Reposted from the ELMAR list:
From: Stan Slater <
SSlater@bothell.washington.edu>
1. Objectives must be explicit and measurable. Extensive research by
Ed Locke and others has shown that explicit, measurable objectives
have a strong impact of effectiveness. Profit maximization has an
advantage in that measurement of success is easy. Success under the
market orientation is not so easy to measure.
Response: Organizational success in the market oriented business is
quite measurable. At a macro level, see Ken Matsuno and John T
Mentzer (2000), "The effects of strategy type on the market
orientation-performance relationship," Journal of Marketing, 64 (4),
1-16. They find that strategy type influences the relationship
between MO and ROI, sales growth, and new product success.
The Balanced Scorecard (Kaplan and Norton 1992) provides insight into
performance measurement at a micro level based on the financial,
internal, innovation, and customer perspectives. Eric Olson and I
("The Balanced Scorecard, Competitive Strategy, and Performance,"
Business Horizons, 2002, 45 (3), pp. 11-16) found that successful
adherents to the prospector, analyzer, differentiated defender, and
low cost defender strategies emphasized different intermediate
performance measures than less successful adherents to those
strategies. I suggest that this finding is applicable to market
oriented firms also.
2. The orientation's objectives must be relevant to the ultimate
objectives of the organization. When the stated objective departs
>From the ultimate objective (i.e., when it is irrelevant), it is
expected to be harmful. For example, we showed that when a firm's
objectives are to gain market share, long-term profits and survival
suffer. By this reasoning, I expect that mission statements and
visions are harmful, but this has not yet been studied. I am willing
to wager money on the outcome of a study on the detrimental value of
mission statements, especially when they are actually used.
Response: Pearce and David (1987), "Corporate Mission Statements:The
Bottom Line," The Academy of Management Executive, 1 (2), 109-115,
studied the relationship between the content of mission statements and
organizational effectiveness. Below is the abstract from that
article. While this study does not directly address Scott's concerns,
it is informative. [See also Kotter and Heskett, Corporate Culture
and Performance]
Abstract: A research instrument was mailed to the Fortune 500 firms to
determine if the corporate mission statements of the higher financial
performers differed from those of the lower performers, and 218
replies were received. Of these, 61 respondents supplied mission
statements. Higher performers were found to prepare written statements
for public distribution giving special attention to their corporate
philosophy on the firm's: 1. basic beliefs, values, aspirations, and
priorities, 2. desired public image, and 3. self-concept, including
competitive strengths. As a whole, the participating organizations'
mission statements contained certain elements that other companies are
advised to consider when developing their own documents: 1.
specification of target customers and markets, 2. identification of
principal products and services, 3. specification of geographical
domains, 4. identification of core technologies, and 5. commitment to
survival, profitability, and growth. In addition, the firm's executive
officers raised issues including basic questions of design,
composition, and development of mission statements.
3. Attempts to maximize the returns to only one of the stakeholder
groups would work reasonably well in a highly competitive market.
Profit maximization seems to be the most stable and successful of
these approaches and it holds up well when the market departs from
pure competition.
Response: Collins and Porras in "Built to Last" found that very few
"visionary" companies had profit maximization as an explicit goal.
This is because profit, the ultimate goal, is the product of success
on intermediate goals such as cycle-time reduction, customer
retention, and % of sales from new products. A focus on profits, just
as a focus on competitors, might lead to "economic short-termism" (see
Laverty (1996), "Economic "short-termism": The debate, the unresolved
issues, and the implications for management practice and research,"
The Academy of Management Review, 21 (3), 825-860).
4. Explicit attempts to use the stakeholder approach should be made.
Numerous, carefully done econometric studies have shown that this
improves profitability (the Mondragon studies) and reduces
irresponsibility (as shown in my study, "Social Irresponsibility in
Management"). In short, I expect the market orientation to lead to
poorer business performance than profit maximization or than
satisficing returns to stakeholders. On the other hand, the market
orientation should be superior to having no objectives or to having
missions/visions. [For more on this topic, see my JMR paper (in full
text) on"Competitor Orientation" in the Strategy and Planning section
at
http://jscottarmstrong.com .]
Response: Ths position seems to be equating a market orientation with
a competitor orientation. A cursory read of the literature will show
this is not the case. Market oriented firms are skilled at learning
about the articulated and unarticulated needs of their customers, and
at satisfying those needs in a way that is superior to how competitors
satisfy those needs. Customers are the primary stakeholder for
market-oriented businesses. Employees are treated well because they
are the customer value creators. Shareholders benefit because a
market orientation is valuable, rare, and difficult to imitate, the
necessary conditions for sustainable competitive advantage (i.e.,
superior customer value (Porter 1985)). Thus, a market orientation
benefits at least three stakeholder groups: customers, employees, and
shareholders.
Scott raises some important issues, many of which can be addressed in
a well-designed study. I hope that Scott, or someone else, picks up
the challenge.