CHANGE, A DIFFICULT

CHANGE, A DIFFICULT

The Business Development Capability of a Dutch

CHANGE, A DIFFICULT STEP TO TAKE

The Business Development Capability of a Dutch

Entrepreneurial Organization

Master Thesis

Susanne Adriaanse

June 2010

The Business Development Capability of a Dutch

rganization

Change, a difficult step to take

The Business Development Capability of a Dutch

Entrepreneurial Organization

Master Thesis, MScBA, Specialization Business Development University of Groningen, Faculty of Economics and Business

Master Thesis

Susanne Pauline Adriaanse June 2010 Student number 1660772 Croesestraat 68 3522 AG Utrecht 06-45782430 susanneadriaanse@hotmail.com University supervisor: dr. W.G. Biemans Second university supervisor: dr. J.F.J. Vos

PUBLIC VERSION

Please note that confidential information has been deleted to make this a public version. The company name is replaced by ‘company X’ and the parent company is named ‘Y Group’. The patented technology used is called ‘technology A’ and the product is named ‘product B’. Several exhibits are not depicted, as well as most quantitative information. Nevertheless, the main conclusions and results from this research

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Preface

In March 2009, I started to explore the world of the industry of product B and the writing of a Master Thesis with the aim to finalize my university degree through my last internship. I moved to Utrecht, and started to work with company X, an entrepreneurial company situated in the ‘green heart’ of The Netherlands.

After seven months merely performing activities on the field of marketing for company X, time had come to focus on executing the research and writing my thesis. This transition phase was quite difficult. I liked the work I did for company X, but combining both writing my master thesis and the work appeared to be not time-effective. For the past eight months it thus took more than just being motivated by myself to carry out this research properly. I could not have developed myself in this way without the help of many people. To them, I would like to express my gratitude.

First, I would like to thank company X for offering me the opportunity to do this research. In an open and approachable atmosphere, I got the opportunity to learn a lot about being part of a small actor in the large industry of product B. The employees became a solid grip in the research and the information I received mostly in an informal setting was invaluable to the research.

I also would like to express my gratitude to my thesis supervisor, associate professor Dr. Biemans. The pleasant collaboration in overall, his assistance in the development of the research and his critical notes, advise and expert knowledge, were very helpful in the process of writing this thesis. Also, I would like to thank assistant professor Dr. Vos, my second thesis supervisor for her time and care spent in reading my thesis.

At last, but certainly not least, I am proud to admit that the support of family and close friends helped to encourage myself to make this last document written for study purposes worth reading for those who are interested.

June 2010,

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Management summary

The company, further mentioned as company X, had planned to launch a transition from entrepreneurial towards a professional and profitable company in 2009. Regardless all effort spend that year, the company was unable to endure this transition effectively. In this research, the underlying reasons have been assessed.

The Business Development Capability of company X forms the focus of this research. Successful business development requires coordination between the firms offering, its target markets and the internal organization which accomplish the offering to the target market. For company X it was studied how well the set of practices that link the company’s value creating process with its external environment is organized, by studying the research question: “To what extent is the

Business Development Capability of company X sufficient to be able to realize the best fit with the market? What are areas of improvement?”

Research methods

The study was focused on the three behavioral components of the company’s market orientation, namely its market sensing, the dissemination process of market intelligence and the responsiveness of the company based on the generated market intelligence.

Four research methods were used to analyze the performance of the company on these three behavioral components of market orientation. First, data analysis on the available business plans and internal documents was executed to become familiar with the planned strategy of the company. The Markor survey, as developed by Kohli, Jaworski and Kumar (1993) was used as a useful starting point for a detailed assessment of the three behavioral components within the organization. The individual results per employee, which derived from the survey, were used to guide the semi-structured interviews and observation with the aim to evaluate the organization in detail. At last, the surveys sent to customers and business relations provided insight in the vision of industry partners towards the offering and performance of company X.

Important results

From the research it derived that four interrelated factors form the support for the conclusion that the Business Development Capability of company X currently is not sufficient to enable realizing the best fit with the market.

Most notably, shareholders were not aware of the fact that being market oriented can help the company to obtain the necessary information for defining specific target markets, choosing the right strategy and developing suitable offerings. This involves that the company is

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not actively sensing its markets based on a plan, or a specific focus, and not enough in depth information on specific market segments or niche markets is generated. Therefore, the strategy is not market driven, and no niche market is selected to approach. As a result, the current market company X targets at is a wide-ranging and difficult to reach effectively, while a lot of time is spent on adapting the standard products to each customer’s specific demand.

The tendency within company X is that most market intelligence is just once informally shared with colleagues through ‘hall-talks’, an informal method wherein the accuracy and clarity of the shared intelligence generally is low. In combination with the fact that the interpretation of this market intelligence is not discussed, the vital shared mindset of employees is missing. Since the internal communication within company X is inefficient, a lot of valuable information just ‘disappears’ in this phase, whereas the next step in the dissemination process, documenting and analyzing of market intelligence, rarely happens.

Since there is not much market intelligence shared or documented, less intelligence can be used as input for strategic decision making or creating dedicated offerings to specific markets. The company is not familiar with developing its responses based on market intelligence. Since the employees now are aware of the importance of using market intelligence, market information should form the basis of decisions in the nearby future.

At last, the personalities working for company X appeared very determinative for the performance of the company and its future. Although three of the four employees are shareholders of the company, they all strive for different goals and objectives. Since no proper job descriptions have been defined, coordination of work activities is difficult, because it is unclear who is responsible for what. Given that the intrinsic motivation, discipline and productivity of each of the four employees currently is low, it is difficult to create a ‘competitive environment’ within the internal organization. While people are not triggered to reach the goals, the work ethic should be far more professional.

Recommendations

With the aim to make company X a streamlined organization with a perfect fit with the market, the results of the study go into recommendations on significant changes and improvements of the company’s business design on short, middle-long and long term.

