Corporate Culture, Customer Orientation, and ...

Corporate Culture, Customer Orientation, and Innovativeness in Japanese Firms: A QuadradAnalysisAuthor(s): Rohit Deshpandé, John U. Farley and Frederick E. Webster, Jr.Source: Journal of Marketing, Vol. 57, No. 1 (Jan., 1993), pp. 23-37Published by: American Marketing AssociationStable URL: http://www.jstor.org/stable/1252055 .

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Rohit Deshpande, John U. Farley, & Frederick E. Webster, Jr.

Corporate Culture, Customer Orientation, and Innovativeness in

Japanese Firms: A Quadrad Analysis

"Quadrads" (double dyads) of interviews, each conducted with a pair of marketing executives at a Jap- anese vendor firm and a pair of purchasing executives at a Japanese customer firm, provided data on corporate culture, customer orientation, innovativeness, and market performance. Business performance (relative profitability, relative size, relative growth rate, and relative share of market) was correlated positively with the customer's evaluation of the supplier's customer orientation, but the supplier's own assessment of customer orientation did not correspond well to that of the customer. Japanese companies with corporate cultures stressing competitiveness (markets) and entrepreneurship (adhocracies) outperformed those dominated by internal cohesiveness (clans) or by rules (hierarchies). Successful market innovation also improved performance.

SEVERAL interconnected lines of recent conceptual thinking and empirical analysis relate mar-

keting management to overall business strategy. Three related developments indicate a need to integrate these lines of research.

First, managers are returning to the dictum of the so-called "marketing concept," with its call for customer orientation and innovation as the focus for all business planning and strategy. Several recent studies and articles document renewed management concern

Rohit Deshpande is Professor of Marketing and Frederick E. Webster, Jr., is E. B. Osborn Professor of Marketing, Amos Tuck School of Busi- ness Administration, Dartmouth College. John U. Farley is Director, Joseph H. Lauder Institute of Management & International Business, and Ira A. Lipman Professor, The Wharton School, The University of Penn- sylvania. The authors are indebted to the Marketing Science Institute for seed support of this project; to Procter & Gamble, Columbia Busi- ness School, and the Tuck Associates Program for financial support; and to the International University of Japan for administrative and financial assistance. George Fields and his staff at ASI, particularly Mari Iwaki, were instrumental in making the project work. The authors also express gratitude to Stewart Black and John Narver, who provided many helpful suggestions on a previous draft of this article.

Journal of Marketing Vol. 57 (January 1993), 23-27

for creating a customer-focused, market-driven enterprise (Houston 1986; Shapiro 1988; Webster 1988).

Second, the management literature is peppered with studies of organizational culture, often involving cross- national comparisons of American, European, and Japanese firms (Davis 1984; Deal and Kennedy 1982; Hofstede 1980). In the field of organizational behavior, rigorous theoretical analysis has been developed and applied to understanding organizational cultures (Ouchi 1980; Smircich 1983). Toward the end of the 1980s, the marketing discipline not only became aware of organizational culture as a field of study, but also began to develop a related research agenda (Deshpand6 and Webster 1989).

Third, there has been heightened interest in measuring and understanding business performance, especially as it relates to market share, product quality, sources of competitive advantage, and industry structure (Buzzell and Gale 1987; Porter 1980, 1985). Even more recently, marketing scholars have begun to ex- plore the intersection of the marketing concept and business performance (Jaworski and Kohli 1992; Kohli and Jaworski 1990; Narver and Slater 1990, 1991).

Quadrad Analysis of Japanese Firms / 23



The Marketing Science Institute has called for the needed integration of these three research streams by designating the understanding of customer-oriented organizations, including the underlying cultural factors, as one of four capital or highest priority research topics (Marketing Science Institute 1990). The fundamental question is whether customer orientation, as it relates to corporate culture and in concert with organizational innovativeness, has a measurable impact on business performance. The canons of the marketing concept assert that profit is a reward for customer orientation, which creates a satisfied customer, but we have only the beginning of systematic empirical doc- umentation of the presumed relationship (Jaworski and Kohli 1992; Narver and Slater 1990). Hence, to understand the impact and functioning of customer orientation, we should relate it to organizational innovativeness, with the analysis embedded within a framework of organizational culture.

We conducted a study on a representative national sample of major Japanese firms and their key customers, using a sampling method called a "quadrad" design, to examine the impact of culture, customer orientation, and innovativeness on business performance. This study makes three contributions: (1) it is the first empirical study to relate simultaneously the concepts of organizational culture, customer orientation, and innovativeness to business performance; (2) it demonstrates a unique sampling and analytical method that involves carefully matched dyad pairs (called "quadrads") of manufacturers and their key customers; and (3) it extends our emerging knowledge of customer orientation to non-U.S. firms, specifically to large Japanese businesses on which much current scholarly and practitioner interest has been focused (Kotabe et al 1991; Ohmae 1985).

Conceptual Background and Hypotheses

Culture, Customer Orientation, and Innovativeness The field of organizational behavior offers a considerable and very rich theoretical literature on corporate culture. We describe a conceptual framework grounded in this literature on culture that lends itself to the definition and measurement of specific cultural variables. We also summarize the less-developed literatures on customer orientation and organizational innovativeness. Additionally, we hypothesize relationships between each of these three variables and business performance. We turn now to the development and integration of concepts of organizational culture, customer orientation, and innovativeness that yielded the hypotheses explored in our study.

