MANAGEMENT LEADERSHIP BEHAVIOR AND MARKET ORIENTATION:

THE RELATIONSHIP AND THEIR EFFECTS ON ORGANIZATION EFFECTIVENESS AND BUSINESS

PERFORMANCE

Tung-Zong Chang, Metropolitan State College, USA

Su-Jane Chen, Metropolitan State College, USA
Jyh-Shen Chiou, National Chengchi University, Taiwan

ABSTRACT

While there is a general belief that top management plays an important role in the formation of a market-oriented culture,
little empirical work has been done to examine such effect. The present study investigates the impact of management
behavior on market orientation and collaboration between the management and the employees.

INTRODUCTION

Marketing concept and its implementation, market orientation, has been the foundation of modern marketing theories and
practices. The significance of customer and market orientation has been closely examined in the marketing and management
literature. One important factor that helps shape the formation of a market oriented culture is the way top management exerts
its influence on subordinates, or the management leadership behavior. Such influence can have fundamental impact on the
behavior of the subordinate and the subsequent management-subordinate relationship. The present study sets forth to
investigate how the management leadership behavior may affect market orientation and the management-subordinate
collaborative relationship as well as their effects on business performance.

CONCEPTUAL BACKGROUND AND RESEARCH PROPOSITIONS

Market orientation is considered an important element of organization culture. The main effect of market orientation has been
documented in marketing and management literature. Kohli and Jaworski (1990) and Sinkula (1994) indicate that market
orientation provides strong norms for information sharing and internal coordination among various functional areas. Siguaw,
Brown, and Widing (1994) show that market orientation significantly influences salespersons’ customer orientation and job
attitude. Kohli and Jaworski (1990) indicate that a strong market orientation leads to greater job satisfaction. In short, the
effect of market orientation on business performance has been reported in various marketing studies (e.g., Chang and Chen
1988; Narver and Slater, 1990; Van, Bhuian, and Kiecker, 2000).

How market orientation relates to various marketing constructs has also been examined. Based on a survey of 194
manufacturing companies with national and international operations, Lukas (1999) found that strategic types are
systematically associated with “characteristic degrees of and emphases in market orientation.” A strong relationship between
market orientation and service quality (Chang and Chen 1998) as well as customer satisfaction (Webb and Webster 2000) has
been reported. Van, Bhuian, and Kiecker (2000) provide evidence of a positive association between market orientation and
the professional commitment of the senior management team as well as organizational entrepreneurship. On the basis of a
sample of US manufacturing companies, Lukas and Ferrell (2000) shows that product innovation varies with market
orientation. Baker and Sinkula (1999) show that a firm's learning orientation is likely to indirectly affect organizational
performance by improving the quality of its market-oriented behaviors and directly influence organizational performance by
facilitating the type of generative learning that leads to innovations in products, procedures, and systems.

The management’s leadership behavior also plays an important role in the formation of a market-oriented work force and the
overall organizational culture. Organizational culture defines how employees behave and perform based on their
understanding of the acceptable and expected corporate behavior and perceptual norms. Day (1994) points out that
management leadership is needed to reshape the organizational culture, propose a challenging vision of the future, and set a
performance improvement target.

Deshpandé, Farley, and Webster (1993) view leadership as a key element that shapes corporate culture, whereas Slater and
Narver (1994) identify leadership as an important component of climate (defined as the operationalization of culture), which
is a critical element of a learning organization. Walker and Ruekert (1987) contemplate that a centralized organization is
unlikely to be innovative or quick to adapt to changing market conditions. Jaworski and Kohli (1993) stress that senior

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management’s emphasis on market orientation is an antecedent of the firm’s market orientation element. The management's
commitment and the corresponding reward system help to shape the market orientation of a firm.
Leadership research may be categorized into the trait approach, the behavioral approach, the situational approach, and the
power-influence approach (Higgins 1994; Yukl 1981). Among various leadership theories, the path-goal theory has been
studied in the previous marketing literature. The path-goal theory suggests that the four distinctive management leadership
behavior patterns, participative, supportive, directive, and goal-oriented, could be observed among corporate leaders (House,
1971; House and Mitchell, 1974). It is expected that a manager will demonstrate the four management styles to various
degrees.