Short term - Focus on market sensing and developing job descriptions

To develop a new sense-and-respond organization, the focus must be in the first three months on generating, analyzing, sharing and documenting market intelligence to support the strategic decision making on middle-long term. Therefore, the focus for market sensing must be defined. Subsequently, more insight need to be created in the tasks that are necessary for the company to

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survive. Capabilities of people should be considered and new defined tasks and accountabilities need to be appointed to the employees. Employees are responsible for these tasks until a new organizational context is developed.

Middle-long term- creating a new organizational context

On middle-long term, the new organizational context need to be developed. The generated market intelligence forms the main input. First, it is necessary for the shareholders to define the ‘reason for being’ for the company. The shareholders could be accompanied by an external, independent advisor in case opinions differ substantially. Once the reason for being is defined, governing principles should be thought out. As last part of the organizational context, a business design need to be developed in detail. This involves a process in which roles and accountabilities are clarified and communication among the people in the system is fostered.

The new business design must be developed based on the perspective to increase the health of the company. It is essential that shareholders take their own experience with the company and its environment in consideration, but leaving the current situation, occupation of functions and people out.

Long term- implementation and focus on continuity

It is assumed that within one year from the start of the organizational transition, company X should have defined its governing principles and designed the new business. From that moment, the focus is on implementation. This phase involves a continuous, iterative process of reflection on activities executed to search for possible improvements. This phase consist of four pillars:

The implementation phase starts with reconsidering all certainties of the company from the past. The current ‘business paradigm’ of the existent company must be reshaped.
To guide company X through the transitional phase, an appropriate leader must be

appointed. The leader’s role is to create a context and develop a system of coordination to govern individuals’ behaviors to ensure it is in line with the organizational context.
The functions, with defined tasks and accountabilities must be filled in. People are

selected based on the required capabilities as defined.

Employees need to be empowered. Then they are solely responsible for fulfilling the defined tasks. They must develop their own strategic plan on how to achieve the goals. At last, the focus should be on continuity of the company. Especially with regard to knowledge retention and the user’s skillfulness. Employees must become more open to share information and their knowledge and to create transparency of the organization’s processes. All with the aim to increase the Business Development Capability of the company and to make company X a more sense-and-respond organization.

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Table of contents

1. Introduction ____________________________________________________________________________________ 1

1.1 Company Profile ______________________________________________________________________________ 1 1.2 Scope of the study and research question __________________________________________________ 2 1.3 Layout of the study ___________________________________________________________________________ 4

2. Sense, disseminate and respond ____________________________________________________________ 5

2.1 What is Business Development Capability? _________________________________________________ 5 2.2 Why to become an adaptive organization? _________________________________________________ 5 2.3 What is market orientation? _________________________________________________________________ 6 2.4 Capability of market sensing _________________________________________________________________ 9 2.5 Dissemination of information _______________________________________________________________ 10 2.6 Response to market intelligence____________________________________________________________ 10 2.7 Implications for this research _______________________________________________________________ 11

3. Research Methodology _______________________________________________________________________ 12

3.1 Research Design _____________________________________________________________________________ 12 3.2 Methods of data collection __________________________________________________________________ 13

4. Results __________________________________________________________________________________________ 17

4.1 Market Sensing _______________________________________________________________________________ 17 4.1.1 Practical implementation of market sensing ____________________________________________ 17 4.1.2 Focus on generating market intelligence ________________________________________________ 20 4.2 Intelligence dissemination __________________________________________________________________ 20 4.3 Responsiveness ______________________________________________________________________________ 24

5. Discussion & recommendations ____________________________________________________________ 28

5.1 Discussion ____________________________________________________________________________________ 28 5.2 Recommendations ___________________________________________________________________________ 30

6. Reflection & limitations ______________________________________________________________________ 35

References _____________________________________________________________________________________________ 37

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1.

Introduction

This chapter provides an introduction to the context of the research at company X First, the company profile and functional description of the company are discussed. This eventually leads to a formulation of the problem statement, a description of the scope of the study and the research questions. The chapter ends with a short overview of the layout of the report.

1.1 Company Profile

The company, further mentioned as company X, is to be studied in this thesis. The innovative company is situated in the green heart of the Netherlands. Company X was founded seven years ago, on 30 December 2002 by two friends and business associates with the aim to develop and offer innovative solutions to the industry of product B. Both experienced in this industry, they had access to a lot of information through their wide network of suppliers, customers, partners and competitors.

Company’s structure

Company X forms part of the Y Group, as shown in the organization chart (see appendix 1). As daughter of the Y Group, company X has the right to use the licenses on the patents on the technology A to use for manufacturing and trading of product B.

In 2008, an esteemed manufacturer signed a license agreement with the parent company based on the innovative product B. From autumn 2008, this licensee started the production of high quality products B and became main supplier for company X as well. The cooperative action has created two important advantages for company X. First, as small entrepreneurial organization company X could solve its liquidity problem through a clause in the supplier-agreement. The clause holds that the time of payment for company X to the manufacturer is extended to the moment a client orders. Secondly, the manufacturer also added the product B to its own product portfolio. A large sales team in 2009 introduced the product under the brand ‘C’ onto the market.

The team of company X consist of four employees. Two of them are main shareholder. Although they do not have function names, in view of this research they are called ‘sales manager’ and ‘strategic manager’. The managing director owns a small part of the shares. The fourth employee is a legal counsel. Although the team is strengthened by two university students on an internship basis, this study is based on just these four employees.

Currently, company X owes its right to exist to the opportunity to sale its innovative product B. Company X operates independently from any supplier of complementary goods. This creates the opportunity for company X to carry out an advisory role to customers who experience

S.P. Adriaanse University of Groningen 2 difficulties in their current logistic process. Appendix two shows a detailed description on the value creating process of the company. By offering solutions with product B, company X has the ambition to become a well known specialist worldwide. In order to realize this ambition, in autumn 2008 company X translated its aspiration in a five-year growth strategy which is focused on reaching ‘the top’.

