Implications of market orientation on the environmental transformation of industrial firms

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a v a i l a b l e a t w w w. s c i e n c e d i r e c t . c o m

w w w. e l s e v i e r. c o m / l o c a t e / e c o l e c o n

ANALYSIS

Implications of market orientation on the environmental transformation of industrial firms Óscar González-Benito⁎, Javier González-Benito Universidad de Salamanca, Spain

AR TIC LE I N FO

ABS TR ACT

Article history:

This article examines the role of industrial firms' market orientation as a moderator of the

Received 29 July 2005

economic–ecologic conflict. Specifically, the authors consider the effect of industrial firms’

Received in revised form

market orientation on perceptions of the environmental pressure exerted by stakeholders and

16 June 2006

the environmental practices implemented in response to that pressure. Because market

Accepted 6 July 2006

orientation is related to the collection and assessment of and response to opportunities and

Available online 27 October 2006

threats, market orientation should act as a driver of perceptions of and responses to environmental pressures exerted by stakeholders. An empirical analysis of a sample of

Keywords:

Spanish industrial firms shows that market orientation is linked to more intense perceptions

Business environmental

of pressure from nongovernmental stakeholders. However, the results are not conclusive with

transformation

respect to the relationship between market orientation and the intensity of the response to

Environmental management

environmental pressures characterized by the implementation of environmental practices.

practices

© 2006 Elsevier B.V. All rights reserved.

Market orientation Stakeholder environmental pressure

A recent trend characterizing business management has been the adoption of environmental practices, or changes to processes and products that make them less detrimental to the natural environment. Environmental regulations have forced many such advances, but firms also may go further and take a proactive position based on the potential that environmental transformation offers for competitive advantage and improved performance (Porter and van der Linde, 1995; Russo and Fouts, 1997; Sharma and Vredenburg, 1998; Menguc and Ozanne, 2005). Gangadharan (in press) refers to two common explanations for such compliance, or even overcompliance, with environmental regulations, namely, an incentive to avoid being inspected frequently and an interest in prompting regulatory authorities to set higher standards for the whole industry to increase rivals' operating costs. However, additional arguments underlie environmental proactivity and are not linked to the role of regulatory institutions. First, a better allocation of resources may lead to

greater efficiencies. Second, as a result of the growing ecological commitment of consumers and society, environmental practices may enhance the reputation and image of proactive firms. Third, unselfish motives may determine proactive environmental transformation, such as the ethical motivations of managers, owners, and shareholders in relation to the environmental sustainability of business activity (Bansal and Roth, 2000). These antecedents of environmental practice implementation can be labelled, respectively, regulatory forces, competitive advantage, public concern, and top management commitment (Banerjee et al., 2003). Thus, the role of the stakeholders is of key importance to environmental transformation, because they can impose significant pressures on firms to adopt environmental practices (Henriques and Sadorsky, 1999; Buysse and Verbeke, 2003). Public opinion pressures firms to implement environmental practices through selective shopping, ecological

⁎ Corresponding author. E-mail address: [email protected] (Ó. González-Benito). 0921-8009/$ - see front matter © 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2006.07.012

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organizations, media, regulatory institutions, and so forth. Such pressure also may be transmitted by financial institutions, suppliers, owners, and other shareholders, who are guided by the possible advantages derived from environmental transformation or by their environmental commitment. Furthermore, the adoption of environmental practices by competitors can constitute a source of pressure. Recent research recognizes these important influences and suggests that stakeholders should be closely involved in the development of public environmental policies (Santos et al., in press), specifically: “the more [stakeholders] feel that they have a voice in decisions affecting them, the more likely they will comply with the new requirements.” Therefore, the implementation of environmental practices is linked closely to a firm's perception of and response to environmental pressures from stakeholders; it depends on the firm's effort to track the trends and circumstances surrounding its business environment and then develop a coordinated response to the observed opportunities and threats. Because both tracking and response have been attributed to marketoriented firms (Kohli and Jaworski, 1990), market orientation should act as a driving force behind the perception of and response to environmental pressure from stakeholders. That is, market orientation should set the cultural and operational bases for greater sensitivity to environmental pressures and more committed reactions to that pressure. The aim of this article is to analyze empirically the role of market orientation in the perception of and response to environmental pressures exerted by stakeholders. We hypothesize that market-oriented firms perceive stakeholders' environmental requirements more intensely and adopt environmental practices when those practices represent an opportunity to meet stakeholders' expectations. That market orientation enhances the perception of and response to environmental pressure from stakeholders involves two important implications. First, the growing trend toward market-oriented cultures and behaviors in business contributes to economic–ecological harmony as consumers, stakeholders, and society in general become more environmentally committed and demand increased environmental practices in their economic activities. Second, because market orientation usually relates to better performance, in that it helps the firm develop a successful segmentation and differentiation strategy (Narver and Slater, 1990; Pelham and Wilson, 1996), this contribution to performance should be manifested in environmental strategies. In other words, environmental transformation could be an organizational process underlying the relationship between market orientation and business performance. The subsequent text is structured in four sections. First, we develop the research hypotheses and justify them with a review of relevant literature. Second, we briefly describe the methodology of the empirical analysis; third, we interpret and discuss the results. Fourth, we offer and summarize our main conclusions.