Organizational culture. Deshpande and Webster (1989) reviewed more than 100 studies in organizational behavior, sociology, and anthropology and defined organizational culture as "the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behavior in the organization" (p. 4). One insightful definition describes culture as "why things happen the way they do" versus organizational climate, "what happens around here" (Schneider and Rentsch 1988).

Using a framework proposed by Smircich (1983), Deshpande and Webster (1989, p. 9) reviewed five alternative theoretical paradigms for studying culture, each with unique marketing research implications. One such paradigm, organizational cognition, has been developed relatively more than the others in terms of formal conceptual framework, specification of variables, and operationalization of measures and is therefore the one used in our current study. This approach is based in cognitive organization theory (Weick 1985) and is analogous to the cognitive paradigm in much of consumer behavior research. This perspective on organizational culture focuses on managerial information processing and views organizations as knowledge systems. Such an information processing view of organizational functioning is very useful for understanding not only the culture of a firm, but also its customer orientation, because discussion of the latter has taken an implicit, if not explicit, organizational information processing approach (cf. Kohli and Jaworski 1990).

The applicability of such an organizational information processing perspective to understanding culture and specifically its relationship to marketing strategy is discussed by Webster and Deshpand6 (1990). They describe at some length the seminal work of Quinn and his colleagues (Quinn 1988; Quinn and McGrath 1985), who have proposed what is labeled a "competing values" model of organizational effectiveness. This model, which was first described in an award- winning article by Quinn and Rohrbaugh (1983), is based on an empirical analysis of the values individuals hold for organizational performance. By using a list of organizational effectiveness criteria developed by Campbell (1977), Quinn and Rohrbaugh found that clusters of values reproduced the dimensions developed by Jung (1923) to describe psychological archetypes. As Cameron and Freeman (1991) note, "Be- cause cultures are defined by the values, assumptions, and interpretations of organization members, and because a common set of dimensions organizes these factors on both psychological and organizational lev- els, a model of culture types can be derived." There has been substantial additional description of the competing values model and its consistency with the Jun-

24 / Journal of Marketing, January 1993



gian framework (Woodman and Passmore 1991). Ac- cording to this view, cultural information within organizations is interpreted by individuals in the context of their underlying archetypes (Mitroff 1983). More specifically, the competing values model identifies four cultural types based on the Jungian framework as identified in Figure 1, where the shared beliefs pertain to dominant organizational attributes, leadership styles, organizational bonding mechanisms, and overall strategic emphases.

As we can see in Figure 1, two key dimensions

define culture types. These key dimensions represent a merging of two major theoretical traditions from the organizational behavior literature, the systems-structural perspective (Van de Ven 1976; Zey-Ferrell 1981) and the transaction cost perspective, which is grounded also in economics (Williamson 1975). As Ruekert, Walker, and Roering (1985, p. 15) point out when they argue for a similar merging of these dominant organizational theory traditions, the weaknesses of each are com- pensated for by the strengths of the other. This is an argument that has also been developed in the work of

FIGURE 1 A Model of Organizational Culture Types'

ORGANIC

TYPE: Clan

DOMINANT ATTRIBUTES: Cohesiveness, participation, teamwork, sense of family

LEADER STYLE: Mentor, facilitator, parent-figure

BONDING: Loyalty, tradition, interpersonal cohesion

STRATEGIC EMPHASES: Toward developing human resources, commitment, morale

INTERNAL MAINTENANCE (smoothing activities, integration)

TYPE: Hierarchy

DOMINANT ATTRIBUTES: Order, rules and regulations, uniformity

LEADER STYLE: Coordinator, administrator

BONDING: Rules, policies and procedures

STRATEGIC EMPHASES: Toward stability, predictability, smooth operations

PROCESSES (flexibility, spontaneity)

TYPE: Adhocracy

DOMINANT ATTRIBUTES: Entrepreneurship, creativity, adaptability

LEADER STYLE: Entrepreneur, innovator, risk taker

BONDING: Entrepreneurship, flexibility, risk

STRATEGIC EMPHASES: Toward innovation, growth, new resources

EXTERNAL POSITIONING (competition, differentiation)

TYPE: Market

DOMINANT ATTRIBUTES: Competitiveness, goal achievement

LEADER STYLE: Decisive, achievement-oriented

BONDING: Goal orientation, production, competition

STRATEGIC EMPHASES: Toward competitive advantage and market superiority

MECHANISTIC PROCESSES (control, order, stability) 'Adapted from Cameron and Freeman (1991) and Quinn (1988).

Quadrad Analysis of Japanese Firms /25



Ouchi and Van de Ven (1980). As noted in Figure 1, one axis describes the continuum from organic to mechanistic processes, that is, whether the organizational emphasis is more on flexibility, spontaneity, and individuality or on control, stability, and order. The other axis describes the relative organizational emphasis on internal maintenance (i.e., smoothing activities, integration) or on external positioning (i.e., competition, environmental differentiation). The four resulting culture types are labeled clan, hierarchy, adhocracy, and market. These labels are consistent with much theorizing on alternative organizational forms and the use of similar terms by scholars including Williamson (1975), Ouchi (1980), and Mintzberg (1979). They are also consistent with the descriptors used in previous studies of changes in cultures over organizational life cycles (Quinn and Cameron 1983), a study of effective leadership types in organizations (Quinn 1984), and the organizational frameworks proposed by Bennis (1973) and by Mitroff (1983).