Problem statement

In the business plan for 2009-2013, which has been defined in December 2008, the chosen business strategy for company X is explained. The management of company X aimed at a transformation from entrepreneurial to a more structured, professional sales driven organization in which processes are clear and effective and more focused on long term. The most important goal on short term, reaching a turnover target of €1,450,000.- end year 1 (2009) was expected to be feasible by hiring highly motivated and educated personnel, extensive broadening of customer base and portfolio and implementing the Enterprise Resource Planning system to full operational level. Unfortunately, in the last months of 2009, it became clear that the objectives for 2009 have not been obtained, just the ERP system was implemented. The turnover stuck to a €376,522.68, and just 26 percent of the prospected turnover was realized. It can be concluded that the transition towards a professional and profitable company has not been launched effectively yet. In this research, the underlying reasons for this will be assessed.

1.2 Scope of the study and research question

Basically, the internal organization’s permanent basic task is to decide what offering to bring to which market, in order to achieve attention from (potential) customers, to create a competitive advantage and market share. Prior to this decision, it is important that the market orientation of the internal organization is developed well. Market orientation is a company’s ability to learn about customers, competitors and partners in the supply chain in order to continuously sense and act on events and trends in present and prospective markets (Day, 1994). The organization-wide generation of market intelligence, also defined as ‘capability of market sensing’, the dissemination of this intelligence across departments, and organization-wide responsiveness to it, enables the company to define a suitable, up to date offering to its target markets (Kohli & Jaworski, 1990; Kohli, Jaworski & Kumar, 1993; Day, 1994). In case the mentioned three behavioral components (generation of, dissemination of and responsiveness to market intelligence) are executed well, the company should be able to create its superior ability to understand, attract and keep valuable customers. In this desirable situation, the organization can be defined as an ‘adaptive organization’ (Haeckel, 1999) or ‘market driven organization’ (Day, 1994). “This three component view of market orientation (generation of, dissemination of and responsiveness to market intelligence) makes it possible to diagnose an organization’s level

S.P. Adriaanse University of Groningen 3 of market orientation, pinpointing deficiencies and design interventions tailored to the particular needs of an organization.” (Deshpandé, 1999: 7). Therefore, the scope of the study is based on the three behavioral components of market orientation.

Although it is to be assumed that the essential conditions for the continuity of company X are available and form a good basis for a remarkable turnover increase (e.g. the used technology is innovative and patented, products are manufactured by a large esteemed manufacturer active worldwide, the market potential appears to be large and technical knowhow is available in the company), it is important to create a high level of adaptability of the internal organization to significant environmental changes which cannot be influenced by the organization itself. Therefore, the external factors are included in this research to the extent that the adaptability of the company to the environmental factors will be studied. To what extent the internal organization of company X is capable of generating, disseminating and responding to market intelligence and thus not only creates but also accomplish the offering that fits the market demand, will be assessed.

With the generated market intelligence, the company should be able to develop or renew the matching process between the customers’ demand, the organizational environment and the company’s offering. Development or renewal of this matching process forms the essence of business development. The organizational competence to adapt to changes in the organizational environment by using the generated market intelligence to realize the best fit with the market, can be defined as the Business Development Capability of an organization. As a set of practices that link the firm’s value creating processes with its external environment, business development capabilities are a key factor in the success of organizations.

Consequently, the Business Development Capability of company X forms the focus of this research. It will be determined how well the set of practices that link the firm’s value creating process with its external environment, is organized. A mirror is used to reflect the internal organization’s strengths and areas of improvement.

Research objective

The objective of this research is to assess to what extent all areas of the internal organization together are able to create the strategic fit with the market. The research gives insight in the performance of the organizational activities that are accountable for creating the right offering. With the aim to make company X a streamlined organization with a perfect fit with the market, the results of the study go into recommendations on significant changes and improvements with regard to the internal areas under evaluation.

Research questions

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To what extent is the Business Development Capability of company X sufficient to be able to realize the best fit with the market? What are areas of improvement?

In order to be able to answer the main research question properly, the following sub-questions have been defined.

1. How is the process of market sensing organized?

2. To what extent is the market intelligence disseminated through the whole organization? 3. Is the organization effectively creating responses to the generated market intelligence?

1.3 Layout of the study

To be able to assess the Business Development Capability of company X, first, the relevant concepts in view of this research are clarified in chapter two. Chapter three discusses the research methodology, including the research model in paragraph 3.1. The method of data collection is explained in paragraph 3.2. In chapter four, the results of the internal study on the three behavioral components of company X’s market orientation are explained. Subsequently, chapter five describes a discussion of the results and final conclusions are drawn in paragraph 5.1. The next paragraph shows the recommendations derived from the internal diagnosis and chapter six finally discusses the reflection on the research.

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2.

Sense, disseminate and respond

In the introductory chapter, the following main research question is defined: To what extent is

the Business Development Capability of company X sufficient to be able to realize the best fit with the market? What are areas of improvement? To be able to answer this, and other research

questions properly, the relevant concepts for this study are clarified and explained. First, the concept ‘Business Development Capability’ and its relation to the concepts ‘market driven organization’ and ‘adaptive organization’ are discussed. Because, as stated in the former chapter, the adaptability of the company to the environmental factors will be studied. Subsequently, the concept market orientation and its three behavioral components (market sensing, dissemination of and responsiveness to market intelligence) are clarified and described in paragraphs 2.3, 2.4, 2.5 and 2.6.