Participative leaders allow the subordinate to influence decisions about his or her job to a large degree (Teas 1982). This
type of leadership behavior is analogous to participative management, in which subordinates share a significant degree of
decision making power with their superiors. A supportive manager creates a facilitative task environment of psychological
support, mutual trust and respect, and helpfulness and friendliness (Gibson, Ivancevich and Donnelly 1988; Daft 1988). A
directive leader provides specific directions to subordinate work activities by organizing and defining the task environment,
assigning the necessary functions to be performed, specifying rules, regulations, and procedures to be followed in
accomplishing tasks, clarifying expectations, scheduling work to be done, establishing communication networks, and
evaluating work group performance (Gibson, Ivancevich and Donnelly 1988). Finally, a goal-oriented leader focuses the
overall corporate effort on achieving the overall corporate and individual goals, allocates required resources, and empowers
employees to accomplish their goals. The present study examines management behavior based on the path-goal theory.

Organization Effectiveness and Management Leadership Behavior

Management leadership affects organization effectiveness in several areas. An immediate effect of management leadership
behavior is the collaboration between the management and employees. The collaboration between the management and
subordinates is essential in achieving superior business performance. Within a well-managed organization, top management
effectively communicates with its subordinates and establish consistency how the management and employees view their
goals (Goffee and Jones, 1998). As leaders accomplish goals throughout subordinates, it is imperative to both the
management and employees to share common goals.

Furthermore, top management develops a system that supports and rewards employees who succeed in achieving goals, and
in turn help the management achieve its goals. The employees’ sense of empowerment is expected in a market-oriented
organization with active employee participation in decision making. Top management realizes that it depends on subordinates
to achieve their specific goals so that it can achieve its goals. The subordinates understand that they need support from the
management so that they can have required resources to accomplish their goals. Both the management and subordinates
understand that they rely on each other to achieve their shared common goals. To gain such cooperation, it is imperative for
the management to establish an environment that foster trust. When employees perceive the top management as trustworthy
and dependable, they are more likely to express similar attitude toward the management.

Ultimately, the objective of the management is to create a corporate culture that the management and the subordinates share
common goals and depend on one another to accomplish those goals. Such congruence is important for an organization to
function optimally and utilize its resources efficiently. An effective leader will use a proper combination of the four
management styles to achieve close collaboration between the management and its employees. A culture of management-
subordinate solidarity can be achieved when the management and subordinates share common goals and depend on one
another to accomplish those goals (Goffee and Jones 1998). The strength of the common-goal relationship and the degree of
mutual dependency determine the strength of management-subordinate collaboration, which is important for an organization
to function optimally and utilize its resources efficiently.

Other factors of organization effectives include the amount of management-subordinate conflict, job satisfaction, job
switching intention. A successful leadership will work to reduce management-subordinate conflict, enhance job satisfaction,
and minimize job switching intention. We define organization effectiveness as a function of management-subordinate
collaboration, management-subordinate conflict, job satisfaction, and job switching intention.

The Research

We examine the relationships based on a model shown in the Figure. It is expected that management leadership has a direct
effect on market orientation and service quality, a performance measure. Market orientation has a direct effect on service

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quality. Both market orientation and service quality have direct effects on organization effectiveness and business
performance.

RESEARCH METHODOLOGY

A packet of survey questionnaire along with a cover letter was sent to respondents in a major U. S. metropolitan area. Each
respondent received a questionnaire along with a cover letter. On average, respondents completed the survey in about 15
minutes. The participation was voluntary. A return postage-paid envelope was attached with each questionnaire. Respondents
were asked to fill out the questionnaire at home and mail it back within one week. A total of 700 questionnaires were
distributed, resulting in 222 completed, valid responses (31.7% response rate). The sample comprises middle-level and
lower-level managers from a variety of industry sectors.

Churchill (1979) and Nunnally (1978) advocate the use of existing multi-item scales, which have been previously assessed
with adequate reported reliability and validity. Management leadership behavior was measured with self-reported perceptual
measures on a Likert scale conceptualized by House and Dessler (1974) with items assessing the four management leadership
styles. We examined market orientation with the two commonly accepted components, customer orientation and
interfunctional coordination with a modified eleven-item self-reported perceptual scale based on those items originally
developed by Narver and Slater (1990).