The lower right quadrant, called a market culture, emphasizes competitiveness and goal achievement (Cameron and Freeman 1991). Transactions are gov- erned by market mechanisms (Ouchi 1980). The key measure of organizational effectiveness is productivity achieved through these market mechanisms. This culture type is in direct contrast to the set of values expressed in a clan culture (hence the terminology of a "competing values" approach). In the latter, the emphasis is on cohesiveness, participation, and teamwork. The commitment of organizational members is ensured through participation, and organizational cohesiveness and personal satisfaction are rated more highly than financial and market share objectives.

The upper right quadrant, called an adhocracy culture, emphasizes values of entrepreneurship, creativity, and adaptability. Flexibility and tolerance are important beliefs and effectiveness is defined in terms of finding new markets and new directions for growth. The competing set of values is found in the hierarchy culture, which stresses order, rules, and regulations. Transactions are under the control of surveillance, evaluation, and direction. Business effectiveness is defined by consistency and achievement of clearly stated goals.

It is important to note that these culture types are modal or dominant ones rather than mutually exclu- sive ones. By implication, most firms can and do have elements of several types of cultures, perhaps between product groups even within the same strategic business unit (SBU). However, over time, one type of culture emerges as the dominant one. (The process of such culture development and subculture conflict is discussed in detail by Deshpande and Webster 1989.) Also, an SBU might not have a consistent culture type. That is, it might be a market type on leadership style

and clan type on strategic emphasis. More discussion of this issue is provided in the Method section.

The four classifications of culture developed here imply varying degrees of business performance in a competitive marketplace. The market culture, char- acterized by its emphasis on competitive advantage and market superiority, is likely to result in the best business performance. At the other extreme, we would expect a hierarchical culture, with its emphasis on predictability and smooth operations within a bureaucratic organization, to contribute to relatively unsat- isfactory business performance. Also, given the focus in an adhocracy culture on innovation, entrepreneurship, and risk-taking, we would expect it to have better market performance than a clan culture, in which loyalty, tradition, and emphasis on internal maintenance could lead to a lack of attention to changing market needs. In a more general sense, the organizational emphasis on external positioning over internal maintenance is likely to be associated with stronger performance. Hence:

H,: Business performance is ranked from highest to low- est according to type of organizational culture as follows. Best market culture

adhocracy culture clan culture

Worst hierarchical culture

This hypothesis must be tempered with an understanding of our premise about environmental complexity. Much theorizing in the contingency theory school of organizational behavior argues that HI would hold true only under conditions of high environmental complexity-uncertainty due to turbulence, rapidity of change, and so on (Lawrence 1981). However, our assumption is that such conditions increasingly char- acterize our current world. In fact, more than 10 years ago, two organizational behavior theorists stated: "Many practitioners and theorists believe that organizations are operating in more complex environments than ever before . . . Consider, for example, the multiple and conflicting goals of most organizations; the growing environmental constraints, regulations, and opportunities confronting organizations; the increasing sophistication of technology and the tasks to which it is put; and the many partisan groups involved in the strategic issues that confront top managers of today's complex organizations" (Van de Ven and Joyce 1981, p. 1) Arguably, this observation is even more true today, as Achrol (1991) points out.

We must note also that HI and the literature we cite to support it are grounded in corporate culture rather than in national culture. Though there is clearly a Jap- anese national culture (i.e., nationally shared values and beliefs), because the sample used in our study




consists of Japanese firms only, we would expect to find substantial corporate culture differences within the overall national culture context. In fact, several authors have suggested that there are significant differences in values held by Japanese managers in different firms (Lincoln and Kalleberg 1990), with a diverse variety of cultural types referred to as bureaucratic, vitalized, clans, hierarchical, and Theory Z being prevalent (Hatvany and Pucik 1981; Kono 1988; Ouchi 1981; Sullivan 1983).

Customer orientation. Like culture, customer orientation has been given little empirical study despite great attention to the concept from marketing scholars. Kohli and Jaworski (1990) point out that discussion of customer orientation (or the term they use, "market orientation") has been within the context of implementing the marketing concept. The latter is a taken-for-granted fundamental principle in marketing practice and, perhaps for this reason, has seldom been examined empirically. In fact, the area of marketing implementation itself has received little empirical attention (Walker and Ruekert 1987), especially on the critical linkage between strategic planning and marketing execution (Day and Wensley 1988).

Kohli and Jaworski's description of customer orientation centers on an organizationwide generation and dissemination of, and responsiveness to, market in- telligence (p. 3). Narver and Slater (1990, p. 21) reinforce Kohli and Jaworski's conceptualization by defining a market orientation as "the organization culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business." However, they further distinguish the three behavioral components of a market orientation as being customer orientation, competitor orientation, and interfunctional coordination and argue that on average all three components are equally important. We note that the conceptual distinction made by Narver and Slater between a customer and a market orientation is not entirely consistent with the Kohli and Jaworski definition or with the terminology we develop in this article. More explicitly, we see customer and market orientations as being synonymous (with the term "market" defined in the conventional manner as the set of all potential customers of a firm; Kotler 1991) and hence distinguishable from a competitor orientation, which Narver and Slater define as meaning the "seller understands the short-term strengths and weaknesses and long-term capabilities and strategies of both the key current and the key potential competitors" (p. 21-22). We agree with Day and Wensley (1988), who conclude that effective marketing strategy requires a balanced mix of customer and competitor analysis. Indeed, we argue that a competitor

orientation can be almost antithetical to a customer orientation when the focus is exclusively on the strengths of a competitor rather than on the unmet needs of the customer. Narver and Slater's third behavioral component, interfunctional coordination (defined as the coordinated utilization of company resources in creating superior value for target customers), is entirely in keeping with the central essence of a customer orientation (as Kohli and Jaworski also argue) and hence should be part of its meaning and measurement.