2.1 What is Business Development Capability?

First, the development or renewal of the matching process between the customers’ demand and the company’s offering, forms the essence of business development. Successful business development requires coordination between the firms offering, its target markets and the internal organization which accomplish the offering to the target market. The coordination meant in this definition complies with the (integration of both) ‘inside-out’ and ‘outside-in’ capabilities defined by Day (1993, for explanation see appendix 3) and a company’s market orientation as defined in paragraph 2.3 by Kohli and Jaworksi (1990; 1993). The capability of the organization to develop its business in such a way that it is able to adapt to its external environment (e.g. by applying the behavioral components of market orientation) is determined for having successful outcomes. To illustrate this, a vast majority of the studies on market orientation argue that being market oriented is associated with superior performance of one or more focus areas, like profitability, sales growth, and new-product success (e.g., Deshpandé, 1999; Kohli & Jaworski 1990; Slater & Narver, 1990; Narver, Slater, Maclachan, 2004; Day, 1993) and past practices showed that responding flexible to unpredicted, individual customer requests could drive profitable growth (Slater & Narver, 1995). Therefore, in view of this thesis, Business Development Capability is defined as the competence of the organization to arrange its ‘behavioral components’ in such a way that the company adapts to changes in the organizational environment and the best fit with the market can be realized.

2.2 Why to become an adaptive organization?

Adaptability has become increasingly valued in recent years and relating terms like flexibility, alertness, responsiveness and agility are frequently discussed. The 21th century is in the Network Era (Bradley, Nolan, 1998) and can be characterized by its information-intensiveness

S.P. Adriaanse University of Groningen 6 and unpredictability (Haeckel, 1999). When customer needs are unpredictable, firms need to move their center of attention to understanding those needs, what implies that organizational behavior should be driven by current customer requests –tacit as well as articulated– rather than by firm-forward plans to make and sell offerings. Haeckel (1999) defined this transition from traditional ‘make-and-sell’ to the ‘sense-and-respond’ approach. Haeckel argues: “rather thinking customer-back than firm-forward” what complements the ‘outside-in’ approach of a market driven firm defined by Day (1993) some years in advance.

Furthermore, the ‘sense-and-respond’ companies seek to discover smaller market segments or even individual customers needs (Harvard Management Update, 2000). And whereas market driven or adaptive organizations demonstrate a superior ability to understand, attract and keep valuable customers (Day, 1999: 5), being market-driven or adaptive is about having the discipline to make sound strategic choices and implement them consistently and thoroughly; “it is not about being all things to all people” (Day, 1999: 6).

To explain the behavior of the sense-and-respond organization, an ‘adaptive and iterative loop’ has been defined. Organizations first sense changes in their environment and internal states, they next interpret these changes in the context of their experience, aims, and capabilities, separating threats from opportunities and remove irrelevant information. They decide how to respond and finally act on their decisions. “The process is iterative, because the results of previous actions are monitored and the adaptive system picks up environmental changes that have occurred since the previous cycle.” (Haeckel, 1999: 14). All kind of organizations more or less use this ‘adaptive loop’, but the focus for make-and-sell organizations in general is to stay in the ‘act’ phase as long as possible. Instead, sense-and-respond organizations probe for new signals continuously and cycle through the adaptive loop as quickly as possible.

Several thought-out and further detailed varieties on this iterative ‘loop’ of behavior of sense-and-respond organizations have been developed in the past years in form of conceptualizations of a market orientation.

2.3 What is market orientation?

An organization can be positioned on a continuum from internally oriented to market driven (Day, 1993). Market driven firms are also named ‘adaptive’, ‘customer oriented’, ‘customer centric’ or ‘market oriented’. Despite of little differences, in essence all definitions express the market orientation of firms (Deshpandé, 1999). Therefore, in view of this thesis, all concepts have been analyzed and used to denote the market orientation of a firm.

In essence, market orientation can be viewed from two perspectives. Originally, market orientation was defined as an organization-level culture which includes a set of values and believes that put the customer first in business planning (Deshpandé & Webster, 1987).

S.P. Adriaanse University of Groningen 7 As cited by Matsuno et al. (2005): “Narver & Slater (1990) see organizational culture as a driver of behaviors, and market oriented behaviors do not manifest themselves in the organization if the culture lacks commitment to superior value for customers.” Nowadays, the externally oriented culture still seems to form the essential first step of an organization to become market oriented (Day, 1999), but the focus has moved to the behavioral components (or implementation perspective) of a market orientation. Although some researchers concluded from their meta-analyses that market orientation is not a ‘culture’ but rather a ‘set of activities’ (Deshpandé & Farley, 1998), both perspectives still are supported.

As noticed in the previous paragraph, various conceptualizations of a market orientation appear in the literature (Deshpandé 1999; Kohli & Jaworski, 1990; Narver & Slater, 1990; Ruekert, 1992; Day, 1993, and Shapiro, 1988). Shapiro (1988) for example is seen as the first author who identified behavioral components of a market orientation and described a market-oriented firm as one in which (1) information on all important buying influences pertains each corporate function, (2) strategic and tactical decisions are made functionally and inter-divisionally, and (3) divisions and functions make well-coordinated decisions and execute them with a sense of commitment. A slightly different conceptualization is offered by Ruekert (1992). Ruekert defines a market orientation as the degree to which the business unit (1) obtains and uses information from customers, (2) develops a strategy that will meet customer needs, and (3) implements that strategy by being responsive to customers’ needs and wants.

Although both conceptualizations slightly differ, in essence both researchers share the same thoughts. In accordance, Day (1993) expresses the definition of market orientation as a firm-level dynamic capability that links a firm to its external environment. A company who applies this ability well, should be able to sense events and trends in their markets ahead of their competitors and create durable relationships with customers, channel members, and suppliers (Day & Nedungadi, 1994; Day, 1999). Furthermore, it is argued that market orientation is likely to lead to higher (1) customer satisfaction and repeat business; (2) esprit de corps1_{, job}

satisfaction and employee commitment; and (3) business performance (Deshpandé, 1999). Three respected and more detailed conceptualizations of the market-orientation approach than those of Ruekert (1992) and Shapiro (1988) are the market orientation scales of Narver & Slater (1990), Kohli & Jaworski (1990) and Day (1999). The first theory to discuss is the one developed by Naver and Slater (1990). They developed a three-dimensional construct consisting of the firm’s understanding of its target market, named customer orientation; the firm’s understanding of the long-run capabilities of its competitors named competitor

orientation; and the interfunctional coordination of the resources used to create superior

customer value. The integrated framework developed by Kohli et al. (1990) captures three quite

