 (.001) ns –

Competitor-oriented information ns ns –

Cross-functional sharing of information – .277 (.000) –

Supplier relationship – – –

R2 .265 .316

R change2 .265 .050

Fchange (significance) 30.95 (.000) 18.85 (.000)

Dependent variable: cross-functional sharing of information

Predictors

Supplier-oriented information .200 (.000) – –

Customer-oriented information .430 (.000) – –

Competitor-oriented information .127 (.030) – –

Cross-functional sharing of information – – –

Supplier relationship – – –

R2 .344

R change2 .344

Fchange (significance) 45.37 (.000)


support for a connection between these two processes of a

business. Results indicated that firms with a strong market

orientation, in which cross-functional sharing plays a big

role, were able to develop strong supplier relationships that

in turn were able to take advantage of the firm’s market

orientation to enhance the performance of the firm. In part,

stronger supplier relationships appeared to allow firms with

a strong market orientation to respond faster to their

customers’ problems and changing needs. At the same

time, firms with stronger market orientations appeared to

have stronger supplier relationships, in part, because of a

willingness to share market information cross-functionally.

The previous literature on market orientation and the

literature on supplier relationships suggest that cross-func-

tional sharing of information is a key variable in both

constructs. Our data confirm this. For all four measures of

performance, cross-functional sharing of information medi-

ated almost all of the effects of information on performance,

responsiveness to customers’ needs and competitor actions,

and strength of supplier relationships. For example, for

profit performance ratings, customer-oriented information

was mediated by cross-functional sharing of information.

For customer loyalty, supplier- and customer-oriented

information were both mediated by cross-functional sharing

of information, and for sales growth and relative sales

growth, customer-oriented information was mediated by

cross-functional sharing of information.

Proposition 1 stated that stronger supplier relationships

would be directly related to higher performance of the firm.

This proposition was supported for two of the four measures

of performance. Strength of supplier relationship was

directly related to profit and customer loyalty measures of

performance. Proposition 1 also stated that stronger supplier

relationships would be directly related to higher levels of

responsiveness to customers and responsiveness to compet-

itor actions. Support for this aspect of Proposition 1 was

also found. Strength of supplier relationship was signific-

antly related to responsiveness to competitors’ price changes

and responsiveness to customers’ needs. Responsiveness to

competitors’ changes in campaign tactics were not predicted

by strength of supplier relationships.

Proposition 2 stated that cross-functional sharing of

information would be directly related to strength of supplier

relationships and that supplier and customer information

orientations would affect strength of supplier relationships

through the cross-functional sharing of information. This

proposition was supported. Cross-functional sharing of

information was directly related to strength of supplier

relationships. Firms that share information cross-functionally

tend to build stronger supplier relationships. In addition, the

type of information the firm collects mattered in this rela-

tionship. Customer-oriented information was indirectly, but

significantly related to strength of supplier relationship

through cross-functional sharing of information. Supplier-

oriented information was in-part directly related to strength of

supplier relationship and in-part indirectly related to strength

of supplier relationship through cross-functional sharing of

information. This suggests that customer and supplier-ori-

ented information help to build strong supplier relationships

because different functional areas of the firm are givenmarket

information, can see the need for strong supplier relationships

based on that market information, and can act on that

information to build those relationships.

Proposition 3 predicted that responsiveness to customer

needs and competitor actions would be directly related to

performance of the firm. Proposition 3 was partially sup-

ported. Responsiveness to customers’ needs was directly

related to profit performance and customer loyalty, support-

ing Proposition 3. Responsiveness to competitors’ price and

campaign changes were not related to any of the four

performance outcome measures.

Proposition 4 focused on the relationships between the

elements of market orientation, predicting that customer and

competitor information would affect responsiveness to cus-

tomer needs and competitor actions indirectly through cross-

functional sharing, and that cross-functional sharing of

information would affect performance through responsive-

ness of the firm. Results of the analyses partially supported

the predicted relationships in Proposition 4. Sharing informa-

tion cross-functionally was directly related to increases in

responsiveness to customer needs and indirectly related to

responsiveness to competitor price changes. Customer-ori-

ented information was significantly related to responsiveness

to customer needs through cross-functional sharing of

information. That is, companies with more customer-oriented

information tended to be more responsive to their customers

because they tended to share market-related information

cross-functionally. Cross-functional information sharing

was indirectly related to all four measures of performance

through responsiveness of the firm to market information.

This would appear to support conclusions from previous

research that market orientation has a positive impact on

performance. In particular, cross-functional sharing of

information appears to be an effective means for improving

the performance for the firm because it allows firms to

respond to customers’ problems and needs better than firms

that have little cross-functional sharing of information.

Cross-functional sharing of information also appeared to

be indirectly related to responsiveness to customer needs at

least partially through stronger supplier relationships, sup-

porting Proposition 5. This would indicate that sharing

information cross-functionally appears to have helped firms

bemore responsive to their customers in part because supplier

relationships were stronger, which probably allowed those

firms to adapt to their customers’ needs more readily.

