Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 An Analysis of Antecedents and Consequences of Market Orientation for Iran’s Insurance Industry Bahram Ranjbarian Management Department, University of Isfahan, Iran E-mail: [email protected] com Majid Rashid Kaboli Management Department, University of Isfahan, Iran E-mail:[email protected] com Morteza Rojuee (corresponding author) Business Administration, University of Isfahan, Iran E-mail: [email protected] com Received: April 30, 2011 doi:10. 5296/jmr. v4i1. 642 Accepted: August 18, 2011
Published: January 1, 2012 URL: http://dx. doi. org/10. 5296/jmr. v4i1. 642 Abstract Purpose- Present empirical study intends to address antecedents and consequences of market orientation in Iranian insurance industry Design/methodology/approach – Multiple regression models are employed to analyze the data in order to verify the hypotheses corresponding to the causal relationships proposed research model. Findings – The findings supported the hypotheses of the study and confirmed applicability of the proposed market orientation framework.
The findings indicate that the extent of market orientation in Iranian insurance corporations is determined by top management emphasis, risk taking of top management, centralization, political behavior, market based reward system, and interdepartmental conflict as internal factors and management perception of environmental changes as external factor. The study also identified significant effect of market orientation on both the economic and noneconomic business performance. 1 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. : E6 Research limitations/implications – Since the study focused only on insurance corporations and the measurement scale was adapted accordingly, valid conclusions can be drawn for that particular service sector, and with due caution for service providers in general. The Iranian setting limits international applicability of the results, but contains potentially transferable insights. Originality/value – The study reported here applies the market orientation concept in a practitioner context which so far has been ignored by researchers, in a developing country.
Keywords: Market orientation, Insurance industry, Business performance, Iran 2 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 1. Introduction Marketing concept can be defined as a consumer orientation represented by the ability to recognize targeted customers’ generic wants, needs, and preferences and satisfy them by continuously creating and delivering superior value backed by an organization-wide integrated effort of all functional areas within the organization in order to achieve long-term corporate goals and objectives (zebal, 2003).
Despite the importance of this concept, it was not until the 1970s and 1980s that attempts were made to clarify implementation issues (Kotler, 1977; Shapiro, 1988). Since then, a new perspective for viewing marketing concept as implementation has emerged within the marketing literature that is called market orientation. In the recent years, market orientation has been considered to be a critical issue for business success (Narver & Slater, 1990; Jaworski & Kohli, 1993; Matsuno et al. , 2005; Morris et al. , 2007).
In this connection, Narver and Slater’s (1990) study was the first to identify market orientation as the determinant of a company’s profitability and later (Slater and Narver, 1994) even identified a stronger relationship between the market orientation and business performance (profitability, customer retention, sales growth, and new product success). Jaworski and Kohli (1993) also found market orientation to be an important determinant of business success and declared it to be the key to business success.
Webster (1994) proposed market orientation as the survival element of the competitive business world. He noted that, to survive in the future, every business has to be customer-focused, market driven, global in scope, and flexible in its ability to deliver superior value to customers whose preferences and expectations change continuously as they are exposed to new product offerings and communications about them.
Of course, we can cite a number of studies carried out in this field which have concentrated not only on the definition of the of market orientation concept, and its dimensions (Narver & Slater, 1990; Kohli and Jaworski, 1990; Ruekert, 1992; Deshpande et al. , 1993; Ellis, 2006; Matsuno et al. , 2005; Dwairi et al. , 2007; Kshetri, 2009), but also some considerated on organizational antecedents that condition its adoption (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993; Aggarwal, 2003; Ozer et al. , 2006; Flavian & Losano, 2006; Morris et al. 2007), as well as on the consideration of external factors that influence on the stated concept and its economic and noneconomic consequences (Day and Wensley, 1988; Slater and Narver, 1994; Matsuno et al. , 2002; Olivares & Lado, 2003; Pulendran et al. , 2003; Castro et al. , 2005; Todorovic & Ma, 2008; Rodrigues & Carlos. 2010) and finally the mediating role of noneconomic business performance in relationship between market orientation and economic business performance (Narver & Slater, 1990; Olivares & Lado, 2003).
Nevertheless, few researches in this area have concentrated on the market orientation in service organizations (Guo, 2002; Flavian & Losano, 2006; Ozer et al. , 2006) especially in insurance organizations (Hong Ho et al. , 2007). Following this last trend, this study aims to contribute to the body of market orientation research in Iran’s insurance industry that does not consider ever before. The objective of this study is to evaluate the influence of some 3 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. , No. 1: E6 antecedents of market orientation and its economic and noneconomic consequences in insurance industry. 2. Context Rapid transition of Iran's economy from a centrally planned to a predominantly free and open market warrants some research attention. Since the opening of the Iran’s insurance market to foreign firms in recent years, and emergence of a number of new private insurance companies to take advantage of a huge potential market, the intensity of industry competition has greatly increased.