S.P. Adriaanse University of Groningen 8 similar components to these of Narver et al. (1990). The framework was developed “for understanding the implementation of the marketing concept” (Kohli et al., 1990:1) and to offer managers a tool to measure their companies’ market orientation. The organizational wide

generation of market intelligence, dissemination of this intelligence through the organization and

utilization of this mainly customer-related information or responsiveness later were named the three behavioral components of market orientation, because these practical components describe the activities and behavior executed by the market oriented organization. Alternatively, Day (1993) proposes that a market orientation can be more appropriately conceptualized as a process consisting of four stages. Additively to the three-component scales of Kohli et al. (1990) and Narver et al. (1990), he added the importance of sharing the interpretation of market

information among all functions in the organization, just after the organizational wide sharing of

information and prior to the utilization or responsiveness phase of market orientation. Nevertheless, the sharing of interpretation best could be considered to form a part of the ‘intelligence dissemination’ as defined by Kohli et al. (1990). Furthermore, Day (1999) also distinguishes three activities within the first behavioral component ‘intelligence generation’ as defined by Kohli et al. (1990) and named this behavioral component ‘market sensing’. He argues that ‘sensing’ activities are supposed to be followed by ‘sense-making’ and ‘reflection’ activities and that this all takes place within the first behavioral component of market orientation.

When considering the type of information that is acquired, shared, interpreted and utilized, various distinctions are made. Whereas market orientation is defined as the ability to learn about customers, competitors and partners in the supply chain in order to continuously sense and act on events and trends in present and prospective markets (Day, 1993), some researchers prefer to distinguish customer and competitor orientation (Narver et al., 1990) and others found that solely the focus on customers actually is proved to have influence on the performance of firms (Harisson-Walker, 2001). Kohli et al. (1993) argue that in addition to understanding perspectives and changes in existing customer needs, companies must analyze competitors and global factors that could affect future customer needs. Day (1993:10) shares this opinion and states: ‘‘market-driven firms must emphasize customers and competitors alike, for it is the superior understanding and satisfaction of customers that ensures superior performance.” Recently, Matsuno, Mentzer and Rentz (2005) developed an extended model of market orientation (EMO) in order to complement the arguments in the literature. They extended the general scope of stakeholders and marketplace factors by including suppliers, regulatory aspects, social and cultural trends and macroeconomic environment to the requirements of two existing market orientation scales. The latter definition is preferred to use, whereas the focus is on the customers as well as other environmental factors, like competitors and industry partners.

S.P. Adriaanse University of Groningen 9 Furthermore, the concept of market orientation implies both responsive market orientation and proactive market orientation. A responsive market orientation addresses the expressed needs of customers (referred to as ‘customer led’ by Slater and Narver (1998) and ‘customer compelled’ by Day in 1999), whereas a proactive market orientation addresses the latent needs of customers. Proactive market orientation is about sensing opportunities for customer value of which the customer is unaware (Narver, Slater, Maclachan, 2004). In the last twenty years, the satisfaction of latent needs achieved more attention in analyses of market orientation (e.g., Kohli et al., 1990; Narver et al., 1990; Slater et al., 1995) since merely satisfying customers’ expressed needs may be insufficient for a business to attract and to retain its customers (Narver et al., 2004).

Based on the findings from the literature analysis, in the current study, a market orientation is conceptualized as a three-stage process involving the behavioral components ‘market sensing’ (Day, 1999; Kohli et al., 1990) in which generation of market intelligence is incorporated; ‘information dissemination’ (Kohli et al., 1990) which includes sharing of interpretation of market information (Day, 1993), and the ‘responsiveness’ to market intelligence by the company (Kohli et al., 1990).

2.4 Capability of market sensing

Market sensing is defined by Day (1993; 1999) and describes the sensing activities (market sensing, sense making and reflection) of organizations. With market sensing, the organization’s capability to collect and assess both customer needs and environmental forces that influence the development and refinement of those needs is meant. The first behavioral component of market orientation defined by Kohli et al. (1990) named ‘intelligence generation’ matches with the first part of market sensing approach of Day (1999) and therefore it is simultaneously incorporated in this paragraph.

It is essential that sensing the market takes place based upon an open-minded inquiry rather than the company is looking for information to confirm pre-existing beliefs about the market (Day, 1999). Market sensing is essential for organizations whereas it helps an organization to come closer to its market than its rivals by: (a) Creating a spirit of open-minded inquiry; (b) carefully analyzing rivals’ actions; (c) Listening to staff on the front lines; (d) Seeking out latent needs; (e) Active scanning of the periphery of the market and (f) encouraging continuous experimentation (Day, 1999: 85). This market intelligence may be generated through a variety of formal and informal means and may involve collecting primary data or consulting secondary sources. Deshpandé (1999) complemented the list of Day and advised to have meetings and discussions with customers or trade partners, or execute formal market research

S.P. Adriaanse University of Groningen 10 like assessing sales respond in test markets. An analysis of sales reports and customer databases would provide valuable information as well.

In overall, the ‘sensing’ activities suit the ‘intelligence generation’ as defined by Kohli et al. (1990), but Day defines the ‘widespread information distribution’ as activity appertain to market sensing whereas Kohli et al. clearly distinguish the generation of intelligence and the dissemination. In view of this research, the distribution of information, in other words dissemination of information is distinguished as a separate component of market orientation.

2.5 Dissemination of information

The process and extent of market information exchange within an organization is named ‘intelligence dissemination’. Because the focal point of dissemination is the entire company, attention should be balanced between both the horizontal (interdepartmental) and vertical transmission of marketplace information (Kohli et al., 1990). Intelligence dissemination of an organization can be defined by analyzing the way how intelligence is shared, documented, analyzed and interpreted by the employees.

