SOURCES OF COMPETITIVE ADVANTAGE FOR EMERGING FAST GROWTH SMALL- TO-MEDIUM ENTERPRISES: THE ROLE OF BUSINESS ORIENTATION, MARKETING CAPABILITIES, CUSTOMER VALUE, AND FIRM PERFORMANCE Caroline Tan Swee Lin BBus (Marketing), BBus Com (Hons) School of Management Business Portfolio RMIT University February 2007 A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy from the Royal Melbourne Institute of Technology Statement of Authorship I certify that except where due acknowledgement has been made, the work is that of the author alone; the work has not been submitted previously, in whole or in part, to qualify for any other academic award; the content of the thesis is the result of work which has been carried out since the official commencement date of the approved research program; and, any editorial work, paid or unpaid, carried out by a third party is acknowledged. Caroline Tan Swee Lin 16 February 2007 ii Acknowledgements I wish to express my sincere appreciation to all persons who inspired, counselled, and assisted me during the course of this dissertation. Special thanks to my supervisor, Professor Kosmas Smyrnios, for his understanding, encouragement, and personal guidance during my candidature. The completion of this thesis would not have been possible without his direction and mentoring.
His patience is greatly appreciated. Kos has not only been a supervisor, but, also a friend and inspiration. My parents and my brother, and for their love, encouragement, inspiration, confidence, and support. Don Bradmore, who sparked my interest in Competitive Advantage.
Don has also been my Thursday lunch buddy and good friend over the years. Fabio Nelson Gutierrez, for his support and encouragement, and in particular for drawing and ammending causal network models for the present thesis. My friends, who kept me sane during the PhD process. Wei Chun Wang, who assisted with the statistical aspects of this study.
The 21 Fast 100 CEOs, whom I interviewed. Adjunct Professor Amanda Gome and Business Review Weekly, who sponsored the quantitative data collection for the present thesis. RMIT International, for their financial scholarship support which made the pursuit of this higher degree possible. The Research Development Unit and former School of Marketing, for providing the necessary administration and financial support, which enabled me to travel to three different continents to present my research.
iii Table of Contents Page Statement of Authorship……………………………………………………………………. iii List of Tables………………………………………………………………………………. viii List of Figures………………………………………………………………………………. xi List of Appendices………………………………………………………………………….
xiii Publications, Conference Presentations, and Awards of the Candidate Originating from the Present Thesis…………………………………………………………………………. xxii Chapter 1: Introduction Purpose……………………………………………………………………………………… 1 Background…………………………………………………………………………………. 6 Chapter 2: Literature Review Overview……………………………………………………………………………………. 9 Fast-growth firms…………………………………………………………………………….
9 Entrepreneur/founder characteristics………………………………………………………. 13 Marketing in fast-growth enterprises………………………………………………………. 16 Resources in fast-growth firms……………………………………………………………. 17 Competitive advantage: theoretical frameworks.
21 Market, learning and entrepreneurial orientation as sources of competitive advantage……. 23 Interactions between business orientations……………………. 25 Development of a hypothesized model of competitive advantage and firm performance. 28 Characteristics of market-oriented firms…………………………………………….
31 Market-driven versus market-driving…………………. 32 Reactive versus proactive market orientation……………. 33 Empirical studies of market orientation……………………………………………. 55 Chapter 3: Study 1 Overview…………………………………………………………………….
61 Multiple method designs……………………………………………………………. 65 iv Table of Contents Page Participants…………………………………………………………………………………. 65 The Fast 100 questionnaire…………………………………………………………………. 66 Measures of market orientation…………………………………………………….
66 Measures of learning orientation……………………………. 68 Measures of entrepreneurial orientation…………………………. 69 Measures of marketing capabilities…………………………………………………. 70 Measures of performance…………………………………………………………… 71 Social desirability………………………………………………………………….
72 Validity and reliability of the Fast 100 questionnaire……………………. 75 Psychometric analysis of the instrument……………………………………….…………… 76 Criteria for extracting factors in Exploratory Factor Analysis…. 77 Confirmatory factor analysis…………………………. 87 Absolute fit indices………………………….……………………………………… 88 One-factor congeneric measurement models.
88 Multi-factor analysis………………………. 93 Convergent and discriminant validity………………………………………………. 100 Path Analysis: test of hypotheses…………………. 103 Test for common methods bias: social desirability.
107 Discussion…………………………………………………………………………………… 107 H1: Market orientation is related positively to marketing capabilities……………………. 109 H2: Learning orientation is related positively to marketing capabilities…………………… 112 H3: Entrepreneurial orientation is related positively to marketing capabilities……………. 113 H4: Marketing capabilities are related positively to firm performance……………………. 115 Relationships among market, learning, and entrepreneurial orientation…………………….
