CREATING VALUE IN SUPPLY CHAINS FOR BUSINESS DEVELOPMENT:
The Role of External Orientations and Suppliers
Author:
Ceren CEYRAN
Student No:
1929801
Address:
Kordonboyu Mah. Sandalcı Sok. 14/5
Kartal/ Istanbul/ TURKEY
e-mail:
cerenceyran@gmail.com
Date:
August 2011
Institution:
University of Groningen
Master:
BA / Business Development
1
stsupervisor:
Dr. J. D. (Hans) van der Bij
I
PREFACE
This study has been prepared as my graduation and final project of my master’s degree in Business Administration, Business Development Department at the University of Groningen. My objective in researching the role of external orientations and suppliers in a supply chain context was gaining more insight about antecedents of innovation and business development. The research process itself has taught me a lot; however, particular people have added distinctive value to this study with their knowledge and support. First of all, I would like to thank Dr. J. D. Hans van der Bij, who has supported me with his wide academic and technical knowledge and his patience since the very beginning of this research till the last minute. I also thank Mirjam Irene Kibbeling for sharing her data with me; Dr. C. Cees Reezigt for his supervision and comments; Ivelin Iliev and Ross Batchelor for their technical support and great friendship; Bahar, Hakan and Çağkan Ceyran for being the greatest family and teaching me how to be successful. Finally, I thank Alessandro Giomi for supporting me in all aspects of my life and making everything easier and happier.
II
ABSTRACT
This study is based on the idea that business development is crucial for firms to survive and grow in today’s dynamic markets; and innovation is the key to success in business development. It applies a stakeholder view by claiming that firms’ innovation efforts need to embrace different stakeholders (i.e. customers and society). It stands for the adoption of different external orientations (i.e. market orientation and CSR orientation) to satisfy needs and demands of a wider range of stakeholders; which, in turn, contributes to innovativeness and financial performance. The research question investigates the impact of different external orientations on a firms’ innovativeness and current (short term) and expected (long term) financial performance; and to what extent this is supported by the supplier’s external orientations. The research design applies to supply chains in a business-to-business context. To reflect a realistic supply chain, survey data which was formed with 88 matched buyer-supplier relationship (including a buyer-supplier firm, a focal firm and a business customer) has been adopted from Kibbeling (2010). Among all the other results, the chain relationship of innovativeness among the supplier, the focal firm and the focal firm’s financial performance; and CSR orientation’s contributions to both parties’ innovativeness are especially remarkable.
III
TABLE OF CONTENTS
INTRODUCTION
1
Business Phenomenon
1
Academic Interest and Expected Product of the Study
2
THEORETICAL BACKGROUND
3
Stakeholder Theory
4
Resource Based View, Resource Management View & Resource Dependency Theory 5
LITERATURE REVIEW and HYPOTHESES
7
The Conceptual Model for Multiple External Orientations
7
The Path from Market Orientation to Innovativeness and Financial Performance
8
The Path from Corporate Social Responsibility to Innovativeness and Financial
Performance
10
The Path from Supplier’s Innovativeness to Focal Firm’s Innovativeness and
Focal Firm’s Financial Performance
13
Control Variables
15
METHOD
16
Sample and Data Collection
16
Measures
16
Analysis
17
Results
22
DISCUSSION AND CONCLUSION
23
Theoretical Contribution
24
Practical Implications
26
Limitations and Further Research
28
REFERENCES
29
CREATING VALUE IN SUPPLY CHAINS
FOR BUSINESS DEVELOPMENT:
1
INTRODUCTION
Business Phenomenon
Innovation is becoming increasingly important for firms’ business development efforts. Almost every industry is engaged in continuous or periodic innovation and reorientation due to the dynamic nature of markets (Hurley & Hult, 1998). However, firms are not able to innovate in isolation (Dahlander & Gann, 2010). Instead of having a single orientation on creating shareholder value, they commit to complex ambitions to serve a wider array of stakeholders such as customers, society and the environment (Clinton, 2009; Harrison et. al., 2010). In order to face the challenge to fulfill the demands of this increasing amount of stakeholders, they engage with different types of partners to acquire ideas and resources from the external environment to stay abreast of competition (Chesbrough, 2003; Laursen & Salter, 2006).
The competitive pressure, globalization, pace of innovation and sustainability concerns have given the suppliers increasingly important role in firms’ innovation and business development efforts. With globalization, the whole world has become one large global arena where all competitors have equal opportunities since international trade barriers were brought down (Friedman, 2005). Customers who want innovative products that are tailored to their specific needs (Evans & Webster, 2007) can choose between a wide array of products and service offerings and do not hesitate to scan the globalized supply markets before making their purchase. Consequently, the ability to respond to customer requirements increasingly requires a joint effort of the focal firm and its partners in the supply chain. The pace of innovation in production technology has also been increased and firms have less time to amortize the sunk costs associated with purchasing the new technologies. This makes in-house production more expensive than outsourcing (Yu, 2008). Outsourcing has become such a crucial part of business operations that the classical model of firm-versus-firm competition has gradually been developed into a model in which supply chains compete against supply chains (Ha & Tong, 2008). Increased outsourcing, however, implies greater reliance on suppliers and a commensurate need to manage the supplier base. Meanwhile, the ‘sustainability’ of supplier and distribution networks is becoming a key concern in many economies (Golicic, Boerstler and Ellram, 2010) and firms operate in an arena in which corporate strategy, resource management and reputation are externally judged by society (Porter & Kramer, 2006). Thus, corporate social responsibility (CSR) has become an important
2 topic in business in general and supply chain management in particular (Nidumolu, Prahalad and Rangaswami, 2009).
Academic Interest and Expected Product of the Study
Among innovation determinants in existing fields of research, market orientation has often been shown as having a strong link with the success of firms’ innovative efforts, product success, and, in turn, superior financial performance (Kirca et al., 2005, Kohli & Jaworski, 1990; Narver & Slater 1990; Atuahene-Gima, 1996; Mavondo & Farrell, 2003). Similarly, academic research has examined the causal relationship between CSR and financial performance—what is sometimes referred to as the ‘‘virtuous circle’’—to determine if ‘‘doing good’’ socially leads to ‘‘doing well’’ financially, and whether firms exhibiting superior financial performance devote more resources to social activities (Nelling & Webb, 2009). Several researchers have suggested that CSR actually contributes to improving the firm’s financial performance (Berman et al., 1999; Hull & Rothenberg, 2008; Luo & Bhattacharya, 2006; Porter & Kramer, 2006).