1.

Theoretical framework and hypotheses

Because the notion of market orientation relates to the adoption of the “marketing concept” as a business philosophy, it may be defined as an organizational culture (Slater and

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Narver, 1994). Specifically, a market orientation comprises a set of beliefs that places the customer's interest first to develop a profitable organization in the long term (Deshpande et al., 1993). Alternatively, market orientation also may be defined as the set of activities, processes, and behaviors derived from implementing a marketing concept (Kohli and Jaworski, 1990). These two approaches are not opposite but rather reconcilable (Matsuno et al., 2005). That is, culture leads to behavior, and behavior then constitutes the basis for the progressive development of culture. In any case, a market orientation must involve the whole organization (Webster, 1992). From a methodological point of view, the operational approach predominates over the cultural approach (GonzálezBenito and González-Benito, 2005; Mason and Harris, 2005). Most scales proposed in the literature measure the implementation of specific activities and processes rather than the attitudes and beliefs held by executives. The operational conceptualization proposed by Kohli and Jaworski (1990) and empirically formalized by the MARKOR scale (Kohli et al., 1993) has been widely accepted, and even those scales that have been developed from a cultural approach, such as the MKTOR of Narver and Slater (1990) and the DFW of Deshpande et al. (1993), concentrate on measuring operational aspects (for a further discussion, see Deshpande and Farley, 1998a,b; Narver and Slater, 1998). The importance of a market orientation depends on its presumptive positive effect on market position, long-term viability, and performance, though empirical evidence in support of these effects remain inconclusive (Langerak, 2003; Tse et al., 2003; Rodríguez-Cano et al., 2004; González-Benito and González-Benito, 2005). As an organizational resource, a market orientation can lead to a competitive advantage through greater understanding of consumer needs and competitors’ actions, as well as the development of coordinated and adaptive competitive strategies (Hunt and Morgan, 1995). In other words, a market orientation establishes cultural and operational bases for developing and implementing competitive strategies that are adapted to the circumstances in which the firm is involved. We focus on a specific aspect of a firm's competitive strategy, environmental management, which we define as the adoption of practices that reduce the harmful effect of business activities on the natural environment. Primarily, we attempt to clarify the effect of a market orientation on a firms' adoption of environmental practices that are congruent with the circumstances in which they are involved. Understanding the role of market orientation in environmental management requires specific analyses of behavior related to market orientation. Kohli and Jaworski (1990) propose a classification of market orientation activities according to three sequential purposes: intelligence generation, intelligence dissemination, and responsiveness. Intelligence generation refers to the collection of relevant information from the firm's environment, whereas intelligence dissemination pertains to the distribution and sharing of information across different departments within the firm. Finally, responsiveness reflects the use of this information to develop and implement strategies that have been adapted to the opportunities and threats present in the external environment. We focus on both ends of this sequence, that is, the potential to understand the environment as well as the potential to respond to it. Both represent key

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factors in developing a successful environmental transformation, in that the former leads the firm to a capability to perceive environmental pressures from stakeholders, and the latter enables it to react to this pressure by implementing adequate environmental practices. Activities related to intelligence generation center on understanding consumers and competitors (Narver and Slater, 1990), though some researchers insist on a broader interpretation of this concept that extends its scope to all stakeholders (Greenley and Foxall, 1997, 1998). This broader conception goes further than traditional notions of market orientation and highlights that the screening of consumers and competitors logically should extend to the whole environment and the stakeholders that compose it. Because managers have specific orientations toward each of their stakeholder groups, Greenley et al. (2005) suggest the concept of a multiple stakeholder orientation profile, in which a marketing orientation might be interpreted as a profile focused on the market. In focusing on employees as a stakeholder group, Gounaris (2006) points out that an internal marketing orientation, or the extent to which a firm commits to produce value for its employees by effectively managing relations among them, supervisors, and management, does not hamper a focus on consumers and market orientation. On the contrary, these types of orientation are complementary because customers' encounters with service personnel heavily influence their satisfaction; therefore, employee satisfaction leads to customer satisfaction. In summary, market orientation can be, and often is, extended to a broader stakeholder orientation. We define stakeholders as individuals or groups that can affect a company's performance or are affected by a company's actions (Freeman, 1984). Clarksson (1995) distinguishes between primary stakeholders, or those without whose participation and support the organization cannot survive (e.g., customers, shareholders, suppliers, employees), and secondary stakeholders, who affect and are affected by the organization but are not engaged in transactions with it or essential for its survival (e.g., media, nongovernmental organizations). Governments and other regulatory agents appear within the group of primary stakeholders as a subcategory, the public stakeholder group. Alternatively, in the field of environmental management, Henriques and Sadorsky (1999) distinguish among regulatory stakeholders (e.g., governments, trade associations), organizational stakeholders (e.g., customers, suppliers, employees, shareholders), community stakeholders (e.g., nongovernmental organizations, social groups), and the media. Furthermore, Buysse and Verbeke (2003) distinguish between external (e.g., customers, suppliers) and internal (e.g., employees, shareholders, financial institutions) stakeholders within the primary stakeholder group. Environmental pressures exerted by stakeholders may be due to growing environmental commitments among consumers (Drumwright, 1994; Mainieri and Barnett, 1997), who then perceive value in the adoption of environmental practices during the production, distribution, and design of products and services (De Ron, 1998), which in turn means environmental practices affect the reputation and image of the firm (Russo and Fouts, 1997). This pressure from consumers occurs directly through their own selective consumption or indirectly through other stakeholders concerned about