All of this discussion takes us to a more formal definition. We define customer orientation as the set of beliefs that puts the customer's interest first, while not excluding those of all other stakeholders such as owners, managers, and employees, in order to develop a long-term profitable enterprise. We see customer orientation as being a part of an overall, but much more fundamental, corporate culture. Hence a simple focus on information about the needs of actual and potential customers is inadequate without consid- eration of the more deeply rooted set of values and beliefs that are likely to consistently reinforce such a customer focus and pervade the organization.

However, the evaluation of how customer oriented an organization is should come from its customers rather than merely from the company itself. This point is a critical one. A substantial body of literature on customer satisfaction has developed that reemphasizes the need to look at the firm through the eyes of its customers because they are likely to define problems, and hence solutions, differently (Bolton and Drew 1991). One objective of our research is to compare self reports with customer reports on customer orientation to test whether they are related and whether either is significantly related to business performance.

On the basis of the assertions of the marketing concept, customer orientation should have a favorable impact on business unit performance, and presumably this should be true regardless of whether customer orientation is measured in terms of the perceptions of the supplier/seller or those of the customer. Most authors approach customer orientation as an element of corporate culture from the vantage point of the seller (Kohli and Jaworski 1990; Narver and Slater 1990). Hence:

H2a: The marketer's self-reported customer orientation is related positively to business performance.

H2b: The marketer's customer orientation, as reported by customers, is related positively to business performance.

Recognizing that customers' and marketers' perceptions may not agree, even though they should (in the normative sense implied by the marketing concept), we offer an additional set of hypotheses:

H3a: Marketer's and customers' perceptions of the marketer's customer orientation agree.




H3b: The customers' perception of the marketer's customer orientation is more important than the marketer's own perception in explaining the marketer's business performance.

The latter hypothesis is based in part on Drucker's (1954) comment that marketing is not a specialized activity, but rather "the whole business seen from the point of view of its final result, that is, from the customer's point of view" (p. 39) This statement implies that a customer's perception of how customer oriented a firm is will be more critical for successful business performance than the seller's own perceptions. In fact, a discrepancy between customers' and seller's perceptions of how customer oriented the latter is could reveal fundamental problems about a lack of touch with the market. This situation is considerably more dan- gerous when a firm mistakenly believes it is customer oriented (and hence does nothing to rectify its situation) than when it does not (and hence tries to do better).

Organizational innovativeness. Peter Drucker was one of the first scholars to state the marketing concept (Webster 1988). In an often-cited passage, Drucker (1954) wrote: "There is only one valid definition of business purpose: to create a customer. ... It is the customer who determines what the business is ... Because it is its purpose to create a customer, any business enterprise has two-and only these two- basic functions: marketing and innovation" (p. 37). Though an increased interest has emerged in concep- tualizing and measuring the marketing concept, little attention has been devoted recently to Drucker's second "basic function," innovation. Yet in a separate literature, that of diffusion of innovations, scholars have noted the importance of organizations' being innovative (Rogers 1983). Much of this literature focuses on innovativeness as a dependent variable, presuming it to be important and worthy of study. Increasingly, however, scholars 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). This issue is important because, as Capon, Farley, and Hoenig (1990) have stated, the relationship between organizational factors such as innovativeness and business performance has not been studied adequately. Hence, our final hypothesis is:

H4: The more innovative the firm, the better its performance.

In each of the hypotheses we allude to "performance," but have not formally defined the term as we use it here. Though this point is taken up more explicitly in the operationalizations section that follows, we are using the term to mean global output measures such as share of market, profitability, growth rate, and

size of a business in relation to its most significant competitors. We realize that there are several alternative meanings of "performance" (including long vs. short term, financial vs. relationship building, and so on), but our purpose in this study is to begin an exploratory investigation of the relationship between the more central constructs of culture, customer orientation, innovativeness, and such global performance rather than to delve into the admittedly richer nuances of performance. We say more about the term in our suggestions for future research.

Method The Unit of Observation: The Quadrad The substantial literature on the appropriate units of analyses in organizational buying behavior leads to two major conclusions. First, more than one key infor- mant within an organizational unit is needed to develop reliable measures of organizational constructs (Moriarty and Bateson 1982). This point is particularly important for us because we are working with some new constructs and operationalizations. Second, the organizational buying behavior literature also stresses the crucial importance of the dyad-that is, measurements of both buyer and seller-so as to ex- plore the extent of agreement about theoretical constructs (Weitz 1981). The latter is especially salient in our study because of our hypotheses relating to customer orientation.

Interestingly, we were unable to find many studies in which both major conclusions were implemented- that is, in which more than one respondent was interviewed in both the buyer and seller organizations. The method we describe in this article involves an analysis of a matched set of buyer-seller pairs. Some researchers have attempted to poll both buyers and sellers, but have used separate analyses of buyer and seller samples rather than such a matched-dyads approach (Anderson and Narus 1990). Hence, we refer to our sampling unit as a "quadrad," that is, the com- bination of two buyer-seller dyads. The data used in our analysis come from 50 such quadrads, each constructed from a set of four interviews, two from a supplier and two from a customer firm of that supplier. For reasons described previously we believe that the quadrad approach, though much more time-consuming and extremely expensive to complete successfully, al- lows for much greater specificity in measurement.