Little research, however, combines the market orientation and CSR orientation, and examines their effects together on a firm’s performance. Moreover, there is no research that reflects the effects of these two orientations (specifically) to the overall supply chain; although it is known that a consistent approach among supply chain partners is key in creating a competitive advantage. As Freeman, Andrew and Parmar highlight (2004), collaboration with a whole set of strategic suppliers is necessary to weigh and act upon the different stakeholder interests and create outstanding performance. This kind of contribution of suppliers to such a stakeholder view on performance has not been addressed clearly. This study, therefore, aims to respond this call in the literature, by answering the following research question:
What is the impact of different external orientations on a firms’ innovativeness and current and expected financial performance; and to what extent is this supported by the supplier’s external orientations?
In other words, claiming that managing not only for creating shareholder value but also for different stakeholders (e.g. market and society) is more beneficial for the firm’s financial performance; this
3 study examines the ways in which firms may realize better financial performance through adopting a market orientation and CSR orientation together with their suppliers.
In order to answer the research question, market orientation and CSR orientation need to be examined among supply chain partners (i.e. the focal firm and its supplier), and then their effects should be linked through innovativeness and reflected on the financial performance. For this reason, a dyadic perspective is adopted; and data from 88 matched buyer-supplier relationships (existing of a focal firm and a major supplier) is used. The data includes the measurements of market orientation, CSR orientation and innovativeness for both the focal firm and its supplier. At the end, the total effects of those external orientations and both parties’ innovativeness on focal firm’s financial performance are observed. In order to make this reasoning clear, the conceptual model is made of three columns. The first one reflects the supplier part, and it investigates the effects of suppliers’ end-user orientation and CSR orientation on its innovativeness. The second one covers the focal firm, where the effects of market orientation and CSR orientation on focal firms’ innovativeness are observed. The final (third) one explores the effects of the external orientations and innovativeness on both current and expected financial performance and it includes the control variables. This part aims to show the effects of supplier and focal firm innovativeness on the focal firm’s financial performance, as well as the direct effects of the focal firm’s market and CSR orientations on its financial performance.
To conclude, the current study responds to calls for cross-disciplinary research in the fields of marketing and corporate social responsibility for the advancement of stakeholder theory (Freeman et. al., 2007). This study will contribute to theoretical fields by presenting the first research which examines the effects of the two external orientations on a firm’s financial performance in a supply chain context.
THEORETICAL BACKGROUND: A Stakeholder Perspective
Freeman’s formulation of stakeholder theory has (always) had a close affinity with resource dependence theory (Pfeffer & Salancik, 1978). Both theories share a focus on actors external to the firm, thus providing an apparently natural overlap. Rowley (1997) and Frooman (1999) have both used resource dependence theory to make theoretical contributions to the stakeholder literature. This study aims to integrate these two theories once more. It takes its roots from the literature on
4 stakeholder theory, resource-based view, resource management view, and resource dependence theory by arguing managing for multiple stakeholders is more beneficial for the firm’s financial performance than a single focus on creating shareholder value; and firms are more than ever dependent on their suppliers’ resources, competences and capabilities to fulfill those stakeholder needs and requirements. In this section, these theories and their relevance to this study will be explained. Next, the variables will be defined and hypotheses will be formulated in the light of the literature.
Stakeholder Theory
Stakeholder theory was first introduced in strategic management by Freeman (1984). The basic idea behind the theory is that firms have a responsibility to satisfy multiple stakeholder groups based on their specific demands (Harrison et. al., 2010). There are three categories in research into stakeholder theory: normative, descriptive and instrumental (Donaldson & Preston, 1995). Normative research is based on the traditional theory of Freeman (1984) and it focuses on how firms should deal with stakeholders. Descriptive research, on the other hand, analyzes how firms actually deal with stakeholders. Instrumental research revolves around the stakeholder orientation’s effects on the business performance and stakeholder outcomes (Berman et. al., 1999). The latter has been relatively under researched (Donaldson & Preston, 1995). This study, by examining the effect of multiple external stakeholder orientations on financial performance, would, according to the definitions above, contribute to the instrumental perspective on stakeholder theory.
The stakeholder theory acknowledges three broad categories of stakeholders a firm may want to consider in collaboration with its suppliers: market, social-political and resource stakeholders (Freeman et al., 2007). This study focuses on market and society stakeholders while also referring to the shareholders by investigating the effects of external orientations (market and CSR) on financial performance. The market-based stakeholders are customers who are very important for the firm. Satisfied customers are common indicators of successful customer value delivery and firm performance (Drucker, 2008; Priem, 2007; Kibbeling, 2010). The social-political stakeholder group is linked with societal value. Firms need to recognize societal considerations of governments, consumers, action and pressure groups, and local communities into their business practices to secure their corporate reputation and the firm’s license to operate (Porter & Kramer, 2006). This need for recognizing the societal considerations has led to ‘Corporate Social Responsibility’ becoming a key issue in firms’ agendas. Apart from the market and societal considerations, firms also need to realize
5 the economic returns on their business activities to survive. Shareholder value represents the expectations of shareholders and investors on the firm’s current and future financial performance (Martin, 2010).
Resource Based View, Resource Management View, and Resource Dependence Theory
The primary pursuit of business is creating and maintaining value (Conner, 1991). Value creation occurs when a firm exceeds its competitors’ ability to provide solutions to customers’ needs, while maintaining or improving its profit margins. Resource based view suggests that possessing valuable and rare resources provides the basis for value creation. Those resources, or the tangible and intangible factors firms’ control, provide the basis of competitive advantage and make superior performance more likely (Barney, 1991). The value created through those may be sustainable when they are also inimitable and lack substitutes (Barney, 1991).
Resource management view, as an offspring of the resource-based view, incorporates both resources
and actions (Sirmon et. al., 2007). It focuses on actions firms use to structure their resource portfolios, bundle resources into capabilities, and leverage those capabilities to create value (Sirmon et. al., 2007). Resource management view forms a basis to this research by insisting on the adoption of external orientations to be able to deploy the firm’s internal resources in such a way that they satisfy the stakeholders and achieving superior firm performance (Gatignon & Xuereb, 1997; Narver & Slater, 1990). Through adopting external orientations, firms can direct the attitudes and behaviors of managers and employees in such a way that they behave an act in accordance with specific stakeholder requirements and developments.
As is mentioned before, this study will focus on two external stakeholders: customers and society; and their respective external orientations: market and CSR orientation. Market orientation concerns the ongoing monitoring of customers, their needs and market conditions which enable the firm to anticipate the development of products and services that are valued by customers (Atuahene-Gima, Slater & Olson, 2005; Day, 1994; Kohli & Jaworski, 1990; Narver & Slater, 1990). The society, on the other hand, benefits from a Corporate Social Responsibility (CSR) orientation. A CSR orientation encompasses those activities related to continuously identifying and embedding environmental, social and ethical needs in the business processes. At the end, shareholders are expected to benefit from the
6 pursuit of these two orientations. The pursuit of a market orientation and CSR orientation are expected to increase the firm’s performance in the short term as well as in the long term.