The management-subordinate collaboration was examined by the two components of common goal relationship and mutual
dependency, each measured by three items. The Likert scale, ranging from “strongly disagree” to “strongly agree,” was used
for all items. The other three organization effectiveness factors were each measured with one single item. Business
performance was measured by meeting revenue goal, subjective overall performance, profitability, and return on assets. All
performance measures are single-item self-report items. Service quality was measured by a modified SERVQUAL scale that
has been used to assess a general class of services along five dimensions: tangibility, assurance, responsiveness, reliability,
and empathy (Zeithaml, Parasuraman, and Berry, 1990).

RESULTS

Several exploratory factor analyses were conducted to confirm the dimensions of major constructs. The results showed that
management leadership has four distinctive factors as expected. The items also loaded on the expected factors. The four-
factor solution management leadership explains 64.0% of the variation, while a one-factor solution only explains 26.9% of
variation. The results confirm that management leadership is a multi-dimensional construct. The results of factor analysis on
market orientation showed that all eleven items loaded on a single factor, explaining 40.2% of total variation. Therefore, only
the aggregate measure of market orientation was included in the subsequent regression models. Service quality is also a
multi-item measure of business performance. A factor analysis revealed that the factor structure is congruent with those
found in previous studies (e.g., Cronin and Taylor, 1992).The reliabilities of study measures are supported by their respective
Cronbach alphas.

We first examined the effect of management leadership on market orientation. While management behavior has an overall
effect, individually, only the goal-oriented style shows a significant effect (p < 0.05). The effects of market orientation and
management leadership on service quality were investigated next. Market orientation was found to be one of the important
factors for influencing service quality of a company. Some of the management styles affect service quality directly. We then
scrutinized the effect of market orientation and service quality on organization effectiveness, which is measured by
collaboration, degree of perceived management-subordinate conflict, job satisfaction, and job switching intention.
Unexpectedly, market orientation promotes more conflict in the company. The tangibility component of service quality has
significant effect on job satisfaction; whereas reliability component of service quality has significant effect on job switch
intention. Empathy has a significant effect on collaboration. Overall, service quality has limited effects on organization
effectiveness. Next, we inspected the effect of market orientation and service quality on business performance. The results
showed that market orientation can significantly increase the chance of meeting revenue goal, subjective company
performance, and ROA. Assurance improves subjective company performance. Responsiveness and reliability reduce the
chance of meeting revenue goal. Empathy reduces subjective company performance.

To test the mediating effect of market orientation and service quality as suggested in the research framework, we examined
the effect of market orientation, service quality, and management leadership on organization effectiveness as well as the

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effect of market orientation, service quality, and management leadership on business performance. These results showed that
some of the leadership styles have direct effect on organization effectiveness and others have indirect effect (Tables 1 and 2).
Overall, market orientation and service quality behave as the mediators between management leadership behavior and
business performance. In other word, management leadership influences business performance through market orientation
and service quality.

DISCUSSION

The linkage between management leadership and market orientation is partially supported by the empirical data. Among the
four management leadership styles, only the goal-oriented style exerts significant effect on market orientation. This indicates
that setting goals and focusing on achieving goals play a very important role in the formation of a market-oriented workplace.
The effect of market orientation on business performance is strongly supported. Market orientation is found to be a mediator
between management leadership and business performance. Interestingly, market orientation seems to promote conflict, yet
enhances financial business performance.

A leader should be aware of the possibility that its management leadership behavior may have important effects on corporate
culture, including market orientation. And yet, such effects are subject to the influence of one’s culture. As many managers
consider marketing orientation as an integral part of their marketing operations, the absence of the goal-oriented management
behavior may hinder the push for being customer-oriented. The management may have to review and modify its management
behavior before it can effectively demand its subordinates to be more market-orientated.

Future research may further examine the linkage between management behavior and market orientation in various
companies, industries, and cultures. More replications are needed to establish an indisputable relationship. Future research
effort may be directed toward how various corporate factors influence a firm’s orientation toward the market and its
customers to gain more thorough understanding of the overall culture-performance model.

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TABLES & FIGURES

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