social welfare (e.g., nongovernmental organizations, government and other regulatory institutions, media). As pointed out by Brennan (2006), when consumers are willing to pay a premium for environmentally responsible manufacturing processes and products, public administrations face lesser necessity to develop environmental policies. Stakeholders concerned about the success of the firm (e.g., shareholders, financial institutions, suppliers) also transmit this social demand through to their own potential commitment to the environment (Bansal and Roth, 2000) or the possible consequences of the firm's perceived image on its economic performance. An additional incentive for those stakeholders worried about the performance of the firm results from possible efficiencies derived from a better allocation of resources (Porter and van der Linde, 1995) or reductions in liability costs, legal fees, or penalties (Christmann, 2000; Klassen and McLaughlin, 1996). The first underlying argument of this article posits that, because market orientation relates to the implementation of processes and activities related to intelligence generation, it implies a higher sensitivity to the demands and expectations of consumers and, from a broader point of view, of stakeholders in general. In particular, market-oriented firms should be more sensitive to the environmental pressure exerted by stakeholders. This straightforward rationale leads us to the following hypothesis: H1. Firms that are more market-oriented perceive more pressure from stakeholders regarding environmental issues than do less market-oriented firms. The market-oriented activities related to responsiveness to stakeholder pressures center on interfunctional coordination to develop and implement a strategy adapted to consumers, competitors, and stakeholders in general. As Kohli and Jaworski (1990, p. 6) note, “an organization can generate intelligence and disseminate it internally; however, unless it responds to market needs, very little is accomplished.” In this respect, Luo (2001) proposes that market orientation is a key organizational factor that determines firm responsiveness. Specifically, he finds that local market orientation is positively associated with local responsiveness of the subsidiaries of a multinational enterprise. Therefore, market orientation relates not only to sensitivity to the environmental pressure from stakeholders but also to an understanding of stakeholders' demands that enables the firm to develop and implement congruent environmental practices. Similar parallelism between market orientation and ecological orientation has been pointed out in the literature (Stone and Wakefield, 2000), in that an eco-oriented organization generates, disseminates, and responds to environmental information. Therefore, an environmental transformation in response to consumers and stakeholders in general can be considered a straightforward manifestation of market orientation specifically in the environmental context. The literature also distinguishes between two extreme positions in the environmental transformation of firms: environmental reactivity, which is typical of companies that implement minimal compulsory changes to meet regulations, versus environmental proactivity, or companies that voluntarily take measures to reduce their impact on the environment

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(e.g., Hunt and Auster, 1990; Roome, 1992; Winsemius and Guntram, 1992). Many articles study environmental proactivity and argue it is a complex construct manifested through different practices whose combinations then give rise to different environmental strategies (e.g., Aragón-Correa, 1998; Sharma and Vredenburg, 1998; Henriques and Sadorsky, 1999; Christmann, 2000; Alvarez Gil et al., 2001). Several researchers indicate the importance of stakeholder pressures for the development of proactive environmental strategies (Winsemius and Guntram, 1992; Jennings and Zandbergen, 1995; Fineman and Clarke, 1996; Maxwell et al., 1997; Berry and Rondinelli, 1998). According to Freeman and Liedtka (1991) and Clarksson (1995), an organization can be thought of as a system of stakeholder groups, and its survival and success depend on its capacity to create value for these stakeholders by satisfying their demands and expectations. Some empirical evidence supports this conceptualization; for example, Henriques and Sadorsky (1999) find that environmental proactivity is associated with greater pressure from organizational and community stakeholders, whereas environmental reactivity relates to greater pressures from regulatory stakeholders and the media. Buysse and Verbeke (2003) observe that environmental proactivity may be better predicted by pressure from internal, primary stakeholders than that from external, primary stakeholders. However, these authors assert that their result emerges because their study sample consists of producers of intermediate products and involve scarce consumer contact. Alvarez Gil et al. (2001) also observe that the implementation of environmental practices in the hotel industry represents a response to greater stakeholder pressures. Finally, Klassen and Whybark (1999) include external stakeholder influence as a contextual variable measured by two constructs: public interaction, or the extent to which managers gather opinions from and provide environmental information to the public, and awareness of environmental regulation, which refers to the extent to which plant personnel are informed about environmental regulation and evaluated on their regulatory compliance. Both constructs show positive effects on the degree of environmental proactivity. The second underlying argument of our research is that, because market orientation relates to the implementation of responsive processes and activities, a market orientation implies a greater reaction to the demands and expectations of consumers and stakeholders. In particular, market-oriented firms should be more reactive to stakeholder environmental pressures and implement adapted environmental practices. We therefore propose the following hypothesis: H2. The relationship between perceptions of stakeholders’ environmental pressures and the implementation of environmental practices is stronger for more market-oriented firms than for less market-oriented firms.