The level of intelligence dissemination can be determined by dissemination frequency and formality. Dissemination frequency is defined as the number of dissemination events between a sender and a receiver within an organization in a given period of time (Maltz and Kohli, 1996). Furthermore, intelligence may be disseminated through formal or informal channels. Maltz et al. (1996) outlined two criteria for assessing the formality of dissemination events, namely verifiability and spontaneity. In case it can be confirmed that certain intelligence was transmitted, for example through having meetings with three or more participants, and communications by written memos, verifiability is high. In contrast, an one-on-one telephone conversation is low in verifiability. Spontaneity refers to whether the dissemination of information was planned ahead of time. Thus, dissemination through ‘hall-talk’ is spontaneous, whereas dissemination during a monthly meeting is not. “Dissemination events that are either verifiable, non-spontaneous, or both represent formal dissemination” (Maltz, 1996:48). Events that are both spontaneous and not verifiable reflect informal dissemination.

Both frequency and formality of intelligence dissemination are influenced by several variables at the individual, interpersonal, interfunctional, and environmental level. Maltz et al. (1996) developed a measurement scale of eleven topics to assess the general dissemination of market intelligence between functions and receivers' use.

2.6 Response to market intelligence

The third element of a market orientation is responsiveness to market intelligence. Once the information is disseminated through the organization, the market oriented firm is expected to

S.P. Adriaanse University of Groningen 11 respond by changing product designs and customer services to fit the needs of different customers and market segments. Relating to this, it is noticed that the response to market intelligence is an organizational wide mode of operation (in which virtually all functions in an organization are involved) rather than the exclusive responsibility of one specific department or function. Cross-functional collaboration and coordination of the activities among different departments is critical whereas this coordination eases the implementation of product design and service changes (Kohli, Jaworski and Kumar, 1993; Golann, 2006; Day, 1999).

From the field analysis executed by Kohli et al. (1990), it derived that responsiveness to market intelligence is a concern of selecting target markets, designing and offering products and services to fulfill customer’s current and anticipated needs. Furthermore, a market oriented firm is producing, distributing and promoting the products in a manner that elicits favourable end-customers’ response. Subsequently, from the process management theory as described by Golann (2006), the following processes have been analyzed: the flexibility of the organization in adjusting its products to new customer demands, the speed of responding to customer needs, the quality of product and support service (including after-sales), the external communication and coordination of response to customer needs in form of documents and the way how the organization uses the market intelligence in developing its strategy and goals is assessed as well.

2.7 Implications for this research

Through the years, market orientation became a renowned and essential concept for companies to create customer value. Market orientation therefore is an interesting capability to study in view of this research. Previous to the diagnosis of the company’s ability to adapt to changes in the organizational environment to develop an attractive offering to the market (its Business Development Capability), it is essential to investigate the way company X currently achieves its market intelligence through market sensing, how this information is disseminated among the various functions of the organization and to what extent this market intelligence is used (i.e. the behavioral components of market orientation).

Since the literature suggest that organizations vary in the extent to which the company senses its market, disseminate the market intelligence internally, and take action based on the intelligence, it is more appropriate to conceptualize the market orientation of an organization as one of degree that lies on a continuum rather than as either present or absent (Deshpandé, 1999). For this reason, the Markor survey as developed by Kohli et al. (1990) was used as a useful starting point for a detailed assessment of the three behavioral components within the organization company X. The individual results derived from the survey were used to guide the interviews and the observation in order to evaluate the organization in detail.

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3.

Research Methodology

The concepts relevant for the research are discussed in the previous chapter. In this chapter, the research methodology which was used to collect the data and to evaluate the company will be discussed.

3.1 Research Design

The research is in form of a case study at company X. The three behavioral components of market orientation (market sensing, intelligence dissemination and responsiveness) which have been explained in chapter two, will be applied to the company. In figure one, the research model is presented which shows the relationships among the three behavior concepts and their relationship with the external environment in context of the Business Development Capability of the organization.

Figure 1. Research model

To create the best fit with the market, the organization should have a high level of market sensing, sufficient intelligence dissemination and response to the market quickly. From the literature review it became clear that the three behavioral components (market sensing, intelligence dissemination and responsiveness) are on equal importance and sequential. Therefore, the three components are placed in this order in figure 1.

The Business Development Capability (BDC) is to be researched in this study. Like discussed before, this concept is about the capability of the organization to arrange its three behavioral components in such a way that the best fit with the market can be realized. In the research model, the context of the BDC surrounds the three components of market orientation. From this context of business development, the three behavioral components are evaluated. The evaluation of the way how the processes are executed nowadays forms input for the development of the BDC of the organization and the organization should be able to control the development of its core behavioral components consequently.

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3.2 Methods of data collection

The first part of the research was based on literature, named documentary research. In the second part of the research, the research framework was applied to the organization company X, which forms the empirical case study. The empirical research mainly is of qualitative matter, since the study is about analyzing unquantifiable data gathered through in-depth interviews, observation and available documents within the organization. However, quantitative data obtained from surveys among business relations and customers complement and support the qualitative data. Hence, the data used in this study could either be articulated, derived from business plans and written documents or tacit, what means it only reveals through in-depth interviews.

Documentary Research

In the first theoretical part of the research, which is described in chapter two, literature was systematically and objectively located, evaluated and documented with the aim to create a suitable method for analyzing the internal organization of company X. The literature consist of electronic sources from online databases such as Econlit, Business Source Premier and Science Direct. In addition, some books on strategy, marketing and sales and internal organizational processes are consulted.

Case study

In this part of the research the research framework has been placed alongside the organization company X to be able to give an answer to the main question: to what extent is the Business Development Capability of company X sufficient enabling the internal organization to realize the best fit with the market? What are areas of improvement?

By gathering data through primary data sources like observation within company X, the internal Markor survey, followed by in-depth interviews with employees and surveys among customers and business relations, it was possible to assess how the three behavior components are executed within the company. The methods of data gathering that have been used are explained.