After Iran’s entry into the World Trade Organization as a supervisor in 2004, however, there is a renewed sense of urgency among Iranian domestic firms knowing that there will be greater foreign competition, especially for the insurance companies. Surprisingly, with a few exceptions (Lado and olivares, 2003; Ho and Huang, 2007) very few studies have been reported in the literature addressing MO in insurance companies in developing countries. Iran provides a good context especially in service sector for a study of market orientation in insurance companies.
Many factors including intense competition, expansion of sales networks, increasing the number of private insurance companies, entrance of foreign firms, and a plethora of government regulations, make it necessary for insurance companies to become market-oriented. It may be needed for Iranian insurance companies to gain a better understanding of the value of being market oriented as the government is beginning to reform the structure of industry. It has been pointed out that the Iran’s service sector is growing but still lacking in developing management and marketing skills.
In addition, to date, no study in Iran has been reported in the literature on MO in insurance companies. 3. Literature review 3. 1. Market orientation We begin by defining the meaning of market orientation as used in this study; it should be noted that although widely varying definitions of the concept can be found in the literature, recent and exhaustive revisions of the meaning employed in studies in this field (Avlonitis et al. , 1992; Diamantopoulos and Hart, 1993; Gounaris and
Avlonitis, 1997; Avlonitis and Gounaris, 1999) have tended to fall into two main perspectives of analysis. This dual nature of the concept of market orientation makes it ostensibly possible to simplify its definition. On the one hand, Narver and Slater (1990) understand market orientation as a phenomenon related to the cultural values and norms of an organization. The concept in this case is identified not so much by “behavior” but more by an “attitude”; it is therefore used in association with denominations such as cultural, philosophical or attitudinal.
On the other hand, the work of Kohli and Jaworski (1990) considers market orientation as an activity of processing market information. Therefore, those most identified with this focus 4 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 understand market orientation as a form of behavior or conduct more than an attitude, as the concept is more identified with the putting into practice of the concept of marketing.
In this way, the perspective identifies itself with “action” and is associated with terms such as operational or behavioral strategy. 3. 2. Market orientation and the influence of organizational antecedents In addition, within market orientation researches the study of antecedents attempts to answer a fundamental question: why are some organizations more market-oriented than others? This is the approach of Kohli and Jaworski (1990) in their initial theoretical proposal, and later in their empirical study (Jaworski and Kohli, 1993), which poses the question and attempts to find answers.
In this respect, present study has developed a series of internal organizational factors which condition the fact that a specific organization orientates itself to the market with greater or lesser vigor. That is to say that the authors assume the existence of influences on these factors that predispose the organization to behavior of greater or lesser market orientation. More specifically, it has been presumed the aforementioned influences derive from three different types of antecedent: (1) Top level management: includes the emphasis of the managers towards market orientation and the level of risk aversion concerned ith new product development. (2) Interdepartmental dynamic: represents the structure of existing relations between the functional areas and levels of an organization (this is represented through conflict and cohesion at the heart of the organization). (3) Organizational systems: reflect the influence that the organizational structure has on the way that information about the market is used. Jaworski and Kohli (1993) considered the level of formalization and centralization, as well as the level of departmentalization and incentive systems as antecedents of market orientation.
In this context, formalization refers to the normalization of functioning rules, communication, roles etc. within an organization and centralization represents the level of power concentration in decision making (Aiken and Hage, 1968). This study is organized into four major parts. First, the effects of organizational antecedents on market orientation (MO). Second, the effect of managers’ perception of environmental changes on MO, followed by the effects of MO on economic business performance, and the effects of MO on noneconomic business performance.
Figure 1 shows the research model: 5 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 Organizational antecedents Market orientation Managers’ perception of environmental changes Economic business performance Noneconomic business performance Figure 1. Research model: MO antecedents and consequences 3. 3. Top Management The crucial role of top management in fostering a market orientation is well recognized in literature.
Market orientation is attainable only if the board of directors, chief executive and top echelon executives appreciate the need to develop this marketing state of mind (Felton, 1959; Levitt, 1969; Webster, 1988). In other words, the commitment of top managers is an essential to market orientation as it will encourage individuals in the organization to track changing markets, share market intelligence with others in the organization and be responsive to market needs (Jaworski and Kohli, 1993; Slater and Narver, 1994; Pulendran, Speed, and Widing, 2000).