Resource dependency theory is based on social exchange theory as proposed by Emerson (1962) and
became popular as a result of its full exposition by Pfeffer & Salancik (1978). Pfeffer and Salancik characterize the corporation as an open system, dependent on contingencies in the external environment and firms which depend on the environment can and do enact multiple strategies to combat these contingencies (Pfeffer & Salancik, 1978). Relying on the stakeholders gives rise to uncertainty in the operating environment, because these stakeholders will use various strategies to withhold resources or change the relative price and availability of necessary inputs. Thus, organizations will seek to reduce the uncertainty associated with the acquisition of important resources by attempting to control the external environment; and by carefully structuring their relationships with other organizations through formal and semiformal means (Ulrich & Barney, 1984).
The resource dependence theory contributes to this study’s conceptualization by underlining the supplier’s important role in their customer’s business development efforts. It suggests that firms require the similar resources and capabilities from their suppliers as from their own to be able to deliver value to customers, society and shareholders (Kibbeling, 2010). Suppliers are key for adapting to and anticipating the developments in customer markets, in society and in the supply chain (Paulraj & Chen, 2007). The mechanism of external orientations and innovative responses extends over supply chain relationships. For instance, in the case of market orientation, the focal firm may benefit from a supplier who adopts an orientation directed at the same customer market.
In summary, four complementary theories suggest that firms need to satisfy the needs and interests of different stakeholder groups in order to create value; and their resources contribute to their performance and competitive position in markets. In this study, among the firm’s stakeholders, the firm’s customers and the society it operates in are particularly interested in (in terms or external orientations); and a shareholder perspective is held by examining the effects these two orientations on financial performance. Additionally, the supplier’s contribution to the firm’s value creation activities for these stakeholders is elaborated on.
7
LITERATURE REVIEW and HYPOTHESES
In this section, how firms’ multiple orientations, i.e. market orientation and CSR orientation, relate to the financial performance is discussed. The conceptual model is constructed in three parts. In the first part, the contribution of focal firm’s market orientations to the financial performance is explained. In the literature, this relationship has already been proved by several authors; and the contributions have been reported as direct and through innovativeness. Therefore, there are no hypotheses constructed for these relationships. In the light of those previous findings in the literature, a similar relationship between supplier’s end-user orientation and supplier’s innovativeness is hypothesized. The relationship between supplier’s end user orientation and focal firm’s innovativeness is also hypothesized in this section. In the second part, focal firm’s CSR orientations’ contributions to the financial performance are hypothesized. Contributions are expected to be direct, as well as through innovativeness. Here, the effects of supplier’s CSR orientation on focal firm’ innovativeness is hypothesized as well. In the third section, suppliers’ expected roles in firms’ value creation activities for the stakeholders are added to the conceptualization. The supplier part of the conceptual model is drawn. The effects of supplier’s end-user orientation and CSR orientation on supplier innovativeness, and how supplier innovativeness is linked to focal firm innovativeness and the financial performance are elaborated on.
The Conceptual Model for Multiple External Orientations
Based on the previous discussion of literature, a conceptual model has been built which aims to examine whether multiple external orientations impact innovativeness and a firm’s current and
expected performance, and whether suppliers contribute to firm performance through external orientations and innovativeness. The conceptual framework is presented in Figure1.It allows the
reader to examine:
1. The effects of supplier’s end user orientation and supplier’s CSR orientation on supplier’s and focal firm’s innovativeness,
2. The effects of focal firm’s market orientation and CSR orientation on focal firm’s innovativeness and financial performance,
3. The effect of supplier’s innovativeness on focal firm’s innovativeness and in turn on focal firm financial performance.
8
The Path from Market Orientation to Innovativeness and Financial Performance
Market Orientation & Innovativeness
Market orientation is defined as the extent to which a firm engages in generation, dissemination, and response to market intelligence pertaining to current and future customer needs, competitor strategies and actions, channel requirements and abilities, and the broader business environment (e.g., Kohli & Jaworski, 1990). It has often been shown to have a strong link with innovativeness. Innovativeness captures the firm-level orientation towards innovation (Hurley & Hult 1998). It measures an organization's tendency and motivation to engage in innovative behavior (Menguc & Auh, 2006). According to Tajeddini et. al. (2006), it is important to study innovativeness as opposed to single innovation, since innovativeness gives a more complete reflection of the number of innovations adopted in a given time period in an organization (Damanpour 1991). Similarly, including innovativeness (but not innovation)in this study is more appropriate, since the purpose of the study is examining the effects of external ‘orientations’ of organizations on their innovativeness and performance.
Figure 1. The Conceptual Model
9 Even though doubts on the positive impact of market orientation upon product innovativeness were present among researchers (e.g. it is suggested that being market oriented may detract from innovativeness (Berthon et. al., 1999) and may lead to myopic research and development (Frosch, 1996); or it carries the financial risks because it increases likelihood of development of radically new products (Olson et. al., 2005) ); research has extensively proved the positive effects of market orientation on firm innovativeness (Dibrell et. al., 2011; Grinstein 2008; Han et. al., 1998; Kirca et. al., 2005). Thus, this relationship is included in the conceptual model without a hypothesis and will be further elaborated on in the discussion part.
When scholars carried the market orientation one step back in the supply chain, they were met with a new term: the supplier’s end-user orientation. Under this term, they investigated supplier’s efforts to understand downstream customer demand, and the contributions of this orientation. It finds much support from the resource dependency theory. According to the resource dependency theory, firms’ own efforts may not solely be enough to achieve their innovative goals. For this reason, they involve supply chain partners in their processes (Schiele, 2006), and they benefit from their skills, capabilities, efficient processes and external orientations. Likewise, suppliers, among the other supply chain partners, have an important role in firm’s innovative efforts. As Wagner (2009) states, suppliers' downstream customer orientation has a significant impact on focal firm’s innovativeness as well as on the cost and speed of new product development projects. He argues that if the supplier understands well the downstream customer demand (e.g., in terms of new products), his contribution in the focal firms’ NPD project will be more concrete. Therefore, it is argued that the focal firm can benefit from the downstream customer orientation of his supplier and can increase its innovativeness:
H1: Supplier’s End-User Orientation is positively related with Focal Firm’s Innovativeness
Since market orientation’s effects on innovation have been proved, a positive relationship is expected between supplier’s end user orientation and supplier’s innovativeness as well. The end user information enables suppliers to understand their customers’ strategies and demands, and to adapt or support the customer’s innovative efforts by attempting innovative projects themselves. In other words, with the market intelligence they acquire, they can develop innovative ideas which can bring better financial returns. As Wagner (2009) highlights, “suppliers’ downstream customer orientation has a significant impact on innovativeness as well as on the cost and speed of new product
10 development projects both translate into competitive advantage and financial benefits” (pg. 1). Therefore, the following is hypothesized:
H2: Supplier’s End User Orientation is positively related with Supplier’s Innovativeness
Market Orientation & Financial Performance
Market orientation has emerged as a significant antecedent of performance and is presumed to contribute to long-term success (Rodriguez Cano et. al., 2004). Although a few studies report a negative or non-significant relationship (e.g., Grewal & Tansuhaj, 2001; Han et. al., 1998; Siguaw & Honeycutt, 1995), overwhelming evidence suggests that market orientation has a positive impact on business performance, including financial performance (Day, 1994; Han et al., 1998; Jaworski & Kohli, 1996; Kirca et al., 2005; Kohli & Jaworski, 1990; Narver & Slater, 1990; Rodriguez Cano et. al., 2004). Thus, this relationship is included in the conceptual model without a hypothesis and will be further elaborated on in the discussion part.