122 Implications for future research……………………………………………………………. 124 Chapter 4: Study 2 Overview……………………………………………………………………………………. 131 Case Study Method…………………………………………………………………………. 131 The role of theory in case studies………………………………………….
131 Inductive versus deductive reasoning……………………………………………. 154 Validity and reliability of case study research……………………………….…………… 156 v Table of Contents Page Internal validity………………………………………. 157 Data collection procedures……………………. 157 Data analytic procedures…………………………………….
158 Causal network modeling……………………………………………. 159 Within-case analysis…………………………………. 159 Cross-case analysis………………………………………. 160 Thematic analysis for open-ended questions………………………………….…… 162 Chapter 5: Within-case Analysis: Case Studies Smart Advertising………………………………………………………………………….
235 Chapter 6: Findings and Discussion: Cross-Case Analyses Research Question 1: What are the ways in which fast-growth firms implement firm business orientation, marketing capabilities, customer value, and firm performance?. 255 Research Question 2: For what reasons are only particular elements of market orientation, learning orientation, entrepreneurial orientation, and marketing capabilities evident in the present model?. 264 Interrelationships between marketing capabilities, customer value, business orientation, and firm performance………………………………………………. 265 Research Question 3: For what reasons is only one marketing capability dimension related to firm performance in fast-growth companies?.
265 Research Question 4: Do fast growth companies take into consideration customer value?. 267 Research Question 5: Is customer value an antecedent to firm performance?. 268 Business orientation, marketing capabilities, and firm performance………………. 269 Inductive analysis of case studies………………………………………………….
271 Intangible sources of competitive advantage: leadership, human resource practices, organizational culture, and climate……………………. 272 Consequences of leadership………………………………………. 273 Human resource management and practices………………………………. 276 Consequences of human resource management and practices……….
281 Consequences of organizational climate…………………………………………… 283 Organizational culture……………………………………………. 284 Consequences of organizational culture………………………………. 285 vi Table of Contents Page Nonrecursive relationship between firm performance and human resource practices…………………………………………………………………………… 287 Limitations…………………………………………………………………………………. 288 Implications for future research…………………………………………………………….
289 Chapter 7: Conclusion Unique contributions to marketing/entrepreneurship theory and practice………………. 292 A model of competitive advantage for fast-growth firms comprises specific elements of intangible resources, positional advantage, customer value, and firm performance…………………………………………. 293 Intangible resources such as leadership, human resource practices/management, and organizational culture and climate are central to fast-growth firms…………. 295 For fast-growth firms, leadership, human resource practices/management, and organizational culture and climate are interrelated antecedents to business orientation…………………………………….
299 The practice of marketing in fast-growth firms is unique, with a focus on product/ service development and branding…………………. 301 In fast-growth firms, customer value perceptions are more relevant than competitor centered measures of competitive advantage……………………………………… 302 Fast-growth firms utilize multi-dimensional measurements of firm performance…. 304 Definition of the market orientation construct should be revisited………………. 304 Qualitative methods should be considered as an adjunct approach to the measurement of market and learning orientation…………………………….
336 vii List of Tablesa Page Table 2.1 Evolution of performance measurement systems 47 Table 3.1 BRW Fast 100: 2003 participants 65 Table 3.2 Market orientation items 67 Table 3.3 Learning orientation items 68 Table 3.4 Entrepreneurial orientation items 69 Table 3.5 Marketing capabilities items 70 Table 3.6 Firm performance items 71 Table 3.7 Social desirability items 72 Table 3.8 Descriptive statistics and correlation matrix for the market orientation construct 78 Table 3.9 Descriptive statistics and correlation matrix for the learning orientation construct 79 Table 3.10 Descriptive statistics and correlation matrix for the entrepreneurial orientation construct 80 Table 3.11 Descriptive statistics and correlation matrix for the marketing capabilities construct 81 Table 3.12 Descriptive statistics and correlation matrix for the firm performance construct 82 Table 3.13 Factor loadings associated with the market orientation scale following principal axis factoring 83 Table 3.14 Factor loadings associated with the learning orientation scale following principal axis factoring 84 Table 3.15 Factor loadings associated with the entrepreneurial orientation scale following principal axis factoring 85 Table 3.16 Factor loadings associated with the marketing capabilities scale following principal axis factoring 86 Table 3.17 Factor loadings associated with the firm performance scale following principal axis factoring 87 Table 3.18 Questionnaire items and goodness-of-fit statistics for the one-factor congeneric measurement models 90 a Note. Tables are labelled according to relevant chapters of this