Hence: H1: In Iranian Insurance companies the emphasis of top management on market orientation would lead to a higher market orientation level of the organization. Another factor that relates to top management is its risk posture (Jaworski and Kohli, 1993). Market orientation involves being responsive to market developments. Changing market needs call for introduction of new/modified products and services, which inherently is risky. Top managers’ response to innovative programs that do not succeed sends clear signals to junior employees in the organization.
If top managers show a willingness to take risks and accept failures as being natural, junior managers are more likely to prepare and introduce offerings in response to market needs (Kohli and Jaworski, 1990). However, if top managers are risk averse and intolerant of failures, subordinates are likely to be less responsive to changes in the market (Jaworski & Kohli, 1993); therefore it is expected: H2: In Iranian Insurance companies the willingness of top management to take risk would lead to a higher market orientation level of the organization. 3. 4.
Interdepartmental Conflict Interdepartmental conflict, which refers to the tension among departments arising from the incompatibility of actual or desired responses (Raven and Kruglanski, 1970), may be detrimental to implementing market orientation (Levitt, 1969; Lusch and Laczniak, 1987; Jaworski and Kohli, 1993; Pulendran, Speed, and Widing, 2000). Research has also 6 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 suggested that conflict may result in reduced Inter-functional performance (Weiraunch and Anderson, 1982).
Levitt (1969) refers to interdepartmental conflict as being dysfunctional since it acts as an inhibitor of market orientation. Hence: H3: In Iranian Insurance companies the greater degree of interdepartmental conflict would lead to a higher market orientation level of the organization. 3. 5. Interdepartmental Connectedness Interdepartmental connectedness is the degree of formal and informal direct contact among employees across departments of an organization (Kohli and Jaworski, 1990). The importance of this variable as a facilitator of market orientation is supported by the literature (Cronbach and Associates, 1981).
This was also documented by Deshpande and Zaltman (1982) who identified interdepartmental connectedness to be significant and positively related to intelligence dissemination and responsiveness. They also postulated that connectedness enables adequate amounts of intelligence to be generated and at the same time allows its appropriate usage. Blake and Mouton (1964); Lawrence and Lorsch (1967); and Ruekert and Walker (1987) proclaimed interdepartmental connectedness as the perception of an organization that links different departments and functions in achieving the overall objective of that organization.
Jaworski and Kohli (1993) claimed that interdepartmental connectedness fosters interdependency within the organization and encourages employees to act in a concerted manner in the processes of knowledge generation and knowledge utilization. They also purported that interdepartmental connectedness plays a positive role in determining the market orientation components (intelligence dissemination and responsiveness to market intelligence). Most recently, Ignacio et al. 2002) augmented the importance of interdepartmental connectedness by mentioning that the internal integration and coordination must be a faithful illustration of the organization’s members’ predisposition. Further, they suggested that interdepartmental connectedness develops group of activities which satisfy the target market. Thus, the leading management of an organization should ensure that each one of the organizational participants recognizes the need for integration and coordination as organizational values. Ignacio et al. 2002) further suggested that coordination must be accomplished in order to combine interests and eliminate barriers to accomplishing the mission of the company. Thus, the presence of appropriate interdepartmental coordination is critical for any organization in becoming market-oriented and it should be considered as one of the influential factors, because it fosters the level of market orientation of a company. Therefore, H4: In Iranian Insurance companies the greater degree of interdepartmental connectedness would lead to a higher market orientation level of the organization. . 6. Organizational Systems Formalization, centralization, departmentalization and reward system are considered as structural variables (Jaworski and Kohli 1993). Formalization refers to the degree to which 7 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 rules define roles, authority, relations, communications, norms and sanctions, and procedures (Hall, Haas, and Johnson 1967). Therefore, it is the design parameter by which the work progress of an organization is standardized (Pulendran, Speed, and Widing, 2000).
Aiken and Hage (1968) refer to centralization as the inverse of amount of delegation of decision-making authority throughout the organization and the extent of participation by organizational members in decision-making. Both formalization and centralization hinder market orientation (Jaworski and Kohli, 1993; Pulendran, Speed, and Widing, 2000) as they impede the process of information utilization (Hage and Aiken 1970; Deshpande and Zaltman, 1982) and organizational responsiveness (Stampfl, 1978).
Therefore, H5: In Iranian Insurance companies the degree of formalization negatively related to organization's market orientation level. H6: In Iranian Insurance companies the degree of centralization negatively related to organization's market orientation level. Departmentalization or specialization generally refers to the extent to which a breadth of tasks is partitioned to a predetermined domain (Kohli & Jaworski, 1990; Ruekert et al. , 1985).