The Path from Corporate Social Responsibility to Innovativeness and Financial
Performance
CSR Orientation and Innovativeness
The resource-based view is complemented by resource management view with an explanation of “how” firms transform resources to create value (Sirmon et. al., 2007). This is done through the structuring, bundling and leveraging the firm’s resources (Kibbeling, 2010); and these processes need to be guided by external orientations (Sirmon et. al., 2007). Through a specific stakeholder orientation, firms are better able to purposefully direct their resources, capabilities and competences to match the needs of these stakeholders (Sirmon et. al., 2008; Sirmon and Hitt, 2009; Sirmon et. al., 2007). A CSR orientation is such an external orientation that directs the resources and capabilities to satisfy societal needs and contributes the value creation.
Corporate Social Responsibility (CSR) orientation describes the set of cross-functional processes and activities directed at continuously identifying and embedding environmental, social and ethical needs
11 in business processes (Kibbeling, 2010). It aims to integrate external developments related to society and environment into the firm’s business operations (Bansal, 2005). Firms contribute to the development of society by responding to societal needs with innovations (Porter & Kramer,2006). The responses require new internal business practices within the firm, such as pollution prevention, product-stewardship, sustainable development (Hart, 1995), safety, wellness and diversity (Klassen, 2009). Adopting a CSR orientation also fosters a change in the way a firm manages its resources and reaches to appropriate product/service and process solutions that fulfill societal requirements (Kibbeling, 2010). CSR leads to the formulation of new resource management strategies, the change of routines, the development and diffusion of knowledge, and the openness to new opportunities (Sirmon et. al., 2007). In this way, a greater need for innovative and creative responses for the CSR challenges will arise, and innovativeness represents a key capability through which firms develop solutions (Hurley & Hult, 1998). Indeed, Dibrell et. al. (2011) proved that the inclusion of a high strategic emphasis on the natural environment was positively related to the firm’s entrepreneurial processes (e.g. innovativeness). Therefore, the following is hypothesized:
H3: Focal Firm’s CSR Orientation is positively related with Focal Firm’s Innovativeness
The same reasoning applies to the supplier’s CSR orientation and the supplier’s innovativeness relationship. When suppliers need to respond environmental and societal concerns, they will look for innovative ideas to do so. A positive relationship is expected between supplier CSR orientation and supplier innovativeness:
H4: Supplier’s CSR Orientation is positively related with Supplier’s Innovativeness
As in the case of the relationship between supplier’s end-user orientation and focal firm’s innovativeness, it is expected that supplier’s CSR orientation has an influence on focal firm’s innovativeness. The supplier spreads its CSR orientation strategy into the other supply chain partners. The partners, in turn, will encourage themselves to change their NPD processes and become more innovative (Speth, 2009), in order to reduce their negative impact on society and the environment. With this reasoning, the following is hypothesized:
12
CSR Orientation and Financial Performance
Improving innovativeness is not the only reason for firms to be CSR oriented. The argument, which states socially responsible but unprofitable investments eventually lead to losses or only unsustainable support for nonprofit organizations, makes managers develop strategic forms of social responsibility actions that can deliver financial returns (Peloza, 2006). Therefore, the research on the relationship between CSR and financial performance has caught significant attention from scholars. However, there is no agreement among scholars about the impact of CSR on financial performance. Choi et. al. (2010) lists the studies which report a positive, non-significant or negative relationship. It is suggested that the mixed results can be attributed to many different causes such as a lack of a clear and precise definition of CSR, a lack of a clear CSR metric, and the impact of contextual factors (Foote et. al., 2010). In this paper, corporate social responsibility has been approached as one of the multiple external orientations of the firm through which the firm aims to satisfy its stakeholders and achieve good financial performance.
The positive relationship between CSR Orientation and financial performance finds support from stakeholder theory as CSR orientation makes the firm act responsible not only towards its shareholders, but also towards society, environment, employees and customers. Firms’ socially responsible acts can create identification and subsequent support among stakeholders (Peloza & Papania, 2008). Stakeholder support can be in the form of increased customer loyalty (Peloza & Papania, 2008); increased employee productivity and product quality (Chahal & Sharma, 2006; Peloza & Papania, 2008); decreased turnover (O'Reilly & Chatman 1986), supportive organizational behavior (Bhattacharya & Elsbach, 2002; Dutton et. al. 1994), increased share purchase made by investors (Peloza & Panania, 2010), and removal of boycotts by NGOs (Peloza & Papania, 2010).
From the resource based view perspective, CSR can lead to a competitive advantage by being a firm specific characteristic (Foote et. al, 2010). The social campaigns that firms provide sponsorship for generally leave a mark on peoples’ minds, and the image that is gained by those specific campaigns cannot be imitated by other firms. Furthermore, the benefits gained from the support of stakeholders and mentioned above can also be defined as firm specific resources that can serve as a competitive advantage (Peloza, 2006).
13 Because of the implementation costs of CSR activities, short term gains acquired from CSR orientation might be lower than long term gains. Nevertheless, a positive relationship is expected between CSR orientation and for both current and expected financial performance. Thus, the following are hypothesized:
H6: Focal Firm’s CSR Orientation is positively related to Focal Firm’s Current Financial Performance H7: Focal Firm’s CSR Orientation is positively related to Focal Firm’s Expected Financial Performance
The Path from Supplier’s Innovativeness to Focal Firm’s Innovativeness and Focal
Firm’s Financial Performance
Today, firms’ survival and growth are more than ever dependent on acquisition of useful knowledge as uncertainty in markets and complexity of stakeholders’ demands increase (Bercovitz & Feldman, 2007). As resource dependency theory suggests, is not always possible for a firm to gather the necessary knowledge on its own. Firms cannot innovate in isolation; they have to involve supply chain partners into their processes (Schiele, 2006), and benefit from their skills and capabilities. Hence, firms have moved to engaging in collaborative product development (Walter, 2003; Petersen et. al., 2005), innovation alliances (Muller & Valikangas, 2002) and “open innovation” (Chesbrough, 2003) with their supply networks. In the UK innovation survey covering more than 8000 firms, Stones (2001) reports that suppliers have been identified as the prime external resource for co-operation among supply chain partners.