2.

Methodology

We test our proposed hypotheses empirically with a sample of Spanish industrial firms. Three aspects are especially relevant with respect to the methodology: (1) data collection, (2) construct measurement, and (3) analysis methods.

2.1.

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Data collection

The population approached consisted of medium and large Spanish firms in three industrial sectors in which environmental performance is particularly relevant: (1) chemical (except for pharmaceutical firms), (2) electronic and electrical equipment, and (3) furniture and fixtures. Specifically, we consider firms with more than 100 employees from the 2002 Dun and Bradstreet census of the 50,000 largest Spanish companies. Of the 428 applicable firms, 156 were in the chemical sector, 211 in the electronic or electrical equipment sector, and 61 in the furniture sector. We collected data though a postal survey in which we sent the questionnaire to the production and operations managers of the firms, who generally play direct roles in the implementation of environmental practices (Gupta, 1994; Sarkis, 1995; Angell and Klassen, 1999; Inman, 1999). Therefore, these respondents possess key information about environmental practices. However, they also reside farther away from the market and external stakeholders than do other potential respondents, such as marketing managers, which could make them inadequate to provide information about market orientation and perceived environmental pressures. We still chose these managers as respondents because our questionnaire is designed to address extensive objectives related to the environmental transformation of firms, as well as the antecedents and consequences of such transformations. Moreover, because we concentrate on the influence of stakeholder pressures and market orientation on environmental transformation, we believe it logical to focus on managers who are closely involved with the implementation of environmental practices. Furthermore, It also seems logical to measure perceived market orientation and environmental pressure throughout the entire organization and survey managers who work in the operations core of the organization because we are interested in the perceived market orientation and environmental pressure that permeate the whole organization. Market orientation, as an organizational culture, should involve the whole organization (Webster, 1992; Slater and Narver, 1994), so if the market orientation does not reach the operations management of a firm, it does not possess an actual market orientation. Finally, prior research offers precedents for involving respondents other than marketing managers and chief executive officers (Baker and Sinkula, 1999; Homburg and Pflesser, 2000; Kahn, 2001; Dobni and Luffman, 2003; Lai, 2003), as well as for averaging or combining responses from marketing and nonmarketing managers (e.g., Jaworski and Kohli, 1993; Selnes et al., 1996; Wren et al., 2000). Because our respondents reside farther from the market and external stakeholders than, say, marketing managers, our measures of perceived market orientation and environmental pressure reflect perceptions that permeate the organization. We pretested our questionnaire to refine the contents, structure and wording. Then, in introductory telephone calls to the sample firms, we identified the production and operations managers and announced the impending arrival of the questionnaire, which we sent along with a cover letter and prepaid return envelope. Respondents also could complete the questionnaire electronically and return it via e-mail. A few days after we expected the

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Table 1 – Measurement of market orientation: internal consistency Cronbach's Mean S.D. alpha Behavioral/operational market orientation We continuously gather information about the trends of our target market We assess our environment and our competitors' strategies We collect information about our customers' satisfaction We use internal reports about the structure and trends of the market We regularly get into contact with marketing/sales managers to discuss the trends in the market We are promptly informed about any complaint or suggestion from our customers We frequently meet other functional units in order to anticipate a response to the changing environment Our strategies are based on market knowledge rather than on productive capabilities Our premise for new product development is customer satisfaction, instead of taking advantage of our productive capabilities Total explained variance: 49.0%

companies to receive the mailing, we telephoned those firms that had not replied. This procedure yielded 186 valid responses with respect to the data required for this study from 63 chemical firms, 96 electronic and electrical equipment firms, and 27 furniture firms. The response rate was 43.5% or 40.4%, 45.5%, and 44.3% for the chemical, electronic equipment, and furniture industries, respectively. The number of valid observations differs slightly for each measure employed in this research, and the number of complete observations is 182.

2.2.

Construct measurement

2.2.1.

Market orientation

Item-tototal correlation

Alpha if item deleted

Factor market orientation

0.867

2.2.2.

4.481

1.222

0.558

0.857

0.675

4.628 4.678 4.131

1.081 1.181 1.229

0.709 0.643 0.670

0.843 0.848 0.846

0.795 0.740 0.769

4.689

1.243

0.705

0.842

0.789

5.159

1.034

0.519

0.860

0.616

4.475

1.244

0.601

0.853

0.693

4.164

1.229

0.490

0.863

0.583

4.853

1.056

0.507

0.861

0.597

Environmental pressure

We measure environmental pressure by asking managers about the environmental pressure exerted by several stakeholder groups commonly considered in the literature (Clarksson, 1995; Henriques and Sadorsky, 1999; Buysse and Verbeke, 2003). Respondents used a six-point, Likert-type scale to indicate “not important–no pressure” to “very important–great pressure.” When we applied a principal components analysis, we determined two factors had eigenvalues greater than 1 and Table 2 – Measurement of stakeholder environmental pressure: factorial analysis Factor 1