Sample The sample of 50 firms selected for personal interviews represents a random nth-observation sample of firms publicly traded on the Nikkei stock exchange in Tokyo. Two marketing executives in a single business




unit of each firm were interviewed in their offices by professional interviewers from a Japanese commercial market research firm. Both executives were asked to respond to survey questions in the context of the same specific product/market situation (hereafter referred to as a "business"). Divisional rather than corporate marketing executives were chosen because of their greater familiarity with their customers and hence the likely reliability of their self reports (especially on customer orientation). Each respondent was asked to name up to three important customers. The two lists were assembled and a customer was chosen at random. Two purchasing executives at the chosen customer firm were interviewed. If two such interviews could not be arranged, another firm on the customer's list was selected randomly and the interviewing procedure was repeated. (Though 60 firms originally par- ticipated, 10 observations did not provide a complete set of explanatory measures and were excluded from analyses). Hence, our analysis is based on 50 sets of four interviews per set (i.e., 50 quadrads). This sampling technique is cumbersome and by economic ne- cessity constrains the total number of collectable observations, but it enables us to report on one of the few nationally representative samples of firms in Ja- pan, where gaining access to the kind of information described here is far from easy.

Questionnaire Development The original questionnaire was prepared in English and translated into Japanese by a Japanese-American lan- guage instructor. The Japanese questionnaire was back- translated by the research staff of a major Japanese university and modified for meaning. It was then ed- ited and pretested by the Japanese professional market research organization that conducted the field work.

Operationalizations The operationalizations of the three explanatory constructs (culture, customer orientation, and innovativeness) as well as the performance measures involving the development of scales are listed in the Appendix with the actual questions used for each. The culture scale was adapted from Cameron and Freeman (1991) and Quinn (1988). The customer orientation scale was developed for our study on the basis of extensive qualitative personal interviewing, a detailed survey of available literature (including the work of Kohli and Jaworski 1990 and Narver and Slater 1990), and pre- testing in a small sample of firms. Hence the measures we use are very consistent with those used by Narver and Slater (1990) as well as the conceptual discussion by Kohli and Jaworski (1990). The innovativeness scale, adopted from Capon, Farley, and Hulbert (1988), contains both market measures and strategy measures as suggested also by Capon et al.

(1992). We used the average of the two relevant re- sponses within the quadrad in each case to build the scales (i.e., the accepted approach used in organizational sociology studies, viz, Hage and Aiken 1970). We did so only after examining the extent of the view- point variance problem (Heide and John 1990). On all measures there was a significant correlation (at the .05 or better level) within the dyad pairs (i.e., supplier 1 and supplier 2 or customer 1 and customer 2).

Table 1 gives the validated constructs and their properties. Measure validation was performed in two distinct steps. First, items developed for each construct were examined for internal validity. Items with low item-to-total zero-order correlations were reviewed for their theoretical importance and deleted if they tapped no additional, distinct domain of interest. Second, scale reliability was measured by the Cronbach alpha coefficient and items were deleted as necessary to purify scales if a distinct theoretical domain was already being adequately measured. As can be seen in Table 1, all reliability coefficients but one are above .65, thus adequately meeting the standards for such research (Nunnally 1967). Though clan culture has a lower reliability coefficient, it was retained in the analysis for theoretical purposes because it is part of the broader conceptual framework described previously (Cameron and Freeman 1991; Quinn 1988).

Performance was measured by combining four self- evaluations, on a three-point scale, of profitability, size, market share, and growth rate in comparison with those of the largest competitor for that particular business (i.e., the specific product/market situation being described by the respondents). The scales used were grounded in PIMS study measures (Buzzell and Gale 1987; Kotabe et al. 1991). The performance scale had a Cronbach alpha of .90. The firms were divided into good and poor performers by a median split, with ties at the median assigned to the high performance group.

Results Means of the culture, customer orientation, and innovativeness scores are reported in Table 1. It is interesting to note that though the predominant self-reported culture type is a clan, a fact which is consistent with most popular writing about Japanese organizations (Florida and Kenney 1991), all four types of culture are well represented in the sample. Further, in all cases the self-reported cultures of individual firms contain some elements of more than one culture type, so we are considering matters of degree rather than clear prototypes. In particular, these Japanese firms, though tending to be clans, also show strong elements of market culture. This finding might be expected from the work of Sullivan (1983), Hatvany and Pucik (1981), and others, who have noted a considerable diversity




TABLE 1 Measures

Means' Cronbach Low High

Scale No. of Items a All Performers Performers S.D. Culture

Market 4 .82 106.1b 92.3 110.8 37.4 Adhocracy 4 .66 78.9b 72.5 85.0 26.4 Clan 4 .42 117.0 124.0 114.4 28.8 Hierarchy 4 .71 100.9b 111.9 91.0 31.4

Customer Orientation As evaluated by supplier 9 .69 32.5 32.3 32.3 3.3 As evaluated by customer 9 .83 32.1b 31.0 32.7 3.2

Innovativeness 5 .85 17.8b 16.9 18.7 2.9 "Numbers are summations of the four individual components for each culture type. bSignificant univariate difference between high and low performance firms.

in both structural and cultural forms in Japanese organizations that is seldom mentioned in more popular writing. Five of seven measures have significant differences for high and low performers-three of four culture scales, the customer orientation measure provided by the customer, and the innovativeness scale. The two measures not significantly different for high and low performers are the clan culture scale and the marketers' self-rating on customer orientation. We say more about each of these results subsequently. The results in Table 1 are not significantly different by major industry classifications of consumer goods, industrial goods, and services, or by the extent of participation in international business.