Although departmentalization is sometimes operationalized as the number of departments into which organizational tasks are partitioned and compartmentalized, perhaps the sheer number of departments in organizations may not be as indicative of departmentalization as the existence (or lack) of departmental interaction- the degree of formal and informal direct contact among employees across departments. Conceptualizing in this manner, we define and operationalize departmentalization as the extent to which members of departments are isolated from interdepartmental interactions Matsuno et al. , 2002). Jaworski and Kohli (1993) operationalize departmentalization as a count of the number of departments in the business units. The greater the number of departments involved, the more difficult it may be for organizations to communicate information and respond quickly. Conceptually, a greater degree of departmentalization seems to be antagonistic to a market orientation. Thus, H7: In Iranian Insurance companies the degree of departmentalization negatively related to organization's market orientation level.
Literature shows that reward systems are instrumental in shaping the behavior of employees (Jaworski, 1988; Siguaw, Brown, and Widing, 1994). In fact, Webster (1988) saw the basic requirement of market based reward system for development of a market oriented business. If managers are evaluated primarily on the basis of short-term profitability and sales, they will focus on these criteria and neglect the market factors such as customer satisfaction. These systems work against a long-term market orientation and any long-run strategic orientation that the organization may decide to take.
By comparison, organizations that evaluate and administer rewards based on customer satisfaction and service levels are more likely to encourage the active generation and dissemination of market intelligence and responsiveness to market needs. It, therefore, suggests that: 8 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 H8: In Iranian Insurance companies the degree of reliance on market based factors for evaluating and rewarding managers positively related to organization's market orientation level. 3. 7.
Political Behavior Political behavior consists of an individual’s attempts to promote self-interest and threaten others interests (Porter, Allen and Angel, 1981). Ralston (1985) had the same opinion but discussed the consequences of political behavior. He suggested that political behavior is to seek one’s self-interest and in theory that may be detrimental to an organization if it becomes excessive. On the other hand, Kohli and Jaworski (1990) argued that political norm structure is an informal system that reflects the extent to which members of an organization view political behavior in the organization as being acceptable.
They suggested that a highly politicized system has the potential for engendering interdepartmental conflict that may inhibit market orientation. In practicing political behavior, organizations differ in the extent to which their members view it as being acceptable or not (Wood and Bhuian, 1993). Thus, this political behavior should get clear attention since it may result in organizational conflict and ultimately, through over utilization hamper market orientation.
Harris and Piercy (1999) identified a negative association between market orientation and political behavior of retailing companies. Therefore, in becoming market-oriented an organization should try to minimize its political behavior: H9: In Iranian Insurance companies the degree of political behavior practices positively related to organization's market orientation level. 3. 8. Market orientation and the influence of environmental changes In only a few studies have the macro-environmental conditions been hypothesized as an antecedent of market orientation (Cervera et al. 2001; Avlonitis and Gounaris, 1999). Faherty (1985) asserted that the external environment in which organizations operate is highly complex and more volatile. Thus, these external environmental factors are perhaps even more influential in determining the level of market orientation (Wood and Bhuian, 1993). Hence, Au and Tse (1995) argued that market turbulence, technological turbulence, and the degree of competition, all interact in a complex manner that can have an enormous impact on the relationship between market orientation and company performance.
Therefore, competition, market turbulence, and technology of an industry can be considered as the main external factors, which can be claimed to be influential in determining the level of market orientation. There is an important note that managers make decisions based on their perceptions of fact rather than fact itself. Therefore, some managers perceive the environmental changes so rapidly and some of them perceive vice versa. Thus, H10: In Iranian Insurance companies the management's perception about speed of environmental changes positively related to organization's market orientation level. www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 3. 9. Market orientation and business performance There are at least three different types of consequences of market orientation that have been identified from the market orientation literature including business performance, employees’ organizational commitment, esprit de corps, customer satisfaction and repeat purchase (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993).
Raju et al. (1995) proposed that an increase in market orientation is expected to result in higher business performance, since it facilitates clarity of focus and vision in an organization’s strategy and generates pride in belonging to an organization that results in higher employee morale and greater organizational commitment. The further consequence is customer satisfaction that indicates repeat purchases and draws new customers to the business.
Armstrong and Baron (1998) stated that defining performance is the prerequisite of measuring or managing it. Hence, Otley (1999) argued that performance might be defined in terms of doing the work, as well as in terms of the results achieved. Matsuno and Mentzer (2000) suggested that performance should be viewed not only as economic performance (business performance) but also as noneconomic performance (customer satisfaction, customer retention, social acceptance, corporate image, and employee satisfaction).