We measure market orientation according to an operational perspective. Our multi-item scale reflects the degree of implementation of specific activities linked to market orientation and is based on the structure and scale proposed by Kohli et al. (1993). Specifically, managers scored the degree of implementation of nine practices on a six-point, Likert-type scale ranging from “not at all” to “to a great extent.” The first three items relate to intelligence generation, the next three to intelligence dissemination, and the last three to responsiveness. Because our respondents are production and operations managers, some items contrast the values of market orientation with an emphasis on productive capabilities and efficiency. We report the reliability analysis in Table 1; its results indicate unidimensionality according to the usual standards of internal consistency. For our subsequent analyses, we split the sample in half by distinguishing high and low market-oriented firms on the basis of the first factor derived from a principal components analysis. We provide the results of this analysis in Table 1 as well and note that the degree of market orientation reported by the overall sample is quite high. Therefore, when we refer to high or low market-oriented firms, we mean only that they are more or less market-oriented than other competing firms within the studied population.

Mean (S.D.) Governments and regulatory agents Customers/ consumers Suppliers Employees/ unions Shareholders Financial institutions Communities and social groups Nongovernmental organisations Competitors Media Total explained variance: 57.2%

Factor 2

Nongovernmental Governmental pressure pressure

4.99 (1.26)

0.357

0.774

4.11 (1.56)

0.623

− 0.224

2.42 (1.32) 3.39 (1.45)

0.716 0.740

− 0.247 0.197

4.48 (1.67) 2.55 (1.52)

0.630 0.739

− 0.199 − 0.247

3.34 (1.66)

0.738

0.154

2.82 (1.37)

0.694

0.331

3.34 (1.66) 3.18 (1.54)

0.719 0.748

− 0.322 0.121

Boldfaced entries denote the most relevant factor loadings for each variable.

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accounted for 57.20% of the variance. In Table 2, we show the structure matrix, in which all items except governments and regulatory agents load on the first factor. Therefore, we label the factors governmental and nongovernmental pressure. This result indicates that companies in the sample that perceive high pressure from one nongovernmental stakeholder also tend to perceive high pressures from other nongovernmental stakeholders. In particular, the pressure perceived to emanate from customers seems closely related to the pressure perceived to come from other nongovernmental stakeholders.

2.2.3.

Environmental practices

To measure environmental proactivity, we ask managers to score the degree of implementation of several environmental practices on a six-point, Likert-type scale ranging from “not at all; only what regulation requires” to “a great extent; it has been a priority for our company.” We selected the items on the

basis of previous research in the field of strategic (e.g., AragónCorrea, 1998; Henriques and Sadorsky, 1999) and operations (Wu and Dunn, 1995; Handfield et al., 1997; De Ron, 1998; Bowen et al., 2001; Sarkis, 2001) management. To identify the dimensions or strategies underlying the implementation of environmental practices, we applied a principal components analysis to the entire set of items. In Table 3, we depict the structure matrix, which reveals that four factors have eigenvalues greater than 1 and together account for 67.66% of the variance. Factor 1 pertains to practices related to the implementation of an environmental management system and probably the search for any type of environmental certification. Factor 3 refers to environmental operational practices related to product design. Factors 2 and 4 both reflect environmental operational practices related to process design, but factor 2 focuses on logistics and supply chain management, whereas factor 4 focuses on the internal processes of the

Table 3 – Measurement of environmental practices: factorial analysis Factor 1

Factor 2

Factor 3

Factor 4

Planning and organizational

Logistics processes

Product design

Internal production management

(1.71) (1.81) (1.59) (1.97)

0.788 0.863 0.814 0.810

0.233 0.243 0.167 0.170

0.224 0.165 0.241 0.199

0.303 0.240 0.268 0.110

3.74 (1.58)

0.745

0.276

0.269

0.271

4.25 (1.69)

0.727

0.207

0.305

0.266

4.50 (1.72) 4.24 (1.39) 3.97 (1.39)

0.712 0.331 0.374

0.137 0.058 0.262

0.391 0.739 0.702

0.205 0.245 0.284

3.76 (1.38)

0.330

0.330

0.750

0.179

3.44 4.70 3.64 3.82 2.26 3.97 3.75 3.79 5.34

(1.50) (1.26) (1.80) (1.62) (1.31) (1.41) (1.45) (1.59) (1.09)

0.210 0.241 0.650 0.132 0.245 0.091 0.154 0.268 0.172

0.372 0.256 0.404 0.617 0.665 0.620 0.606 0.410 0.078

0.691 0.604 0.250 0.251 0.189 0.464 0.471 0.355 0.153

0.091 0.303 0.143 0.303 0.078 0.093 0.220 0.134 0.736

4.98 (1.29) 4.58 (1.29)

0.329 0.348

0.138 0.326

0.229 0.137

0.754 0.664

4.37 (1.23)

0.271

0.316

0.236

0.683

4.02 (1.43) 3.45 (2.00) 2.26 (1.46)

0.212 0.615 0.349

0.574 0.494 0.649

0.115 0.117 0.077

0.412 0.182 0.066

3.33 (1.66) 3.23 (1.66)

0.457 0.548

0.421 0.573

0.308 0.207

0.160 0.236

Mean (S.D.)