Regarding innovativeness, Hausman (2005) highlights that channel relationships influence the innovativeness of small businesses primarily because innovation is a social process and innovative partners may influence a firm’s innovation capability. For instance, inter-organizational relationships can increase the openness and the adoption of new ideas in a firm, if the supplier is innovative and it demonstrates to the focal firm new patterns of behavior (Panayides & Venus Lun 2009). Indeed, scholars report collaborative inter-organizational relationships as an important source of innovation (Pennings & Harianto, 1992; Teece et. al., 1997). Therefore, it can be hypothesized that this knowledge and cultural exchange, gained through collaboration with suppliers, can improve firms’ innovativeness:
14 Firms, while trying to adapt to dynamic nature of markets and to provide innovative solutions for different stakeholder demands, need to perform well in financial terms as well. At this point, supplier innovativeness plays an important role once more. As resource dependency theory would support, the firm needs the assistance of its suppliers to improve the processes and products, and to achieve better financial performance. Supplier innovativeness helps firms to improve product design, product quality, delivery and flexibility performance, and to reduce costs (Azedegan & Dooley, 2010). If the supplier finds a way to deliver the goods in shorter time, the focal firm can deal with a sudden market demand. Azededan and Dooley (2010) state that learning from suppliers also allows a firm to better understand mechanisms behind developing new products. Involving suppliers in product development has indicated an enhancement in product development outcomes (Petersen et. al., 2005). Furthermore, cooperation with suppliers and co-operative adoption of innovation can also create network externalities, since the innovation is used by the partners and others in the supply chain (Frambach & Schillewaert, 2002). Therefore we expect that:
H9: Supplier’s Innovativeness is positively related to Focal Firm’s Current Financial Performance H10: Supplier’s Innovativeness is positively related to Focal Firm’s Expected Financial Performance
In analyzing the relationship between market orientation and performance, scholars have identified innovation as an instrumental variable (Verhees, & Meulenberg, 2004). Increasingly, they have linked innovativeness to organizational performance, suggesting that a firm needs to be innovative "to gain a competitive edge in order to survive and grow" (Gr0nhaug and Kaufmann 1988, p. 3). It was suggested that being innovative can provide competitive and positional advantage, market customer intelligence and new product success.
From the resource based view perspective, innovativeness can be seen as a firm-specific, valuable, and socially complex resource that is not easily transferable or imitable by other firms (Hult & Ketchen 2001). Innovative firms can be superior to their rivals in terms of fulfilling current and changing demands of the stakeholders. Innovativeness can provide sustainable competitive advantage and enable firms to preempt rivals by giving firms the opportunity to develop new or improved products, diverse product lines, and expanded scope of activities (Hult, 2004). Kirca et. al. (2005) confirm the positive influence of innovativeness on performance by stating market innovation effects performance through innovativeness. Similarly, positional advantage can be achieved with organizational specific capabilities based upon innovative offerings or superior service (Day & Wensley, 1988; Day, 1994).
15 Contributions of innovativeness on a firm's positional advantage have been proved by Hult and Ketchen (2001). Furthermore, innovativeness contributes to firm’s financial performance by enabling firms to develop successful new products. The scholars (e.g. Atuahene-Gima, 1995; Goldenberg, Lehmann, and Mazursky, 2001; Kleinschmidt & Cooper, 1991; Robinson, 1988) have proved that new product success can be achieved through innovativeness. All these arguments let us expect a positive relationship between innovativeness and financial performance. However, if current and expected financial performances are assessed separately, it is important to keep in mind that innovative efforts can be costly and those are reflected in the current financial records. For this reason, innovativeness is expected to improve the long term financial performance rather than the short term financial performance. By keeping this in mind, the following are hypothesized:
H11: Focal Firm’s Innovativeness is positively related to Focal Firm’s Current Financial Performance H12: Focal Firm’s Innovativeness is positively related to Focal Firm’s Expected Financial Performance
Control Variables
According to resource dependency theory, situational factors such as complex and turbulent markets or intense competition may determine the extent to which a firm is subject to downstream demand and resource dependence (Kibbeling, 2010). In those environments firms are more dependent on their partners for expertise, information and other resources needed to satisfy uncertain demands (Olson et. al., 1995). For instance, firms which perform in dynamic markets with rapidly changing customer demands may expect more return from the innovations (responding those demands) than firms that perform in stable markets. Similarly, customer buying power can enable customers to afford innovative products; in turn, this creates better financial performance of the focal firm. In the light of this reasoning, market turbulence, competitive intensity and buyer power of the customer have been used as contol variables.
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METHOD
Sample and Data Collection
The research design applies to supply chains in a business-to-business context. To reflect a realistic supply chain, survey data which was formed with 88 matched buyer-supplier relationship (including a supplier firm, a focal firm and a business customer) has been adopted from Kibbeling (2010). In the literature, very few studies (at most two) seem to involve multiple parties as was done in Kibbeling’s study. Besides, the focus in general is on the buyer-supplier relationship as a unit of analysis, rather than on the individual firm’s characteristics (Baker, Simpson and Siguaw, 1999; Homburg & Stock, 2004). Therefore, apart from being unique, this study is expected to provide a more complete picture of the supply chain.
A questionnaire was constructed as the primary means for data collection (Kibbeling, 2010). The respondents were typically executives from companies based in The Netherlands and Flanders, Belgium. The focal firms of these 88 supply chains operate in the manufacturing (36 firms: 40.9 %), construction (22 firms: 25.0 %), information and communication (11 firms: 12.5 %), wholesale and retail trade (7 firms: 7.9 %), administrative and support service activities (4 firms: 4.5 %) and other industries (8 firms: 9.1 %) (Kibbeling, 2010).
Measures
Focal Firm Variables
At the focal firm part, the focal firm’s market orientation, CSR Orientation and innovativeness have been assessed. As a result of a confirmatory factor analysis,
For the market orientation, a 4-item scale was chosen to be included among the items that Kibbeling (2010) adopted from the scale of Deshpandé and Farley (1998).
For the CSR orientation, a 3-item scale was chosen to be included among the items that Kibbeling (2010) adopted from the scale of Deshpandé and Farley (1998) with the three dominant application domains for corporate social responsibility of Bansal (2005): environmental assessment, social issue management, and ethical business behavior (Brammer & Pavelin, 2006; Clarkson, 1995; Waddock & Graves, 1997).