Economic performance of an organization can be defined as the function of some financial indicators such as return on investment, profit, market share, sales volume, revenues, product quality, and overall financial position, while noneconomic performance is the function of other outcomes of an organization rather than financial indicators such as customer satisfaction, customer loyalty, employees’ organizational commitment and esprit de corps, company image and social acceptance (Narver and Slater, 1990; Jaworski and Kohli, 1993; Matsuno and Mentzer, 2000).
A significant number of studies in market orientation have focused on the relationship between market orientation and economic business performance. These studies use a wide variety of dependent measures of business performance. Avlonitis and Gounaris (1997) found a positive relationship between marketing orientation and company performance using profit, sales volume and market share as measures. Guo (2002) tested the relationship between market orientation and business performance as measured by service quality. Hult, Tomas, Ketchen and Slater (2005), used ROI, ROA and ROE as measures, while Dobni and Luffman (2003) also used ROI.
Kyriakos, Meulenberg and Nilsson (2004), in their research about the role of culture on market orientation and performance, used profit margin, growth and market share. In this study, we draw on prior studies to develop measures of economic business performance that are relevant to insurance corporations. Because our measures were based on the perceptions of sales representativeness, it was important to choose measures that these individuals are closely familiar with and reflect the output of the relationship between suppliers and customers.
Return on assets (ROA), sales growth and market share are best measures for measuring economic business performance of insurance corporations. 10 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 H11: Market orientation level of Iranian insurance companies positively related to their ROA. H12: Market orientation level of Iranian insurance companies positively related to their sales growth. H13: Market orientation level of Iranian insurance companies positively related to their market share.
Yet few works have addressed other possible consequences, such as the effect of MO on the operational level of employees (Jaworski and Kolhi, 1993; Ruekert, 1992; Piercy et al. , 2002; Kennedy et al. , 2002), or the effect of MO at a customer level (Steinman et al. , 2000; Webb et al. , 2000; Krepapa et al. , 2003). Kohli and Jaworski (1990) suggested two major noneconomic consequences of market orientation: employee response (organizational commitment, and esprit de corps), and customer response (customer satisfaction, and repeat business).
The concept of organizational commitment has been defined in a number of ways in the literature. According to Bhuian and Abdul-Muhmin (1997), the first definition viewed organizational commitment as an internal feeling, belief, or set of intentions that enhances an employee’s desire to remain with an organization (Hunt et al. , 1985; Hackett et al. , 1994), the second definition viewed it as a reflection of recognized, accumulated interests e. g. ensions and seniority that bind an individual to a particular organization (Becker, 1960), and the third definition explored it as the employee’s feelings of obligation to stay with the organization (Allen and Meyer, 1990; Hackett et al. , 1994). Kohli and Jaworski (1990) argued that market orientation provides psychological and social benefits to employees. Specifically, it leads to a sense of pride in belonging to an organization in which all departments and individuals work towards the common goal of satisfying customers and that this positive response towards the work situation results in increased organizational commitment.
Jaworski and Kohli (1993) statistically proved this by identifying a strong and positive significant relationship between market orientation and organizational commitment. Hence, they postulated that market orientation nurtures a bonding between employees and the organization, as well as promoting a feeling of belonging to one big organizational family dedicated to meeting and exceeding market needs and expectations. Thus, H14: Market orientation level of Iranian insurance companies positively related to their employees' commitment level. Zeithaml et al. 1988) suggested that esprit de corps reduces the gap between service quality specifications and actual delivery and improves consumers’ perceptions of service quality. Kohli and Jaworski (1990) argued that esprit de corps of an organization could be improved by implementing market orientation. This argument was tested in their later research (Jaworski and Kohli, 1993) where they identified a significant relationship between market orientation and esprit de corps. Shoham and Rose (2001) also examined connections between 11 www. macrothink. org/jmr
Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 market orientation and business performance among 250 Israeli food, plastics, constructions, and agriculture firms and identified a positive and significant association between market orientation and esprit de corps. This was previously shown by Selnes et al. (1996) who identified strong effects of market orientation on esprit de corps in both USA and Scandinavian cultures. Thus, H15: Market orientation level of Iranian insurance companies positively related to their esprit de corps level.
The next noneconomic performance indicator of an organization is customer satisfaction. Different studies from the fields of marketing, as well as strategic management, have underlined the capability of creating and delivering a superior value to customers as a source of competitive advantage. Moreover, businesses developing a market-oriented culture and behaviors find it easier to generate this capability (Narver and Slater, 1990). Doyle (1995) argued that the most appropriate measures of performance are customer satisfaction and customer loyalty.
In this respect, he again asserted that the customers who are satisfied with the value being provided repurchase the product and that results in better economic business performance (market share and profitability) for an organization. Thus, an organization should always guarantee satisfying its customers current and future needs by showing commitment, creating value in the product, encouraging customers’ comments and complaints, collecting information, sharing information among various departments of the company, and by taking action.