Although none of the three information orientations were

related to responsiveness to competitor price changes, cross-

functional sharing of information was significantly related to

responsiveness to competitor price changes. This effect of

cross-functional sharing of information was mediated by

strength of supplier relationships, further supporting Proposi-

tion 5. This suggests that sharing market information cross-


functionally can lead to a faster response to competitors’ price

changes because firms are able to adapt to these changes

through their relationships with suppliers.

Proposition 6 stated that in addition to being directly

related to performance, strength of supplier relationships will

be indirectly related to performance through responsiveness

to customer needs and competitor actions. Results support

this proposition. In addition to being directly related to profit

and customer loyalty, strength of supplier relationship had an

indirect effect on profit and customer loyalty measures of

performance through responsiveness to customers. This

combination of the effects of strength of supplier relation-

ships supports the notion that supplier relationships can affect

performance in two ways. Stronger supplier relationships

affect profit and customer loyalty performance directly,

perhaps through more efficient SCM. Stronger supplier

relationships also affect profit and customer loyalty indirectly

through improved responsiveness to customer needs.

Strength of supplier relationships partially mediated the

effects of cross-functional sharing of information on respon-

siveness, and the effect of strength of supplier relationship on

performance was itself partially mediated by responsiveness

to customers, supporting the idea that effective supplier

relationships are one way to enhance the effects of a firm’s

market orientation on performance.

Although the propositions regarding the basic premise of

this study were supported, there were some variations in the

patterns of relationships that bear mentioning and suggest

areas for future research. First, competitor-oriented informa-

tion appeared to be directly related to profit performance

without the mediating influence of cross-functional sharing

of information, supplier relationships or responsiveness to

customers or competitors. This may indicate that for some

firms, competitor-oriented information is used in ways out-

side of the market orientation process (e.g., benchmarking for

productivity, technology, etc.) that may affect the profit

performance of firms. Exploring how variations in compet-

itor-oriented information is used in firms and how this affects

performance could be an issue for future research.

Second, strength of supplier relationship was not related

to either measure of sales growth. This may suggest that the

value of strengthening a supplier relationship is founded in

its focus on building customer loyalty and profitability

rather than sales growth. Conversely, this result may indic-

ate that sales growth for this sample of firms may come from

the pursuit of new markets or new products. The pursuit of

new markets and new products might benefit from strong

supplier relationships, but the path may be more complex

than what was captured in this dataset.

Third, responsiveness to competitors’ price changes and

responsiveness to competitors’ marketing campaigns were

not related to any of the four measures of performance. The

market orientation literature suggests that responsiveness to

competitors is necessary (for example, when competitors

have targeted the company’s customers with a marketing

campaign) to protect a company’s current customer base. On

the other hand, Balakrishnan [22] found that competitor

orientation was not related to customer loyalty. Additionally,

Armstrong and Collopy [40] report data indicating that a

competitor orientation may actually produce lower levels of

performance if the competitor orientation becomes the sole

focus of the firm, at the expense of a long-term profit

orientation. They also report that approximately 40% of their

subjects adopted an extreme competitor orientation, a rate

similar to what has been found in other studies of game

theory (see, for example, Ref. [45]). It may be that some

firms in the current sample may have been much more

competitor oriented in the Armstrong and Collopy sense

than others. A lack of relationship between responsiveness to

competitors and performance might be expected if some

firms in this sample, who were high on responsiveness to

competitors, were motivated to hurt competitors at the

expense of long-term profits, while other firms were not

motivated to ‘‘go after’’ competitors but were still responsive

to competitors’ actions. An interesting issue to explore is

how the motivation for defensive responses to competitors’

actions are related to the performance of firms and whether

the motivation factor would clarify the role of supplier

relationships in relation to competitor responsiveness.

Finally, one potential weakness of cross-sectional surveys

is that social desirability may be driving the results, such that

firms want to appear to be doing everything correctly and so

respond positively to all ratings. Such a demand artifact does

not appear to be operating in the current study for two

reasons. First, the means and standard deviations presented

in Table 1 suggest that there was a wide variety of responses

across the different variables of interest and that respondents,

on average, were responding in the middle of the scales.

Second, responsiveness to competitor price changes and

competitor campaigns were not highly correlated with other

variables, and sales growth and relative sales growth were

not highly correlated with other variables. If respondents

were driven by social desirability, these correlations would

be expected to be high as well, suggesting that a desire to

‘‘look good’’ was not driving responses to the questionnaire.

4.1. Managerial implications

Developing a strong market orientation requires three

elements: market information generation, cross-functional

sharing of that market information, and rapidly responding

to opportunities and problems identified in that market

information. Managers must determine the proper mecha-

nisms within their firms to bring these three elements to

effective levels. Having a strong market orientation gives

firms a significant competitive advantage. One of the ques-

tions facing managers is how to take advantage of this

significant resource. Results from this study suggest that

one way to leverage this resource is through strengthening

supplier relationships. Including supplier information within

the firm’s market information generation process increases

the chances that the supplier information will be cross-


functionally shared along side the customer and competitor

information. Managing the cross-functional sharing of

information in such a manner will help firms to establish

stronger supplier relationships because the different func-

tional areas of a business will have a better understanding of

both customer- and supplier-related issues. Maintaining

stronger supplier relationships will yield higher levels of

profitability and customer loyalty in part because the firm

will be able to better respond to customer needs.