17 For the innovativeness, a 4-item scale was chosen to be included among the items that Kibbeling (2010) adopted from the scale of Hurley and Hult (1998).
Supplier Variables
At the supplier part, the supplier’s end-user orientation, CSR orientation and innovativeness have been assessed. As a result of the confirmatory factor analysis,
For the end-user orientation, a 5-item scale was chosen to be included among the items that Kibbeling (2010) adopted from the scale of Deshpandé and Farley (1998). The items were reformulated to cover all cross-functional processes and activities for satisfying the end-user through continuous needs assessment.
For the CSR orientation, a 7 item scale was chosen to be included among the items that Kibbeling (2010) adopted from the scale of Deshpandé and Farley (1998).
For supplier’s innovativeness, a 3-item scale was chosen to be included among the items that Kibbeling (2010) slightly adopted from Hurley and Hult (1998).
Control Variables
For controlling the conceptual model, market turbulence, competitive intensity and buyer power of the customer have been assessed. As a result of the confirmatory factor analysis,
For the market turbulence, a 2-item scale was chosen to be included among the items that Kibbeling (2010) adopted from Jaworski and Kohli (1993).
For the competitive intensity a 1-item scale was chosen to be included among the items that Kibbeling (2010) adopted from Jaworski and Kohli (1993).
For the buyer power of the customer a 1-item scale was chosen to be included (adopted from Jaworski and Kohli, 1993).
All of the scale items (for both focal firm and supplier) are represented in Appendix 1.
Analysis
The analysis began with the confirmatory factor analysis (CFA) by maximum likelihood estimation in LISREL 8.8, in order to check the robustness of the measures. Because of the limited number of
18 matched chains, three separate CFA’s were performed for each section of the conceptual model. In other words, the supplier variables, the focal firm variables and the performance variables were tested separately by maximum likelihood estimation.
In order to help researchers interpreting the fit of the structural models, scholars have developed the multiple fit indices (as demonstrated below) (Kibbeling, 2010). Three groups of fit indices are commonly used in the literature: absolute, relative and parsimonious fit indices (Hair et al., 2006). Absolute fit indices determine how well a model fits the sample data, derived from the obtained and implied covariance matrices. The model Chi-square (χ²), the Root Mean Square Error of Approximation (RMSEA), the Goodness-of-fit index (GFI), the adjusted goodness of fit index (AGFI), χ2/df ratio, the Expected Cross-validation Index (ECVI) are examples of the absolute fit indices. Relative fit indices compare a Chi-square for the model to the Chi-square of the so-called null model, a model tested that specifies that all measured variables are uncorrelated. The Comparative Fit Index (CFI), the Incremental Fit Index (IFI), and the Normed Fit Index (NFI) belong to the relative fit indices. Parsimonious fit indices, on the other hand, penalize complicated models and favor simpler theoretical models over more complex ones. Parsimonious fit indices include PGFI (based on the GFI), PNFI (based on the NFI), and PCFI (based on the CFI). It is important to note that the indices to report generally depend on the personal preferences of the authors, reviewers and research discipline (Diamantopoulos & Siguaw, 2000). For the assessment of the models, this study focuses on the commonly reported Chi Square, degrees of freedom (df), CFI, GFI, NFI, and NNFI (McDonald & Ho, 2002). The RMSEA and SRMS are also included as Hu and Bentler (1999) suggests in their paper. Next, the ECVI, PNFI, AGFI, and PGFI are reported for completeness purposes. Finally, the IFI is added in the assessment, since the CFI and IFI are relatively unaffected by sample size (Bollen, 1990).
In practice, scholars accept the .85 threshold for these indices to conclude that the model fit well to the data. Accordingly, the outcomes of the CFA’s indicate a good fit by demonstrating the following indices:
CFA - Goodness of Fit Indices for the Supplier Measures: Degrees of Freedom = 87, Minimum Fit
Function Chi-Square = 118.80 (P = 0.013), Root Mean Square Error of Approximation (RMSEA) = 0.053, Expected Cross-Validation Index (ECVI) = 2.00, Normed Fit Index (NFI) = 0.86, Non-Normed Fit Index (NNFI) = 0.95, Parsimony Normed Fit Index (PNFI) = 0.71, Comparative Fit Index (CFI) = 0.96,
19 Incremental Fit Index (IFI) = 0.96, Standardized RMR = 0.087, Goodness of Fit Index (GFI) = 0.86, Adjusted Goodness of Fit Index (AGFI) = 0.80, Parsimony Goodness of Fit Index (PGFI) = 0.62.
CFA - Goodness of Fit Indices for the Focal Firm Measures: Degrees of Freedom = 84, Minimum Fit
Function Chi-Square = 92.87 (P = 0.24), Root Mean Square Error of Approximation (RMSEA) = 0.032, Expected Cross-Validation Index (ECVI) = 1.88, Normed Fit Index (NFI) = 0.85, Non-Normed Fit Index (NNFI) = 0.98, Parsimony Normed Fit Index (PNFI) = 0.68, Comparative Fit Index (CFI) = 0.98, Incremental Fit Index (IFI) = 0.98, Standardized RMR = 0.072, Goodness of Fit Index (GFI) = 0.88, Adjusted Goodness of Fit Index (AGFI) = 0.82, Parsimony Goodness of Fit Index (PGFI) = 0.61.
CFA - Goodness of Fit Indices for the Performance Measures: Degrees of Freedom = 19, Minimum Fit
Function Chi-Square = 13.86 (P = 0.79), Root Mean Square Error of Approximation (RMSEA) = 0.0, Expected Cross-Validation Index (ECVI) = 0.61, Normed Fit Index (NFI) = 0.98, Non-Normed Fit Index (NNFI) = 1.01, Parsimony Normed Fit Index (PNFI) = 0.67, Comparative Fit Index (CFI) = 1, Incremental Fit Index (IFI) = 1.01, Standardized RMR = 0.027, Goodness of Fit Index (GFI) = 0.96, Adjusted Goodness of Fit Index (AGFI) = 0.92, Parsimony Goodness of Fit Index (PGFI) = 0.51.
Table 1. displays Descriptive Statistics, Cronbach’s α and Correlation Matrix for the eleven constructs in the sample. The construct reliability ranges from 0.664 to 0.958, which indicated that all reliabilities but one were in the acceptable range suggested in literature (Nunnally, 1978). The composite reliabilities, representing the shared variance among a set of observed variables measuring an underlying construct, are all but one above the .70 threshold (Fornell & Larcker, 1981).The measurement model for each subset of the variables demonstrates a good fit (Hair et. al., 2006). Thus, it is concluded that it is appropriate for further testing.