The Discriminant Function

We used a discriminant function to classify high and low performers (the binary performance variable discussed previously) on the basis of culture, customer orientation, and innovativeness. This approach also enables us to make meaningful managerial conclusions about the nature of our findings. Table 2 shows the correlation of each explanatory variable with the discriminant function-essentially the partial correlation of each variable with the performance index.

The results are consistent with the analysis of the means reported in Table 1, but in a ceteris paribus sense.

Culture. The coefficients of the four culture types order as expected, supporting Hi. Market cultures are associated with the best performance, followed by adhocracy cultures. Both clan and hierarchical cultures are associated with poor performance, the latter being worst as hypothesized. The univariate tests are significant for the market and hierarchical cultures and the others barely miss being significant because of the relatively small sample size.

Customer orientation. The marketers' customer orientation as reported by customers is related positively to business performance (H2b) and the customers' perceptions are significantly more important than the marketers' own perceptions (H3b). In fact, there is only weak agreement (correlation of .17, p < .13) between the customers' and the marketers' perceptions of customer orientation, so H3a is not sup- ported. The extremely low correlation between the marketers' perceptions and performance (.00, p < .988, Table 1) also leads to rejection of H2a.1

'It is interesting to speculate on whether clan cultures have greater

TABLE 2 Makeup of the Discriminant Function

Pooled Within-Group Correlations of Function and Independent Variable P-Value for Univariate F-Test

Culture Market .48 .046 Adhocracy .39 .102 Clan -.28 .239 Hierarchical -.56 .021

Customer Orientation Measured from customer .52 .031 Measured from producer .00 .988

Innovativeness .52 .034




Innovativeness. Organizational innovativeness is related positively to performance per H4. It is interesting to note that this relationship, along with that of customer-reported customer orientation and performance, is the second strongest in magnitude (.52, Ta- ble 1), reinforcing Drucker's notion that a customer focus and innovation should be the raison d'etre of any business. (The strongest coefficient in magnitude is for the negative relationship between hierarchical culture types and performance, a result on which we comment in the Discussion section.)

Classification

Overall, the discriminant function classified 70% of the firms correctly into the two performance groups. This outcome is significantly better than chance on the basis of the proportional chance criterion (Morrison 1969), which predicts 52% correct classification. Us- ing a single-observation U-method holdout jackknife procedure (Dillon 1979), we found that 66.7% of the omitted observations were correctly classified, again significantly better than chance.

Given the small sample size of 50 quadrads (though they do represent 200 individual respondents), we believe these results are strong, especially the correct ordering of culture types in terms of business performance. The results for customer reports of market orientation and for innovativeness are also strong and consistent with our hypotheses. The surprise, contrary to our expectations but important for its implications, is the lack of a relationship between customer reports and self reports of customer orientation.

Discussion Implications for Research Our research was designed to evaluate the relationships between corporate culture, customer orientation, innovativeness, and business performance. We have begun the empirical phase of our work with an ex- amination of Japanese businesses because of the opportunity to gather data in that country, where empirical access for marketing scholars has historically been difficult. Though the focus of our study is on corporate rather than national culture, Japan also provided the opportunity to examine these relationships in a setting where one would expect a strong national background culture to be operating. Future research of this kind based on data from American or European companies will enable marketing scholars to compare and contrast findings from different national cultures.

consistency on customer orientation (because they have a strong belief in consensus-oriented management). Because of sample size limita- tions, however, we are unable to look at within-culture-type customer orientation. This is clearly a question for future research.

The results for culture types as determinants of business performance are very encouraging. Firms with cultures that are relatively responsive (market) and flexible (adhocracy) outperform more consensual (clan) and internally oriented, bureaucratic (hierarchical) cultures. Though the results are not significant for clan cultures (perhaps because scale reliability was lower than that for the other measures), they are significant for all the others and all (including those for clan cultures) are in the expected direction and order. In fact, the finding of highest performance for market cultures is given some credence by recent suggestions that the oft-heard Japanese injunction of gambatte ("try harder, persist") might explain the dogged perseverance of some Japanese firms in the face of strong competition (Holberton 1991). Several examples can be found, such as Sony continuing to push its 8mm video format despite the competition from VHS manufacturers JVC and Matsushita, and the competitively oriented corporate slogans of market leaders such as toiletries manufacturer Kao ("kill Procter & Gamble"), earth- moving equipment manufacturer Komatsu ("encircle Caterpillar"), and Canon ("best Xerox"). Indeed, the market culture finding suggests the global universality of a competitive corporate culture that might tran- scend a more consensually oriented national culture. This issue is a promising avenue for future empirical research.

The findings on culture types are also theoretically consistent with the competing values model from which the conceptual framework was derived (Quinn 1988). More specifically, it is interesting to see that the competing values of the market culture outperformed those of the clan culture (in the diagonally opposite quadrant in Figure 1), and those of the adhocracy culture outperformed those of the diagonally opposing hierarchy culture. In Jungian terms (Jung 1923), this pattern is an illustration of a dominant and a shadow side to the culture of any organization with each competing for attention at any given time, a point also made by Mitroff (1983) in his cognitive view of organizational knowledge systems. There is clearly great opportunity for further research on this topic by exploring the conflict between dominant cultures and subcultures-an argument well articulated by Gregory (1983) in her discussion of native-view paradigms and multiple- culture confrontations.