thesis viii List of Tablesa Page Table 3.19 Standardized coefficients and t-values for customer orientation, competitor orientation, and interfunctional coordination 91 Table 3.20 Standardized coefficients and t-values for commitment to learning, shared vision, and open mindedness 91 Table 3.21 Standardized coefficients and t-values for innovative, proactive, risk taking, and competitive aggressiveness 92 Table 3.22 Standardized coefficients and t-values for market/marketing research, pricing, products, relationships, marketing communications, and marketing management 92 Table 3.23 Standardized coefficients and t-values for financial performance and market performance 93 Table 3.24 Standardized factor loadings, t-values, factor score weights, standardized factor score weights, construct reliability and variance extracted values for the three-factor market orientation measurement model 101 Table 3.25 Standardized factor loadings, t-values, factor score weights, standardized factor score weights, construct reliability and variance extracted values for the three-factor learning orientation measurement model 101 Table 3.26 Standardized factor loadings, t-values, factor score weights, standardized factor score weights, construct reliability and variance extracted values for the four-factor entrepreneurial orientation measurement model 102 Table 3.27 Standardized factor loadings, t-values, factor score weights, standardized factor score weights, construct reliability and variance extracted values for the six-factor marketing capabilities measurement model 102 Table 3.28 Standardized factor loadings, t-values, factor score weights, standardized factor score weights, construct reliability and variance extracted values for the two-factor firm performance measurement model 103 Table 3.29 Descriptive statistics of the constructs in the final path model 104 Table 3.30 Path model results 106 Table 4.1 Process of building theory from case study research 133 Table 4.2 Fast 100 company demographics 135 Table 6.1 Market orientation dimensions 258 a Note. Tables are labelled according to relevant chapters of this thesis ix List of Tablesa Page Table 6.2 Learning orientation dimensions 259 Table 6.3 Entrepreneurial orientation dimensions 260 Table 6.4 Relevant marketing capabilities 261 Table 6.5 Firm performance measures 265 Table 6.6 Relationships between marketing capabilities and firm performance 266 Table 6.7 Company perceptions of customer value 267 Table 6.8 Competitive advantage positions and customer value 268 Table 6.9 Relationships between customer value and firm performance 269 Table 6.10 Consequences of business orientation 270 Table 6.11 CEO/leader attributes/characteristics 273 Table 6.12 Consequences of leadership/CEO characteristics 276 Table 6.13 Human resource practices 278 Table 6.14 Consequences of human resource practices 281 Table 6.15 Organizational climate/environment 282 Table 6.16 Consequences of organizational climate 284 Table 6.17 Organizational culture/values 285 Table 6.18 Consequences of organizational culture/values 286 Table 6.19 Nonrecursive relationship between firm performance and human resource practices 287 Note. aTables are labelled according to relevant chapters of this thesis x List of Figuresa Page Figure 2.1 Hypothesized model of business orientation, marketing capabilities, and firm performance 28 Figure 3.1 Sequential explanatory design 62 Figure 3.2 Research procedures adopted in Phase 1 63 Figure 3.3 Research procedures adopted in Phase 2 64 Figure 3.4 Research procedures adopted in Phase 3 64 Figure 3.5 Three-factor market orientation measurement model 94 Figure 3.6 Three-factor learning orientation measurement model 95 Figure 3.7 Four-factor entrepreneurial orientation measurement model 96 Figure 3.8 Six-factor marketing capabilities measurement model 97 Figure 3.9 Two-factor firm performance measurement model 98 Figure 3.10 Final path model of hypothesized relationships 105 Figure 3.11 Model depicting tests for common methods bias (social desirability) 107 Figure 3.12 Relationships between firm business orientation, marketing capabilities, and firm performance 108 Figure 4.1 The inductive logic of research in qualitative studies 134 Figure 5.1 Causal network model of relationships between sources of competitive advantage, positional advantage, customer value, and firm performance for Smart Advertising 164 Figure 5.2 Causal network model of relationships between sources of competitive advantage, positional advantage, customer value, and firm performance for Dixon Appointments 184 Figure 5.3 Causal network model of relationships between sources of competitive advantage, positional advantage, customer value, and firm performance for Sitepoint 208 Figure 5.4 Causal network model of relationships between sources of competitive advantage, positional advantage, customer value, and firm performance for MOR Cosmetics 237 Figure 7.1 Composite model derived from quantitative and qualitative data analysis 294 Note.
aFigures are labelled according to relevant chapters of this thesis xi List of Appendicesa Page Appendix 3.1 The 2003 Fast 100 survey 336 Appendix 4.1 Case study interview protocol 345 Appendix 4.2 Semi-structured in-depth interview guide 346 Appendix 4.3 Letter of introduction 351 Appendix 4.