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Table 1. Descriptive Statistics, Cronbach’s α and Correlation Matrix
After multiple CFAs proved that the measures indicate a good fit, Cronbach’s alphas indicated reliability, and descriptive statistics demonstrated the convergent validity, the hypothesized relationships were tested with LISREL 8.8 by using the maximum likelihood estimation procedure. The structural model indicated an acceptable fit; however, examination of the modification indices suggested that one additional arrow would significantly improve the fit, and make theoretical sense (Young, 1977). In the conceptual model, it was acknowledged that suppliers’ market orientation and CSR orientation influence suppliers’ innovativeness. However, a possible relationship between these orientations was not incorporated; although it finds support in the literature. For instance, Brik et. al. (2011) mentions: “In general, a firm’s predisposition to meeting customers’ needs sits comfortably with its quest to be a socially responsible organization” (pg. 310). Since, market oriented firms would like to respond to societal concerns of the customers (as they would do the same for other customer
α Mean SD A B C D E F G H I J Focal Firm's Market Orientation A .713 5.77273 .932828 Focal Firm's CSR Orientation B .709 4.55682 1.33976 .145 Focal Firm's Innovativene ss C .726 5.40625 1.090919 .457** .169 Supplier's Innovativene ss D .664 5.53921 1.00481 .021 .104 .161 Supplier's End-User Orientation E .816 5.4646 0.93735 .116 -.158 .039 .194 Supplier's CSR Orientation F .861 4.89461 1.069808 .156 .133 .005 .292** .191 Focal Firm's Expected Performance G .958 4.65909 1.172715 .182 -.039 .262* -.031 -.092 .056 Focal Firm's Current Performance H .954 4.69318 1.160117 .217* .145 .326** .212* .011 -.080 -.134 Competitive Intensity I - 5.10227 1.3816 .099 .041 -.112 -.041 .042 .097 -.138 .061 Market Turbulence J .710 4.34659 1.309466 .276** .258* .301** .005 -.099 -.125 .151 .291** .152 Customer Buying Power K - 4.70455 1.374305 .108 .151 .198 .135 .155 .143 .081 .107 -.081 -.096 * p < 0.05, ** p < 0.01
21 demands/concerns); it is expected that market orientation subsequently leads to CSR orientation. As a result, this arrow (between suppliers’ market orientation and CSR Orientation) was added on the model. In the discussion part, this additional path will be elaborated on. When the path model was rerun on the sample with the additional arrows, the model fit improved significantly and reported the following indices:
Goodness of Fit Indices for the Path Model: Degrees of Freedom = 18, Chi-Square: 21.66, Minimum
Fit Function Chi-Square = 21.24 (P = 0.27), Root Mean Square Error of Approximation (RMSEA) = 0.048, Expected Cross-Validation Index (ECVI) = 1.35, Normed Fit Index (NFI) = 0.88, Non-Normed Fit Index (NNFI) = 0.92, Parsimony Normed Fit Index (PNFI) = 0.29, Comparative Fit Index (CFI) =0.97, Incremental Fit Index (IFI) = 0.98, Standardized RMR = 0.059, Goodness of Fit Index (GFI) = 0.96, Adjusted Goodness of Fit Index (AGFI) = 0.85, Parsimony Goodness of Fit Index (PGFI) = 0.26.
A hypothesized relationship is reported significant when the t-value of the respective arrow is equal or higher than + 1.65 (or equal or less than -1.65). Figure 2. represents the significant relationships (in bold) with non-standardized Beta (β) and Gamma (γ) values :
* p < 0.1, **p < 0.05, ***p < 0.01
value, for the relationship between the respective orientation and current financial performance value, for the relationship between the respective orientation and expected financial performance
Figure 2. Significant Relationships with β and γ Values
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Results
The results, as Figure 2 demonstrates, support the conceptual model to a large extent. The chain relationship of innovativeness among the supplier, the focal firm and the focal firm’s financial performance; and CSR orientation’s contributions to both parties’ innovativeness are especially remarkable.
Hypothesis 1, which was formed to find a positive relationship between the supplier’s end-user orientation and the focal firm’s innovativeness, is supported with a γ –coefficient of 0.36 (p<0.1). However, findings report no relationship between the supplier’s end-user orientation and its innovativeness (H2). Hypothesis 3, claiming that the focal firm’s CSR orientation is positively related with to its innovativeness, was supported with a γ –coefficient 0.92 (p< 0.01). Similarly, Hypothesis 4, stating that supplier’s CSR orientation is positively related to suppliers’ innovativeness, is confirmed with β –coefficient of 0.76 (p<0.01). On the other hand, supplier’s CSR orientation has been found to have a negative effect on focal firm’s innovativeness with a β –coefficient -0.28 (p< 0.1); thus, H5 is not supported. Regarding the contributions of focal firm’s CSR orientations to current financial performance, H6 finds support with a γ –coefficient 1.04 (p< 0.05) even when it is controlled with market turbulence, competitive intensity and customer buying power. However, the effects of CSR orientation on expected financial performance (H7) demonstrate a negative relationship with γ – coefficient -0.76 (p< 0.1), contrary to what was hypothesized. The relationship between suppliers’ innovativeness and focal firm’s innovativeness has been found significant as well, with β –coefficient 0.18 (p< 0.1), therefore H8 is also confirmed. H9 and H10 are not supported since there is no finding indicating a significant relationship between supplier’s innovativeness and focal firm’s financial performance. The results; however, point out the significant relationship between focal firm’s innovativeness and current and expected financial performance, also when it is controlled with market turbulence, competitive intensity and customer buying power. The directions of those relationships, however, are different. According to the findings, focal firm’s innovativeness influences current financial performance negatively with β –coefficient of -0.58 (p<.05); and expected performance positively with β –coefficient 0.48 (p<.05). The additional arrow that was placed in order to increase the model fit (between supplier’s market orientation and CSR orientation) has demonstrated the second most significant relationship with a γ –coefficient 0.43 (p<0.01). The results will be further elaborated on in the next section.
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DISCUSSION AND CONCLUSION
This study is based on the idea that business development is crucial for firms to survive and grow in today’s dynamic markets; and innovation is the key to success in business development. It applies a stakeholder view by claiming that firms’ innovation efforts need to embrace different stakeholders (i.e. customers and society). It stands for the adoption of different external orientations (i.e. market orientation and CSR orientation) to satisfy needs and demands of a wider range of stakeholders; which, in turn, contributes to innovativeness and financial performance. With this respect, this study responds to calls for cross disciplinary research in marketing and corporate social responsibility for the advancement of stakeholder theory (Freeman et. al., 2007). Moreover, it is the first research which specifically examines the effects of market orientation, CSR orientation, and innovativeness on firm financial performance in a supply chain context. It also refers to the resource based view, resource management view, and resource dependence theory by suggesting that possessing valuable and rare resources provides the basis for value creation, means different external orientations are necessary to incorporate both resources and actions, and firms are dependent to their suppliers in their business development efforts. The research question investigates the impact of different external orientations on a firms’ innovativeness and current (short term) and expected (long term) financial performance; and to what extent this is supported by the supplier’s external orientations.