This means that a market-orientated organization does everything possible in order to satisfy its customers. Hence, there is a link between market orientation and customer satisfaction. Kohli and Jaworski (1990) supported this link arguing that market orientation leads to satisfied customers who spread the good word to other potential customers and who keep coming back to the organization. This idea also reflects Kotler’s (1998) assertion that a market orientation is likely to lead to greater customer satisfaction and repeat business.
H16: Market orientation of insurance companies in Iran has a positive effect on the level of customer satisfaction. 4. Methodology This is a descriptive survey research. A questionnaire was developed to measure the constructs along with some demographic characteristics of the samples. The kohli and jaworski (1993) model has been adopted to measure the market orientation which has three sub-constructs; intelligence generation, intelligence dissemination and responsiveness. Economic business performance was assessed by asking informants to rate their firm’s performance on three iverse criteria including ROA, sales growth, and market share. Noneconomic business performance was also assessed by three criteria including organizational commitments, esprit de corps and customer satisfaction. Following Woodside et al. (1999) performance on each activity was judged by asking informants to rate their firm relative to competitors. Here, the insurance representatives were 12 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 asked about their experience within the firm. These are questions pertaining to the insurance representative’s own experience within the firm.
It should be noted at the outset that our measures reflect insurance representatives’ perceptions of these constructs. Some items related to demographic characteristics of the samples, including gender, education level; years of work experience, and position within the company were measured using categorical scales. All remaining items were measured by a 5point Likert scales. 4. 1. Sample The sample included insurance representatives from 6 measure provinces all-around Iran which producing 70% of country sale and thus it constituted a highly representative sample. 450 representatives were chosen as sample of the study.
Three hundred useable survey forms out of a total of 450 were returned yielding a response rate of 66. 6 percent. The share of each province from total sample size is shown in Table 1. Table1. Sample distributions in accordance to provinces Province Share of the province from total sample size Number samples from government insurance companies Number samples from private insurance companies Percentage Share of each province from total sample size Tehran 144 63 81 48% Esfahan 36 9 27 12% Khorasan 42 17 25 14% Fars 30 7 23 10% Azarbayejan 27 9 18 9% Khuzestan 21 6 15 7% 5. Analysis 5. 1.
Instrument reliability Reliability of data collection instrument was measured by Cronbach's Alpha. Reliability of the MO scale was assessed using SPSS 17. 0. Overall, the MO’s Cronbach ? coefficient was 0. 837. Coefficients of Cronbach ? for organizational antecedents, Managers’ perception of environmental changes, economic business performance and noneconomic business performance were 0. 895, 0. 746, 0. 782, and 0. 847 respectively, all exceeding the acceptable level of 0. 7 (Nunnally, 1978). Furthermore, elimination of any one of these items did not result in significant changes in the Cronbach ? oefficients. Therefore, all, measured scales showed a reasonable degree of reliability. Coefficient alphas for the MO and other scales are reported in Table 2 and all scales exceed the 0. 70 threshold. 13 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 Table 2. Reliability analysis Constructs Market orientation Organizational antecedents Managers’ perception of environmental changes Economic business performance Noneconomic business performance Number of items 22 33 12 6 17 Cronbach's Alpha 0. 837 0. 895 0. 746 0. 782 0. 847
In the conceptual model of the study which is shown in Figure 1, it is proposed firstly that the market orientation of the Iranian insurance companies is determined by a set of internal and external factors, and secondly that market orientation affects a set of dependent variables for both economic and non-economic performance of business. More specifically, in the proposed framework, market orientation is identified as having two different roles. Firstly, it works as a dependent variable, and secondly it becomes an independent variable affecting both economic and non-economic performance of business.
In order to test hypotheses 1 to 10, it was required to identify the internal and external variables that better describe the overall market orientation of the Iranian insurance companies. In order to test hypotheses 11 to 16, identification of the overall market orientation that significantly determines the economic and non-economic performance of business was required. So it was necessary to conduct two sets of correlation analyses. The first set related to hypotheses 1 and 10, and the second set related to hypotheses 11 to 16.
In this study correlation analysis was used for two purposes, firstly to examine the presence of multicollinearity, and secondly to explore the relationships between the variables. Rowntree (1981) provided a guideline that interpreted the strength of the relationships between the variables. He indicated that, when the correlation coefficient (r) ranges from . 00 to . 20, the relationship is very weak and negligible; when the correlation coefficient ranges from . 20 to . 40, the relationship is weak and low; when the correlation coefficient ranges from . 0 to . 70, the relationship is moderate; when the correlation coefficient ranges from . 70 to . 90, the relationship is strong, high and marked; and finally, when the correlation coefficient ranges from . 90 to 1. 0, the relationship is very strong and very high. In this study the bivariate Pearson correlation test was applied. The test was subject to a one tailed test of statistical significance at two different levels: highly significant (p < 0. 01) and significant (p < 0. 05). The results of the correlation analysis are shown in Table 3 and 4.