Desk research

The business plan and the operational plan which have been developed in the fourth quarter of 2008 formed the most important input for the desk research phase. Both documents have been studied to analyze the planned approach for company X for the next five years. Furthermore, company X obtained certification for ISO 9001:2000 and later for ISO 9001:2008. The ISO guide therefore is one of the protocols company X employs which was studied as well. Besides, available data on activities, functions and plans of the company from the past were studied.

S.P. Adriaanse University of Groningen 14 Based on the question whether the different approaches appeared to be successful or not, concerning for example the defined goals and strategies, the different ways the operational plans have been executed, the functional descriptions and employees’ performance.

Observation

Observation forms the basis for this research. During the ten months of internship with the company, I was able to objectively analyze the company in detail. In the first period from April till the end of August 2009, by executing merely marketing activities for the company, I was able to become familiar with the company’s culture, its work ethics, the personalities of the employees and their attitude with regard to the external environment, the way customer contacts and contacts with trade partners were handled and activities were executed. It was noticed that the personality characteristics of the four people differ from each other substantially. All four more or less are autonomous and independent and, most remarkably, their visions with regard to the company differ. This attained knowledge influenced the decision what research methods to apply and how to apply these methods.

Market orientation survey

To clearly project the difference in visions of the four employees on the market orientation of the company, the Market Orientation scale (in short Markor-scale) by Kohli, Jaworski and Kumar (1993) was adjusted to company X and used as research method. The Markor survey measures three variables in the internal organization, namely the behavioral components ‘Intelligence Generation’, ‘Intelligence Dissemination’ and ‘Responsiveness’. Each component was represented by nine to thirteen propositions on which employees are asked to give their own opinion on a seven point scale from strongly agree (1) to strongly disagree (7). The scale included the option “I don’t know” valued by ‘0’ and a neutral option (4). The personal interpretation of the 32 clearly stated propositions have been used as input for the interviews.

In-depth interviews with employees

As main part of the research, employees have been interviewed. The aim was to assess the level of appliance of the three behavioral components of a market orientation within company X. The differentiation in people’s opinion formed an important focal point during the interviews, and the requirement for the use of a semi-structured interview was clear. It is interesting to understand why and especially on which fields the respondents have different visions, so those organizational ‘fields’ or areas had to be defined and to be used to structure the interviews. From a literature analysis on activities which are executed within an organization and by complementing various models used to analyze organizations, one model in which important internal organizational areas are defined was developed. In appendix four this literature analysis

S.P. Adriaanse University of Groningen 15 and the model developed is shown. The model was used as common thread through the interviews. In the end, the semi-structured interviews consisted of 18 subjects and almost 100 interview questions. There still was room for clarifying the personal interpretation of the questions by the interviewees and to probe on specific answers by the interviewer. Furthermore, the exact number of interview questions was also depended on the extent to which the Markor survey presented noticeable outcomes per individual and if observational findings had to be incorporated in the each person’s interview.

Interviews have been taken one by one and during at least two sessions to assure that all subjects from the research model were addressed properly. During the interviews, a notebook was used to process the feedback immediately. After two weeks, these notes were drawn up in detail and verified with each of the respondents to make sure the answers were correctly interpreted.

Surveys sent to business relations and customers

With the aim to assess the level of satisfaction of both customers and business relations with regard to their contact and relationship with company X, two surveys were executed. Anonymous surveys were sent to 15 customers which are currently active and nine business relations. Through these surveys, valuable information on the demand and expectations of customers and business relations would become visible as well. A comparison of the perceptions of employees of company X and the experience and expectations of business relations and customers with regard to the company, could provide supporting arguments for the conclusions on the implementation of the three behavioral components of market orientation within company X.

Customers

The decision was made to only survey Dutch customers and business relations with whom company X was in contact with or sold products to in the six months previous to the moment the survey was sent. Of the total of 29 customers, only 17 are Dutch and two of them have not placed an order for the past six months, which resulted in a Dutch sample size of 15 customers. Because of the fact that of the 12 customers situated in foreign countries (only five are German and for seven the conversation language is English) only nine were active in the past six months. It was considered that just sending Dutch surveys would suffice and translation into German and English would not be executed.

Business relations

A ‘business relation’ for company X is a supplier of goods or services or an industry partner with whom company X frequently is in contact with. The first question of the survey reflects the

S.P. Adriaanse University of Groningen 16 nature of the business relationship, so in the end, the different visions could be distinguished. With regard to the sample size of the business relations, the same criteria with regard to the common used language was considered. Of the total of fifteen business relations company X is regularly in contact with, nine business relations use the Dutch language, what eventually formed the sample size.

Execution of the surveys

The customers as well as business relations were approached by e-mail and telephone respectively one-and-a-half and three weeks after sending the first request to solicit cooperation. In the end, seven customers responded, for a final response rate of 46,7% and seven business relations, with a final response rate of 77,8%.

The customer survey consist of fourteen questions, the survey for business relations nine. Questions contained propositions based on a seven point Likert scale (with anchors one: strongly agree and seven: strongly disagree), requests for grades or ranking and open questions. After processing the responses of both surveys in SPSS, the useful information and conclusions extracted from these surveys was compared with the outcomes of the internal analysis. The information led to recommendations towards the company’s offering and its internal organization’s appearance in chapter four.

Validity and reliability

For the qualitative research described above, the reliability and validity were taken into account. There are different criteria formulated to measure validity and reliability in a quantitative research, for example by Flick (2006). The interviews in this research were semi-structured, interview guidelines were used, the interview questions were clear to every respondent and the interviews were pre-tested with other persons than the respondents. A notebook was used during the interviews to process all responses immediately, and feedback was asked based on the worked out findings. Through a presentation of findings to all respondents their feedback was confirmed. Although it is difficult to measure reliability and validity in qualitative research, according to different criteria of Flick (2006) this research can be determined to be reliable and valid.

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4.