For the manager in an organization with a strong market

orientation, there is a real payoff for building stronger supplier

relationships. Not only will the relationship building process

be more efficient than in firms with a weaker market orienta-

tion, but the stronger supplier relationship will be able to feed

back into the market-oriented responsiveness of the company

to its customers. For the manager in an organization with

strong supplier relationships, there is a real payoff for build-

ing a stronger market orientation throughout the organization.

Not only will a stronger market orientation lead to increased

performance compared to firms with a weaker market ori-

entation, but the stronger elements of market orientation will

also be able to feed back into the supplier relationship process

to build even stronger supplier relationships.

This research suggests that the process by which supplier

relationships are developed can be facilitated in firms with a

strong market orientation. The resulting connection between

market orientation and supplier relationship helps to shed

light on how supplier relationships add value to a company

through improved profitability, customer loyalty and enhan-

cing the firm’s ability to respond to customers. Hunt and

Morgan [46] argue that market orientation is a resource that,

if effectively employed, can build competitive advantages

for the long-term success of the company. The link between

supplier relationships and market orientation may be one

way to employ a firm’s market orientation. Managers can

improve the performance of their companies by recognizing

the potential synergy between market orientation and sup-

plier relationships and work to build both for a long-term

competitive advantage.

Acknowledgements

This research was supported in part with a grant from the

Wasmer Fund at John Carroll University and with a grant

from the Ministry of Science and Technology in Croatia.

The authors gratefully acknowledge the comments of Paul

Murphy and Beth Ann Martin on the earlier stages of this

project.

Appendix A. Description of scaled measures

Customer-oriented information (coefficient a=.70)� Our company maintains a detailed database of our

customers.

� We regularly survey our customers to determine

their quality perceptions and/or satisfaction.� We regularly communicate with those who can

influence our customers’ purchases to detect

opportunities or potential problems.� We regularly conduct general market surveys to

detect opportunities or potential threats.� We use a variety of publications to track trends,

changes, or shifts in our market(s).� Acquiring information about our customers’ needs

is a high priority among top managers.

Competitor-oriented information (coefficient a=.85)� We maintain a detailed database for each of our

competitors.� We know our competitors’ strategies and activities.� For most of our close competitors, we are able to

accurately assess their responsiveness to our

marketing activities.� We know the significant strengths and weaknesses

of each of our competitors.

Cross-functional coordination of information (coefficient

a=.84)� Managers in our company are given wide access to

customer information.� We frequently circulate to all managers reports that

provide information on our customers.� Customer satisfaction data are disseminated at all

levels of our organization.� Top managers frequently meet with each other to

discuss customer needs.� Ideas about improving customer satisfaction are

openly shared at all levels in our organization.� When planning new products or product changes,

we use a team approach that involves all func-

tional areas.

Responsiveness to separate competitor actions (each item

treated as an individual measure)� We respond immediately to a competitor’s price

change.� If we find out a competitor is targeting our

customers with a new marketing campaign, we

respond immediately.

Responsiveness to customer needs (coefficient a=.72)� Needs of different customer groups drive new

product development activities in our firm.� Customer complaints carry a lot of weight in how

we plan our business activities.� When we find out that customers are unhappy with

the quality of our products/services, we take

corrective action immediately.

Supplier-oriented information� We maintain a detailed database with respect to

suppliers’ responsiveness and ability to meet our

needs.

Strength of supplier relationship (coefficient a=.78)� We have a strong relationship with our suppliers.


� We work closely with our suppliers on an ongoing

basis so we can revise our purchasing to match our

customer needs.� Our suppliers respond rapidly to our changing

needs.

Profitability inter-item (correlation=.78)� We are very satisfied with the level of profitability

we are achieving.� We are probably more profitable than most of our

competitors.

Customer loyalty inter-item (correlation=.80)� Compared to our competitors, our customer

satisfaction is very high.� Compared to our competitors, we have a very high

rate of repeat buying among our customers.

Relative sales growth� Our company is probably growing faster than most

of our competitors.

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James H. Martin is a professor of marketing in the Boler School of

Business at John Carroll University. Having published articles in journals

such as Industrial Marketing Management, Journal of Consumer Market-

ing, and Journal of Small Business Management, his current research

interests focus on the development and implementation of market

orientation and the strategies and decision processes that are related to

market orientation.

Bruno Grbac is an associate professor of marketing at the University of

Rijeka in Croatia. His articles, published in several journals including

Journal of Small Business Management, Journal of East–West Business,

and Journal of Managerial Issues, focus on strategic marketing and the role

of market orientation in small- and medium-sized firms, especially in

transition and developing economies.


using supply chain management to leverage a firm's market orientation

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