Table 3 shows the correlation between antecedents of market orientation (internal and external variables) and overall of market orientation. 14 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 Table 3. Correlation matrix of antecedents of market orientation variables Market orientation(1) Top emphasis(2) Risk taking(3) Organizational conflict(4) Organizational connectedness(5) Formalization(6) Concentration(7) Departmentalization(8) Market system(9) Political behavior(10) Manager’s perception of environmental changes(11) based reward management 1 1 . 36* * . 454* * . 107 . 743* * . 345* * -. 389 ** -. 081 . 200* * -. 522 ** . 461* * 1 . 596* * -. 321 ** . 428* * . 459* * . 021 -. 210 ** . 002 -. 400 ** . 452* * 1 -. 170 ** . 321* * . 332* * . 118* -. 141 * . 162* * -. 109 . 403* * 1 . 058 -. 219 ** -. 340 ** . 374* * . 232* * -. 062 -. 089 1 . 345* * -. 309 ** -. 082 .473* * -. 612 ** . 298* * 1 -. 050 . 083 . 179* * -. 194 ** . 082 1 -. 235 ** . 080 . 343* * -. 016 1 . 091 -. 136 * -. 036 1 -. 267 ** -. 131 * 1 -. 216 ** 1 2 3 4 5 6 7 8 9 10 11 Notes: N =291 **p < 0. 01 *p < . 5 Top management emphasis on market orientation, willingness to take risk, organizational connectedness, formalization, market based reward system, and manager’s perception of environmental changes was found to be significant and positively correlated with market orientation (r = . 636, 0. 454, 0. 743, 0. 345, 0. 200, 0. 461, p < 0. 01) respectively, of the insurance companies in Iran. This suggested that these factors encourage market orientation of the insurance companies in Iran. Concentration and political behavior was found to be significant and negatively correlated with market orientation of insurance companies in Iran.
The examination of the correlation between concentration and political behavior and market orientation (r = -0. 389, -0. 522, p < . 01) respectively, suggested that these factors discourages market orientation of the insurance companies in Iran. 15 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 No significant correlation found between organizational conflict and market orientation. There is also no significant correlation between departmentalization and market orientation of the insurance companies in Iran.
Table 4 shows the correlation of market orientation and its consequences (economic and noneconomic business performance) in Iranian insurance companies. Table 4. Correlation matrix of overall market orientation and its economic and noneconomic consequences variables Market orientation(1) Organizational commitment(2) Esprit de corps(3) Customer satisfaction(4) Return on assets(5) Sales growth(6) Market share(7) 1 1 . 727** . 839** . 714** . 607** . 384** . 564** 1 . 669** . 601** . 618** . 466** . 617** 1 . 536** . 453** . 204** . 454** 1 . 645** . 512** . 692** 1 . 560** . 732** 1 . 428** 1 2 3 4 5 6 7
Notes: N =291 **p < 0. 01 The analysis of the correlation matrix indicated that market orientation of Iranian insurance companies was found to be significant and positively correlated to all economic and non-economic business performance. Market orientation was found to be significant and positively correlated to the noneconomic business measures including organizational commitment, Esprit de corps, and customer satisfaction (r = 0. 727, 0. 839, 0. 714, p < . 01) respectively. This indicated that the noneconomic business performance was a positive function of the market orientation of the insurance companies in Iran.
Similarly, market orientation had a significant positive correlation with economic business measures, including return on investment (ROA), sales growth, and market share (r = 0. 607, 0. 384, 0. 564, p < . 01) respectively, suggesting that, market orientation induced economic business performance. 6. RESULTS AND DISCUSSION 6. 1. Hypothesis testing In this section the results of multiple regression analysis are presented and discussed under two major headings, antecedents of market orientation and consequences of market orientation. 6. 1. 1.