As Drucker (1954) suggested, we found that customer orientation and innovativeness are also key determinants of business performance, even after we control for culture. Simply put, customer-oriented and innovative firms do perform better, a basic assertion of the marketing concept. However, we found that Japanese managers' reports of their companies' extent of customer orientation are not related to business performance and have no significant relationship to their




customers' appraisals of the marketer's customer orientation. Indeed, it is the customer's assessments that affect business performance, and in the predicted direction. Two interesting possibilities should be tested in future research. One is that the strong national consensus culture in Japan (Florida and Kenney 1991) may make it difficult for some managers to be self-critical on a matter as important as customer orientation. If so, we might expect to find a stronger correlation between customer and self reports of customer orientation in American or European firms.

The other possibility is that national differences may not be important; rather, managers in general may not have a good sense of their firm's own customer orientation. In that case, one could question whether a corporate culture that espouses basic values and beliefs relating to the importance of customer orientation is by itself a contributor to business performance. Some of our results support such a possibility. Because customer orientation is a theoretical construct that is distinct from each of the four culture types, relatively good customer orientation appears to be achievable under a variety of cultures and, conversely, a particular type of culture may not necessarily facilitate customer orientation. Reasoning based on the assertions of the marketing concept creates an expectation that customer orientation would be stronger in market and adhocracy cultures. We found no such relationships in our data from Japanese firms.

On a technical level, the data requirements for research on these issues are very demanding. We have shown that self reporting on such matters as customer orientation is potentially insufficient, so data from customers are required. Similarly, because customers cannot be expected to profile suppliers' cultures clearly, data from suppliers are also needed. If we couple these requirements with the need for reliable measures on both the supplier and the customer sides, we find that we need a complex and expensive research design such as the quadrad design used in this study.

That "customer-oriented" or "market-driven" firms are successful is often taken as a matter of faith. Of course, such orientation is a matter of degree, as no firm can ignore customers completely, and complete customer orientation in the view of the customer is probably neither achievable nor economically desir- able (Narver and Slater 1990). However, many marketing managers are uncertain how customer oriented their firms really are-a fact demonstrated by the in- ability of our sample of suppliers to assess accurately how their customers feel about the matter. Van de Ven (1990) has stressed the importance of accurate market feedback to the general success of the firm, and we have indication here of relatively inaccurate feedback. Many marketing managers are also uncertain about what kinds of change and what types of orga-

nizational culture might be needed to achieve a more customer-oriented posture; external goal orientation and creativity (which do not necessarily go together) are cultural characteristics that seem to favor customer orientation, and they require top management commitment to achieve. Finally, other manifestations of customer orientation, such as successful product/service innovation, may be more important to success than internal culture or orientation, which may be more facilitative than causative. These matters clearly war- rant future research.

Future research in this area might also employ a more varied set of measures of business performance. As Ruekert and Walker (1990) note, different competitive strategies often have different performance objectives and hence high SBU performance on one dimension may involve a tradeoff of lower performance on another dimension.

Implications for Practice Given the exploratory nature of our research, our suggestions for practice are necessarily speculative and hence briefer than our suggestions for future research. First, we confirm the conclusion that performance is a complex, multicausal matter that depends on internal factors of the organization as well as strategy. In other words, there is no "quick fix" for performance. The best performers would have a market culture and be both highly customer oriented and innovative. Merely having a market culture or being highly customer oriented or being innovative does not alone produce best performance. Poor performers are uninno- vative, internally oriented bureaucracies. Various other combinations produce intermediate-level performance.

The inconsistency between self-reported and customer-reported perceptions of customer orientation is troubling for practice. Marketing managers seem unaware of how their customers really see them in relation to other firms. In several cases, customers perceive their suppliers as being less customer- focused than their competitors (or at least less so than the suppliers see themselves). The same is true when customers perceive a supplier firm as not existing primarily to serve them or not using routine measures of customer service. These trends are especially troubling for two key reasons. First, Japanese firms are purported to be more customer oriented than competitors in the U.S. or Europe. Hence we expected a much higher degree of supplier/customer agreement on extent of customer orientation. Second, in our research design, customer identification was on a selective basis by the supplier; customer respondents were identified by their suppliers during interviews. One therefore might naturally expect a subtle bias favoring customers who are happier with the suppliers' ser-




vices over those who are not. Yet it was precisely this subset of customers who thought some of their suppliers were less customer oriented than the suppliers thought themselves to be. Further, it is well known that both trade and end-user customers in Japan expect very high standards in product quality and customer service. Our results indicate that such high expectations are not being uniformly met and that marketers are not fully aware of that fact. The implications are clear. Companies need to do a much better job of self assessment. In each case, self evaluations of customer orientation should be accompanied by customers' rat- ings on the same measures. This point is particularly important because managers in firms that believe they are doing an excellent job of being customer oriented might stop doing the kinds of things necessary to im- prove in that area. Hence, such customer evaluations of customer orientation should be institutionalized as part of a regular tracking mechanism. Further, simply collecting such information does not automatically mean that it will be used. Several studies have suggested that aspects of organizational design (especially flat- ter, more decentralized structures) and information presentation format lead to greater utilization of stra- tegically critical, yet politically threatening, information (cf. Deshpande 1982; Deshpande and Kohli 1989; Deshpande and Zaltman 1984).