In order to discuss the theoretical and practical contributions with a better understanding of the findings, the following list is provided as a summary:
The Path from Market Orientation to Innovativeness and Financial Performance:
1) The focal firm’s market orientation is negatively related to innovativeness, but positively (and more significantly) related to expected financial performance
2) The supplier’s end-user orientation is positively related to the focal firm’s innovativeness
The Path from CSR Orientation to Innovativeness and Financial Performance:
3) Both parties’ CSR orientation is positively (and highly significantly) related to their innovativeness
4) The focal firm’s CSR orientation is positively related to current financial performance, and negatively (but less significantly) related to expected financial performance
24 5) The supplier’s CSR orientation is negatively related to focal firm’s innovativeness
The Path from Supplier’s Innovativeness to Focal Firm’s Innovativeness and Focal Firm’s Financial Performance:
6) The supplier’s innovativeness is positively related to focal firm’s innovativeness
7) The focal firm’s innovativeness is negatively related to current financial performance, and positively related to expected financial performance
The Additional Path (Mediation effect of the CSR orientation):
8) The supplier’s end-user orientation is positively (and highly significantly) related to its CSR orientation, which in turn increases innovativeness.
Next, the outcomes along with their theoretical contribution will be discussed.
Theoretical Contribution
First of all, this study serves as an empirical example for stakeholder management. Findings support the stakeholder theory and the multiple stakeholder approach by proving that firms are able to improve their innovativeness and financial performance by adopting different external orientations for different stakeholder groups (i.e. customers and the society). Even though not all the effects of those orientations on innovativeness and financial performance are found significant or positive, the results show that the positive relationships are much more significant than the negative ones in general. For instance, the focal firm’s CSR orientation seems to have a negative influence on expected performance (with a γ –coefficient of -0.76 when p<0.1), but its positive effect on innovativeness and current performance is much higher and more significant (with γ –coefficients of 0.92 and 1.04, when p<0.01 and p<0.05, respectively). Similarly, the focal firm’s market orientation shows to have a negative impact on innovativeness (with a γ –coefficient of -0.31 when p<0.1), but its positive influence on expected performance is higher and more significant (with a γ –coefficient of 0.39 when p<0.05). Accordingly, the pursuit of different types of external orientations seems to develop a wider array of stimuli for organizational, societal and technological innovation which serves as a source of competitive advantage (Kibbeling, 2010). External orientations allow firms to be more responsive to changing customer and societal needs which leads to better financial performance. Companies who
25 are superior in terms of satisfying the needs of different stakeholders more efficiently and effectively than competitors gain competitive advantage.
Secondly, by demonstrating the direct effects of the external orientations on financial performance, this study also contributes to the based view and resource management view. The resource-based view posits that firms with superior market and CSR orientation achieve superior business performance because they have a greater understanding of customers’ and society’s expressed wants and latent needs, competitor capabilities and strategies, channel requirements and developments, and the broader market environment than their rivals (e.g., Hult & Ketchen, 2001; Jaworski & Kohli, 1993). This understanding becomes a firm-specific resource that rivals cannot easily imitate. It also represents a ‘know-what’ advantage making the firm more effective and efficient by allowing managers to select the most productive available resource combinations to match market conditions (e.g., Slater & Narver, 1995). From the resource management perspective, this study also proves that firms can direct and manage their resources in accordance with specific stakeholder requirements through adopting external orientations. For instance, an end-user oriented supplier can notice the sustainability awareness among his customers’ customers, and he can decide to direct his employee and economic power to invest in that. In other words, his end-user orientation makes him also become CSR oriented. This relationship was explained in previous sections and reported by Figure 2. Nevertheless, scholars still need to gain more insight about different effects of external orientations on current and expected financial performance. For instance, despite the general opinion about the positive effects of market orientation on financial performance, this study reports an insignificant relationship for market orientation and current financial performance. Moreover, CSR orientation has been found to influence financial performance negatively in the long term. For the market orientation and performance relationship, non-significant or negative results are present in previous literature (e.g. Jaworski & Kohli, 1993; Deshpande et. al., 1993; Han et. al., 2005). Jaworski and Kohli (1993) reminds: “though market orientation enhances sales performance, the cost of its implementation might reduce profits”. Accordingly, adopting and implementing market orientation may lead to a lower financial performance in the short term, but it enables firms to perform better in the long run. On the contrary, CSR orientation seems to be beneficial in the short term but to reduce profits in the long term. This might serve as an example for the critics’ that argue CSR, in the long run, distracts from the fundamental economic role of businesses (which is to make money). To sum up, this study proves
26 that external orientations have different effects on current and expected financial performance, and it is important to assess them separately.
Thirdly, it has been found that the supplier contributes, indirectly, to the firm’s long term (expected) performance. The supplier supports the focal firm’s innovativeness through end-user orientation and its own innovativeness, which, in turn, improves the focal firm’s expected performance outcomes. Its CSR orientation has a negative impact on a focal firm’s innovativeness; however, the other two contributions are significant enough to surpass that negative influence (see the coefficients in Figure 2). By proving this chain relationship, this study also serves as a case for the resource dependency theory and supplier relationship management. It confirms that firms depend on and benefit from the market intelligence of the end-user oriented suppliers, in order to increase their own innovation capability and financial performance. It supports Hausman’s (2005) opinion about innovation being a social process where channel relationships are important in developing innovation capability. Kibbeling (2010), who tested the innovation generated within buyer-supplier relationships, also suggests a collaborative supply chain setting which facilitates for idea and knowledge sharing in buyer-supplier relationships. The current study, by proving the buyer-supplier’s innovativeness contributions to the firm’s innovativeness and to expected financial performance; forms another empirical example for supplier relationship management.
Practical Implications
The data analysis and the outcomes provide several insights for practitioners. First, this study concludes that firms are better off when they meet the interests of multiple stakeholders, instead of trying to choose only one and focus on that. The results show that market orientation is positively related to the expected (long term) performance. Firms, therefore, should not be put off if they do not observe many positive outcomes in the short term. They should try to find the best feasible and economically appropriate way to implement the market orientation, which, in turn, will contribute to future gains. This study also shows that CSR orientation allows firms to achieve a better financial performance in the short term, but it seems risky for the long term. In order to have a good financial performance also in the future, firms should not be distracted from the fundamental economic role of businesses: to increase the financial value of the firm. They should keep their CSR strategy in line with the corporate goals.