Explicit definition of environmental policy Clear objectives and long-term environmental plans Well-defined environmental responsibilities Full-time employees devoted to environmental management Natural environment training programs for managers and employees Systems for measuring and assessing environmental performance Environmental emergency plans Substitution of polluting and hazardous materials/parts Designs focused on reducing resource consumption and waste generation during production and distribution Designs focused on reducing resource consumption and waste generation in product usage Design for disassembly, reusability and recyclability Preference for green products in purchasing Environmental criteria in supplier selection Shipments consolidation Selection of cleaner transportation methods Recyclable or reusable packaging/containers in logistics Ecological materials for primary packaging Recuperation and recycling systems Responsible disposal of waste and residues (separation and preparation) Emission filters and end-of-pipe controls Process design focused on reducing energy and natural resources consumption in operations Production planning and control focused on reducing waste and optimizing materials exploitation Acquisition of clean technology/equipment Periodic elaboration of environmental reports Sponsoring of environmental events/collaboration with ecological organizations Environmental arguments in marketing Regular voluntary information about environmental management for customers and institutions Total explained variance: 67.664%

4.53 4.30 4.45 4.06

Boldfaced entries denote the most relevant factor loadings for each variable.

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Table 4 – Relationship between market orientation and stakeholder environmental pressure Groups

Mean

Nongovernmental pressure High market 0.223 orientation Low market −0.216 orientation Total 0.004 Governmental pressure High market −0.000 orientation Low market −0.011 orientation Total −0.006

S.D.

ANOVA F

ANOVA Sign.

0.101 0.105

2.3. 9.119

1.002 0.005

Analysis methods

0.003

1.005

1.012

pany. Therefore, the four factors may reflect four dimensions by which environmental proactivity can emerge, namely, planning and organization, logistics processes, product design, and internal production processes.

0.943

1.004

company. Furthermore, factors 1 and 2 share some items related to communication practices, which is not surprising if we consider that (1) planning and organizational practices often reflect certification requirements, such as ISO14001, that are associated with a desire to publicize environmental consciousness and (2) process operational practices related to logistics and supply chain management require collaboration with other agents, in which case it becomes very useful to communicate environmental commitments outside the com-

We base our testing of H1, which refers to the relationship between market orientation and perceptions of stakeholder environmental pressures, on an ANOVA in which we compare the governmental and nongovernmental pressure factors across high and low market-oriented firms. We summarize the results in Table 4. To test H2, which refers to the role of market orientation in the relationship between stakeholder pressure and the implementation of environmental practices, we use multiple regression analyses, in which we relate the environmental practice dependent variables to the environmental pressure factors, high and low market orientation, and their interactions. We summarize the estimation results in Table 5. Specifically, we estimate three models for each dependent variable: Model 1 includes the environmental pressure factors as explanatory variables, model 2 adds high and low market orientation to the explanatory configuration, and model 3 integrates the set of independent variables with interactions between the constructs.

Table 5 – Market orientation and the relationship between stakeholder pressure and environmental practices Dependent variable Planning and organizational practices

Independent variables

Constant Nongovernmental pressure Governmental pressure High market orientation Interaction high market orientation × nongovernmental pressure Interaction high market orientation × governmental pressure R2 Test F Logistics processes practices Constant Nongovernmental pressure Governmental pressure High market orientation Interaction high market orientation × nongovernmental pressure Interaction high market orientation × governmental pressure R2 Test F Product design practices Constant Nongovernmental pressure Governmental pressure High market orientation Interaction high market orientation × nongovernmental pressure Interaction high market orientation × governmental pressure R2 Test F Internal production management practices Constant Nongovernmental pressure Governmental pressure High market orientation Interaction high market orientation × nongovernmental pressure Interaction high market orientation × governmental pressure R2 Test F

⁎p b 0.10; ⁎⁎p b 0.05; ⁎⁎⁎p b 0.01.

Model 1 Model 2 Model 3 − 0.002 .0144⁎ − 0.137⁎ – – – 0.040 3.739⁎⁎ − 0.005 .0393⁎⁎⁎ − 0.048 – – – 0.156 16.682⁎⁎⁎ − 0.002 0.117 0.039 – – – 0.015 1.372 − 0.003 0.186⁎⁎ 0.057 – – – 0.037 3.524⁎⁎

−0.174⁎ 0.103 −0.132⁎ 0.337⁎⁎ – – 0.064 4.042⁎⁎⁎ −0.124 0.371⁎⁎⁎ −0.051 0.232⁎ – – 0.169 12.034⁎⁎⁎ −0.197⁎ 0.085 0.026 0.393⁎⁎⁎ – – 0.054 3.394⁎⁎ −0.205⁎⁎ 0.144⁎ 0.056 0.408⁎⁎⁎ – – 0.077 4.959⁎⁎⁎

− 0.182⁎ 0.063 − 0.137 0.337⁎⁎ 0.076 0.006 0.056 2.454⁎⁎ − 0.130 0.333⁎⁎⁎ − 0.010 0.231 0.075 − 0.089 0.172 7.308⁎⁎⁎ − 0.210⁎⁎ 0.021 − 0.002 0.394⁎⁎⁎ 0.119 0.052 0.058 2.174⁎ − 0.163 0.378⁎⁎⁎ − 0.010 0.411⁎⁎⁎ − 0.449⁎⁎⁎ 0.156 0.131 5.300⁎⁎⁎

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3.