The findings on corporate culture also suggest that Japanese firms that have become the leaders in their respective businesses have done so in part because their cultures are very different from the national consensus- oriented, clan-type culture. To more perspicacious observers of Japanese businesses, this should come as no surprise. Decades of global competition have clearly shaped a sense of competitiveness and also a drive to be flexible and responsive to changing market conditions. We do not know whether the most successful

global companies (of whatever national origin) tend to have market or adhocracy cultures, but we can state that firms that are currently competing with such Jap- anese firms need to understand their operating corporate cultures. It would clearly be a strategic error for executives in a large French telecommunications company, for instance, to assume that because of a purportedly hierarchy type of culture their competitive counterparts in Japan would keep referring back to established, traditional rules and procedures and would insist on stable, smooth operations. Rather, the Jap- anese firm is likely to be much more entrepreneurial in bent and flexible in tone. It is likely to be contin- uously investing in innovation and development and its executives are likely to be risk-takers rather than being risk-averse. Such characteristics would make for not necessarily more formidable competition, but rather competition on a playing field where the rules are different. This point is reinforced by our finding that the customer orientation, culture type, and innovativeness characteristics hold for both domestic as well as international Japanese firms.

Our finding that innovative firms tend to be the better performers is particularly interesting given his- torical descriptions of Japanese companies as being long on technology adaptation but short on technology innovation. Our sample does not appear to fit this ste- reotype. Certainly there are Japanese firms that are not market and technological pioneers, but they tend not to be the market leaders. The leaders are firms that are first to market their products and services and are also at the cutting edge of technological innovation. If our admittedly small sample affords any indication, the Sony Corporations of tomorrow will increasingly be the prototypical leaders whose substantial investments in R&D contribute to their leading share of global markets in a variety of industries.

Appendix Measures and Operationalizations

Customer Orientation The statements below describe norms that operate in businesses. Please indicate your extent of agreement about how well the statements describe the actual norms in your business.

1 Strongly Disagree

2

Disagree

3 Neither Agree Nor Disagree

4 5

Strongly Agree Agree

Instruction: Answer in the context of your specific product/market or service/market business 1. We have routine or regular measures of customer service. 2. Our product and service development is based on good market and customer information. 3. We know our competitors well. 4. We have a good sense of how our customers value our products and services.

Quadrad Analysis of Japanese Firms /33



5. We are more customer focused than our competitors. 6. We compete primarily based on product or service differentiation. 7. The customer's interest should always come first, ahead of the owners'. 8. Our products/services are the best in the business. 9. I believe this business exists primarily to serve customers.

[These same items were used with customers with the first-person pronoun replaced by "the supplier," which was identified at the beginning of the interview.]

Culture [The four culture scores were computed by adding all four values of the A items for clan, of the B items for adhocracy, of the C items for hierarchy, and of the D items for market. The results, reported in Table 1, can therefore equal more or less than 100, which would be the result only if respondents distributed points equally on each question. The scale was adapted from Cameron and Freeman (1991) and Quinn (1988).]

These questions relate to what your operation is like. Each of these items contains four descriptions of organizations. Please distribute 100 points among the four descriptions depending on how similar the description is to your business. None of the descriptions is any better than any other; they are just different. For each question, please use all 100 points. You may divide the points in any way you wish. Most businesses will be some mixture of those described.

1. Kind of Organization (Please distribute 100 points) (A) My organization is a very

points personal place. It is like an ex- for A tended family. People seem to

share a lot of themselves.

(C) My organization is a very points formalized and structural place. for C Established procedures generally

govern what people do.

2. Leadership (Please distribute 100 points) (A) The head of my organization

points is generally considered to be a for A mentor, sage, or a father or

mother figure.

(C) The head of my organization points is generally considered to be a for C coordinator, an organizer, or

an administrator.

3. What Holds the Organization Together (Please distribute 100 points) (A) The glue that holds my or-

points ganization together is loyalty and for A tradition. Commitment to this

firm runs high.

(C) The glue that holds my or- points ganization together is formal for C rules and policies. Maintaining

a smooth-running institution is important here.

4. What Is Important (Please distribute 100 points) (A) My organization emphasizes

points human resources. High cohe- for A sion and morale in the firm are

important.

(C) My organization emphasizes points permanence and stability. Ef- for C ficient, smooth operations are

important.

points for B

points for D

points for B

points for D

points for B

points for D

points for B

points for D

(B) My organization is a very dynamic and entrepreneurial place. People are willing to stick their necks out and take risks.

(D) My organization is very production oriented. A major concern is with getting the job done, without much personal involve- ment.

(B) The head of my organization is generally considered to be an

entrepreneur, an innovator, or a risk taker.

(D) The head of my organization is generally considered to be a

producer, a technician, or a hard-driver.

(B) The glue that holds my or-

ganization together is a commitment to innovation and development. There is an emphasis on being first.

(D) The glue that holds my or-

ganization together is the emphasis on tasks and goal ac- complishment. A production orientation is commonly shared.

(B) My organization emphasizes growth and acquiring new resources. Readiness to meet new challenges is important.

(D) My organization emphasizes competitive actions and achievement. Measurable goals are important.




Innovativeness [The innovativeness scale was constructed from the items used by Capon, Farley, and Hulbert (1988) to describe organizational innovativeness.] In a new product and service introduction, how often is your company:

First-to-market with new products and services Later entrant in established but still growing marketsa Entrant in mature, stable marketsa Entrant in declining marketsa At the cutting edge of technological innovation

Performance Relative to our businesses' largest competitor, we are:

(1) Less profitable Larger Have a larger market share Are growing more slowly

(2) About equally profitable About the same size About the same market share Are growing at about the same rate

(3) More profitable Smallera Have a smaller market sharea Are growing faster

"Reverse scored in construction of the scale.

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Always 5 5 5 5 5



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