Results

In order to determine the Business Development Capability of company X, it was decided to analyze the implementation of the three behavioral components of market orientation within the company. In this chapter, the results from the case study at company X are discussed. The first paragraph 4.1. describes the market sensing of company X, followed by the intelligence dissemination in paragraph 4.2 and the last paragraph 4.3 discusses the responsiveness of the company to market intelligence.

4.1 Market Sensing

As discussed in chapter two, market sensing can be executed through a variety of informal and formal means by different functions within the organization. By sensing the market, expressed as well as latent customer needs could be distinguished. The way how the process of market sensing is organized within company X and the focus of the company on market sensing is discussed in this paragraph.

4.1.1 Practical implementation of market sensing

For a company to sense its market, a spirit of open-minded inquiry should be created according to Day (1999). Fortunately, from the beginning, company X was driven by creating product developments based on possible opportunities which appeared in the market. Currently, the same people still work for the company and continue to have an open mind towards the external environment, its opportunities and its threats. To what extent this open minded approach in practice contributes to the execution of the three market sensing activities, ‘market sensing’, ‘sense making’ and ‘reflection’ is discussed subsequently.

Market sensing

Within company X, market intelligence is generated through a variety of mainly informal means. The consulting of secondary sources is the most executed activity on this field. The consulting applies in form of the sales manager searching on the world wide web and glancing through Dutch magazines on the industry of product B. Since just the sales manager is actively sensing the market for interesting facts, developments and market changes, he exclusively has the opinion that enough information is collected. However, the fact that just one man solely senses the market through consulting secondary data sources, forms a threat for the company.

Other employees notice new facts about the market in their daily contact with business relations or customers, but are not particularly aimed at collecting market intelligence. The open mind of employees makes them curious, and by keeping their eyes open valuable information on competitors, partners and customers is collected. For example during visits at customers’ or

S.P. Adriaanse University of Groningen 18 suppliers’ plants, information on their procedures, processes, suppliers and complementary products is collected laterally.

There are four more ways how company X senses its markets. First, from the moment a customer comes into sight, customer specific data is obtained through meetings with this customer, which take place during the first start-up phase of the customer contact. Since company X acknowledged that customers’ demand generally is customer specific, but in most cases difficult to correctly define for the customer itself, seeking for real customer needs is important in this phase. Since technical product know-how and expertise is available among the salesmen of company X, they are able to make latent customer needs of a particular customer visible.

Next to this, once a year a simple customer satisfaction survey is sent to customers. The underlying reason for doing this for company X is to meet the ISO 9001 requirements. Unfortunately, the information derived from this survey currently is not determined valuable by company X’s employees. There never was serious time and effort spend in the development of the survey and the survey now is argued to be superficial. The six questions do not really give insight in the real critics, experience and demand of customers.

A fifth method of collecting market information is the contact with industry partners like suppliers of complementary goods. Meetings with industry partners take place several times a year and the frequency is particularly depending on the personal relationships between the contact persons. The sales manager, the managing director and the strategic manager all are in contact with partners on the strategic level that applies to each of their functions. In most cases, company X and partners are active in the same market and the intention is that interesting market information is shared. Although, currently the contact mainly offers expressed sales opportunities for each other’s products.

At last, all four employees are involved in the sixth market sensing activity. Interesting knowledge about the market is obtained through networking, in which especially the two main shareholders are involved. One has merely its contacts on a strategic level and obtains information for instance on long-term growth opportunities in the market, and the other more is in contact with other salesmen in the market of product B and discusses short-term and actual developments in available products, tools, and the market.

Apart from the methods of market sensing which are applied sufficiently by the company, three essential market sensing activities achieve no attention.

For instance, the careful analysis of rivals’ actions is an essential market sensing activity which implicates two actions. First, a company should make clear who its competitors are, and secondly, those competitors should be kept an eye on. Unfortunately, among the four employees

S.P. Adriaanse University of Groningen 19 of company X, there is a difference in opinion which actors in the market can be seen as the company’s competitors (see appendix eight).

Subsequently, the sensing of competition in the market generally forms part of the consultation of secondary data sources within company X and there is no specific competitor focus.

Secondly, no informative formal market research in form of assessing sales respond (in test markets) is executed. Also a serious and in depth customer survey and questioning of industry partners, with the aim to obtain comprehensive market knowledge, has never been accomplished. Mainly because there is no drive and support among employees of the organization to obtain this kind of information, because they have the feeling that they understand their customers and industry partners well and do not need more detailed customers’ response. In addition, it is noticed that activities concerning ‘active scanning of the periphery of the market’ and ‘seeking out latent needs’, as defined by Day (1999) have not been executed within company X more than impulsive and informally scanning the internet and magazines from time to time.

In addition, there are not enough dedicated systems or resources available within the company which could support the organization in determining how to distinguish meaningful signals from the external environment. As discussed in the next section, within company X, information is just informally and subjectively shared with colleagues to distinguish meaningful signals from noise. However, as noticed by Deshpandé (1999), the relatively simple analysis of sales reports and customer databases would provide valuable information to use as input for creating a plan for obtaining market intelligence. Unfortunately within company X, it appears that no sales reports or information from the customer database is used to determine the focus points of the company’s market sensing.

Sense making

As discussed in chapter two, the information that streams into an organization is interpreted by the one person who sees it first. Within the small company X, usually information is directly informally shared with at least one colleague to determine if it makes sense and if it is interesting to be further investigated or not. This has two effects. On the one hand, it is positive that at least one employee with a different vision is consulted to determine the relevance of the information and no time is wasted on further investigations previous to agreement of colleagues. On the other hand, whether or not the information is determined to be relevant for the moment or interesting for the future, further dissemination of this intelligence, which holds analyzing, documenting and sharing, sometimes is omitted because it already was disseminated to at least one colleague. At last, in general, no agreements are made, neither is documentation available with regard to what intelligence is searched for and how the intelligence found should be managed, what makes the sense making process subjective.