Results and discussion

The results in Table 4 indicate the significant positive relationship between perceptions of nongovernmental stakeholder pressure and the degree of market orientation (p b 0.01), in support of H1. That is, market-oriented firms perceive the environmental pressure exerted by nongovernmental stakeholders more intensely. The finding that all stakeholder pressures except governmental can be summarized as a unique factor reinforces our proposal that the role of market orientation should not be limited to pressures exerted solely by consumers and competitors. In contrast, Table 4 indicates no relationship between perceptions of governmental pressure and the degree of market orientation, which fails to support H1. Nevertheless, this result is not particularly surprising. The perception of pressure from governments and regulatory institutions usually does not depend on the predisposition of managers; instead, such pressures are directly communicated to the industry and translated into unavoidable guidelines and requirements as directives and laws that firms have no choice but to implement. In Table 5, model 1 contains a similar pattern with respect to the relationship between perceptions of stakeholder environmental pressure and the implementation of environmental practices, that is, significant positive relationships only between nongovernmental pressure and the adoption of some environmental practices. The higher the perception of nongovernmental stakeholder pressures, the greater is the implementation of environmental practices related to logistic and internal production processes ( p b 0.01, p b 0.05, respectively). A positive relationship also exists between nongovernmental pressure and planning and organizational environmental practices, though it is less significant ( p b 0.10). We find no relationship between nongovernmental pressure and product design practices. Reactions to stakeholder pressures prioritize internal production processes over product design processes. This result suggests stakeholder pressure emphasizes the harmful effects derived from manufacturing processes rather than those that occur because of the consumption of products. Governmental pressure does not have a significant effect on the implementation of environmental practices, except for planning and organizational practices, for which the effect is negative ( p b 0.10). Because our measures of environmental practices focus on the firm's degree of voluntary environmental transformation (i.e., environmental proactivity), reactions to governmental demands do not appear in our analysis. Moreover, the results imply that governmental pressures distract firms' attention away from proactive and toward reactive approaches, at least with respect to planning and organizational environmental practices. This latter finding falls in line with previous research. Henriques and Sadorsky (1999) find that the perceived importance of regulatory stakeholder pressure on firms with a proactive profile, in terms of their commitment to the natural environment, is lower than that for other, more reactive environmental profiles, such as accommodative profiles characterized by pragmatic approaches. Buysse and Verbeke (2003) report a similar result, in that they find no differences between the perceived importance of regulatory stakeholders

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for firms that adopt an environmental leadership strategy and those with a less proactive, pollution prevention strategy. However, other empirical results in the literature suggest a positive relationship between governmental stakeholder pressures and environmental proactivity. Rehfeld et al. (in press) find that the perceived importance of compliance with existing and future legal requirements for innovations enhances environmental product innovation at the expense of conventional product innovation. In addition, Klassen and Whybark (1999) determine that awareness of environmental regulation influences a firm to develop more proactive environmental transformations. Nevertheless, these latter empirical findings might be complementary, not contradictory, to our findings. That is, being aware of environmental regulations or the importance of compliance with legal requirements indicates not governmental pressures but rather a recognition of the benefits that may be derived from achieving compliance with legal recommendations and requirements. An explicit consideration of market orientation shows that it relates to the implementation of environmental practices. In other words, market orientation fosters those capabilities that lead firms to undertake environmental proactivity. The estimated parameters for a high market orientation in model 2 of Table 5 are positive and significant (at least p b 0.10), which suggests that high market orientation implies greater implementation of environmental practices, especially in product design and internal production management (p b 0.01). As both consumers and stakeholders become increasingly “green” (Drumwright, 1994), we posit that market-oriented firms will recognize this trend and respond through environmental transformation. The relationship between market orientation and environmental proactivity also emerges in the empirical study by Rehfeld et al. (in press), who find that when customer satisfaction is more important to competitive advantage, environmental product innovation occurs more often, compared with conventional product innovation. With regard to the different response patterns to perceived environmental pressure according to the degree of market orientation, we find no evidence of governmental pressure. As model 3 (Table 5) demonstrates, the interaction between governmental pressure and high market orientation is not significant; therefore, we find no support for H2 with regard to governmental pressure. With our attention therefore focused on nongovernmental pressure, which enhances proactive environmental practices, we find that the interaction between nongovernmental pressure and high market orientation (model 3, Table 5) is positive for planning and organizational, logistics, and product design practices. However, none of these results is significant, so we cannot claim support for H2. The only significant differences between high and low market-oriented firms occurs in the case of environmental practices related to internal production management. However, the observed pattern opposes that proposed in H2, such that the interaction between nongovernmental pressure and high market orientation is negative and highly significant. This result implies that low market-oriented firms respond more intensely to stakeholder environmental pressure and that a market orientation may distract firms from responding to environmental pressures in their internal production