Antecedents of Market Orientation Table 5 displays the antecedents (internal and external) of the market orientation level of Iranian insurance companies. 16 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 Table 5. Antecedents (Internal and External) of Market Orientation: A Multiple Regression Analysis variables B ? t Top management emphasis Risk taking Organizational conflict Organizational connectedness Formalization Concentration Departmentalization Market based reward system Political behavior Manager’s perception of environmental changes Constant R F N Note: ***p < 0. 01 **p < 0. 01 2 2. 161 . 733 . 937 -. 313 -. 006 -. 581 -. 325 1. 728 -0. 724 1. 265 17. 023 0. 767 115. 876 291 .421 . 110 . 203 -. 075 . 000 -. 198 -. 053 . 486 -0. 325 . 461 9. 779*** 2. 988** 5. 607*** -1. 963 -. 014 -5. 469*** -1. 590 11. 265*** -6. 025*** 8. 840*** As it is shown in table 5, the relation of market orientation centralization found to be statistically significant and negative (? = -0. 198, p < 0. 001). This confirms that the centralization of organizations’ structure is an inhibitor of market orientation of the insurance companies in Iran.
Therefore, the H6 is accepted. This finding between centralization and market orientation also suggests that the insurance companies in Iran that do have a centralized structure appear to be missing the presence of market orientation or to be less market-oriented. Political behavior of organizations was also identified to be statistically significant and negatively related to the market orientation (? = -0. 325, p < 0. 001). So, the H9 is also accepted.
The organizations that consider self-interest more than the customers’ interests were found to be discouraging market orientation and the organizations that gave priority to the customers found to be encouraging market orientation. This inverse relationship between political behavior and market orientation suggests that the insurance companies in Iran should avoid political behavior and set a priority for their customers in order to become more market oriented. Top management emphasis on market orientation (? = 0. 421, p < 0. 01), willingness to take risk (? = 0. 110, p < 0. 01), organizational conflict (? = 0. 203, p < 0. 001), market based reward system (? = 0. 486, p < 0. 001), and manager’s perception of environmental changes (? = 0. 461, p < 0. 001) were found to be statistically significant and positively related to market 17 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 orientation. This means that, in order to be more market orientated these factors should be strengthened.
Thus, H1, H2, H3, H8, H9 and H10 are also accepted. Findings of the study suggest that the organizational connectedness, formalization, and departmentalization do not contribute to the market orientation level of studied organizations. That means a low or insignificant relationships were found between these variables and market orientation. Therefore, H4, H5, and H7 are rejected. 6. 1. 2. Consequences of Market Orientation Table 6 is the result of the multiple regression analysis displays the relationships between which market orientation and its consequences.
These consequences are noneconomic business performance (employees’ organizational commitment, esprit de corps, customer satisfaction), and economic business performance (ROA, sales growth, market share). Table 6. Consequences of Market Orientation: economic and noneconomic business performance Dependent variables ? Market share Sales growth Independent variable ROA OC EDC CS Market orientation t Constant R F N Note: ***p < 0. 001 2 .607 12. 976*** -. 182 . 368 168. 367 291 .384 7. 065*** 2. 539 . 147 49. 910 291 .564 11. 604*** -. 674 . 318 134. 655 291 .727 17. 978*** -2. 106 . 528 323. 191 291 .839 26. 91*** -6. 574 . 704 685. 973 291 .714 17. 342*** 5. 459 . 510 300. 737 291 Table 6 indicates that market orientation has a significant and positive relation with all economic and noneconomic business performance including ROA, sales growth, market share, organizational commitment, esprit de corps, and customer satisfaction. Thus, H11, H12, H13, H14, H15 and H16 are accepted. 7. Conclusions and implications Seven antecedents were identified in this study that makes a significant contribution to market orientation of Iranian insurance companies. They can be categorized as internal and external antecedents.
The identified internal antecedents that were statistically significant include the senior management characteristics as of ; top management emphasis on market orientation and willingness to take risk, and also the organizational characteristics as of; centralization, political behavior, and market based reward system; and the interdepartmental 18 www. macrothink. org/jmr Journal of Management Research ISSN 1941-899X 2012, Vol. 4, No. 1: E6 connectedness and interdepartmental conflict. The external antecedent which had significant influence on market orientation level was manager’s perception of environmental changes.
Market orientation was found to make significant contributions to both the economic and non-economic performance of business. By implementing the findings of this study, Iranian insurance companies, will be able to emphasize on factors that foster market orientation and reject factors that discourage market orientation. Further, since the model confirms that both superior economic and non-economic business performance which are determined by the of market orientation level of an organization, managers of the insurance companies in Iran will be motivated to commit resources in order to become more market-oriented.
In addition, Iranian insurance companies will be able to project the cost-benefit ratio by looking at the cost of the resources in committing to market-orientation philosophy, as well as the benefits of this commitment. Since the findings of the study that revealed a significant positive effect of overall market orientation on both the economic and non-economic performance of business, therefore we can claim that organizations’ ROA, sales growth, market share, employees’ organizational commitment and esprit de corps, and customer satisfaction all be achieved by initiating market-oriented activities.
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