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practices, which are less perceptible outside the firm. Therefore, H2 is not supported again. To explain this finding, we turn to the literature. Market orientation has been criticized because its focus on consumer satisfaction can lead firms to undervalue other functional areas, especially if the emphasis on consumer needs obviates the role of proactive innovation in comparison with adaptive innovation (e.g., Hayes and Weelwright, 1984; Hamel and Prahalad, 1994; Christensen and Bower, 1996; Connor, 1999). However, researchers have rejected the “tyranny of the market served” by arguing that market orientation also pertains to anticipating latent customers’ needs (Slater and Narver, 1998, 1999). In other words, the scope of marketing intelligence cannot be restricted to understanding current demand. Regardless of these conclusions though, the longstanding controversy highlights that a market orientation can cause firms to focus exclusively on the perceived value of their consumers and external stakeholders. Our finding supports this claim in the context of the environmental transformation of firms. In summary, the focus on responses to opportunities and threats that has been attributed to market orientation does not translate clearly into a stronger relationship between perceived environmental pressure and the implementation of environmental practices.

4.

Conclusions

We analyze the role of market orientation in the perception of and response to stakeholder environmental pressure among industrial firms. Most existing research conceptualizes market orientation with three components: collecting and assessing information about consumers and markets, disseminating information throughout the firm, and responding to the information by developing tailored strategies. This relationship between market orientation and firm endeavors to identify opportunities and threats, then use the information to develop response strategies, led us to believe that a market orientation fosters the perception of and response to environmental pressure. On the one hand, our empirical analysis of a sample of Spanish industrial firms shows that market-oriented firms perceive the environmental pressure exerted by nongovernmental stakeholders more intensely. Therefore, we argue that the emphasis on intelligence generation that characterizes market-oriented firms emerges particularly in the context of the environmental impacts. Moreover, because perceptions of nongovernmental environmental pressure are highly correlated, we propose that market orientation enhances perceptions of not only consumer and competitive pressure but also that exerted by other stakeholders. Furthermore, governmental pressure appears directly imposed on firms and usually evolves into norms and regulations, so a stakeholder orientation, implicit in a market orientation, does not relate to firms' perceptions of such pressure. On the other hand, our analysis does not provide evidence that market-oriented firms offer a greater response to stakeholder environmental pressures by implementing more environmental practices. Nevertheless, the observed response patterns suggest that market orientation emphasizes environ-

mental practices related to planning and organization, product design, and logistics at the expense of those related to internal production processes. That is, the responsiveness attributed to market orientation probably distracts firm attention away from internal production processes, likely because they are less perceptible from outside the firm. The relationship between market orientation and performance has been justified by the idea that a market orientation facilitates successful strategic management by detecting and anticipating opportunities and threats in the competitive environment. We demonstrate that an environmental strategy benefits from the intelligence generation component of market orientation, in that market-oriented firms are more sensitive to stakeholder environmental pressures. However, we cannot support the claim that an environmental strategy benefits from the responsiveness component of market orientation, because market orientation does not appear to drive the relationship between stakeholder pressure and environmental transformation. An additional and important conclusion is that high market orientation relates strongly to the implementation of environmental practices. Because recent years have been characterized by increased environmental concerns among consumers, this result implies that market orientation enhances firm adaptation to new trends. Market orientation appears to facilitate a recognition of new situations and the subsequent response. Whatever the differences in the perceptions of environmental pressures that come from stakeholders across firms, more market-oriented firms experience greater development in their implementation of environmental practices than less market-oriented firms. Market orientation therefore facilitates the fit between strategic management and stakeholder expectations in the context of environmental transformation. In particular, the emphasis of market orientation on long-term profitability (Narver and Slater, 1990) is compatible with improved environmental performance. Our research suggests that market orientation converges to a social marketing orientation, which prioritizes altruistic concerns about community welfare rather than the satisfaction of individual consumers, as long as stakeholders commit to social welfare and demand it from firms. Specifically, we posit that a market orientation fosters environmental proactivity to the extent that stakeholders go green. In other words, a market orientation moderates the economic–ecological conflict by enhancing the environmental transformation of industrial firms. Although we recommend additional research to support our findings in other contexts, our article provides a first exploratory attempt to approach this issue. Because we limit our empirical analysis to three Spanish industrial sectors, we strongly recommend additional evidence from different markets and sectors. In addition, it would be interesting to delve deeper into the problem by considering more sophisticated measures of the constructs. For example, researchers could break down the market orientation measurement into more specific measures of intelligence generation, intelligence dissemination, and response, which would offer a more detailed analysis of the consequences of a market orientation on the perception of and response to environmental

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pressures. Another important limitation of our study relates to our measurement of market orientation from an operative perspective. Existing scales quantify the degree of implementation and development for a set of practices and activities but not the quality and rigor of the implementation. In other words, we measure whether but not how well practices are carried out. This limitation might bias our results and should be supplemented with a consideration of an attitudinal/ cultural perspective, objective indicators, or perceptions from outside the firm. Finally, we uncover a relevant question related to the convenience of a market orientation for organizations: Are the positive consequences of a market orientation on performance founded on the development of an environmental strategy coherent with stakeholders' expectations? Further research should investigate whether the role of market orientation in the perception of and response to environmental pressures creates better performance.

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