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The role of
Internal marketing and the organisational
mediating role of competences

organisational competencies 1221

Pervaiz K. Ahmed
Wolverhampton Business School, University of Wolverhampton,
Telford, UK
Mohammed Rafiq
Business School, Loughborough University, Loughborough, UK, and
Norizan M. Saad
School of Management, Universiti Sains Malaysia, Penang, Malaysia
Keywords Internal marketing, Organizational effectiveness, Organizational performance,
Surveys, Malaysia
Abstract The paper proposes and empirically evaluates a new internal marketing (IM)
implementation model as a framework for implementing marketing strategies. The paper proposes
the concept of IM mix or a set of controllable instruments inside the organisation that can be used
effectively to influence employees so that they are motivated and act in a customer-oriented fashion.
In the model organisational competencies mediate the relationship between IM mix and business
performance. Additionally, the model postulates that application of marketing-like philosophy and
marketing-like tools internally moderates the relationship between IM mix and organisational
competencies. All the major hypotheses were supported by the empirical research. In particular the
IM mix was shown to be a reliable measure and strongly related to business performance. The
research supports the view that organisational competencies mediate the relationship between the
IM mix and business performance.

Introduction
The literature on internal marketing (IM) is considerable and growing rapidly
(see for example Barnes, 1989; Berry, 1981; Collins and Payne, 1991; George,
1977, 1990; Grönroos, 1981, 1985; Piercy and Morgan, 1991; Piercy, 1995;
Sargeant and Asif, 1998; Varey, 1995), yet there is little systematic work on
how IM actually works in practice. The majority of the work on IM is of
conceptual nature. The IM concept has evolved from the original
conceptualisation of employee satisfaction/motivation by treating employees
as customers and jobs as products for improving service quality (Sasser and
Arbeit, 1976; Berry, 1981), to customer orientation/market orientation and the
use of marketing-like approach and marketing-like tools internally to motivate
employees (Grönroos, 1985), the use of IM for the implementation of external
marketing programmes (Piercy and Morgan, 1991), and the extension of IM to European Journal of Marketing
the implementation of any functional strategy (Rafiq and Ahmed, 1993). Vol. 37 No. 9, 2003
pp. 1221-1241
The existing empirical work concentrates mainly on levels of adoption of IM q MCB UP Limited
0309-0566
by organisations (Helman and Payne, 1995; Sargeant and Asif, 1998) or the DOI 10.1108/03090560310486960
EJM impact of IM programmes on service quality (Richardson and Robinson, 1986;
37,9 Tansuhaj et al., 1991). More recently a number of studies have examined
organisational commitment as an intervening variable between IM programmes
and service quality (Caruana and Calleya, 1998; Boshoff and Tait, 1996). One
study (Foreman and Money, 1995) has attempted to develop an IM scale.
There is also little clear empirical evidence of a positive relationship between
1222 IM practices and organisational effectiveness and organisational performance.
There is even less research examining the mechanics of this linkage. Therefore, it
is difficult to generalise about the extent to which the implementation of IM along
with related business strategies actually impacts organisational performance. To
bridge these gaps, this paper, unlike previous studies on IM, not only proposes,
but also develops and evaluates empirically the proposed IM implementation
framework in the Malaysian environment, in a non-services context.

Theoretical background
A limitation of existing IM research is that there is little agreement on what
mix of policies can be used effectively to influence employees so that they are
motivated and act in a customer-oriented fashion. However, despite a lack of an
implementation framework in the IM literature, a number of key elements of
what we term as the IM mix (or the controllable elements inside the
organisation that can be used to influence and motivate employees) can be
identified from the IM literature, including communication, training, education
and information (Gummesson, 1991); motivating and developing, educating or
training employees (Grönroos, 1985; Cahill, 1995; Foreman and Money, 1995;
Varey, 1995); and even attracting, hiring and retaining employees (Berry and
Parasuraman, 1991, Foreman and Money, 1995), i.e. functions traditionally
performed by human resources management (HRM). In addition, Foreman and
Money (1995) found that the three components of IM are rewards (rewarding
and motivating employees), development and providing a vision.
The literature indicates that existing HRM tools with a marketing
perspective should be used for IM. George and Grönroos (1989) clearly state
that IM is basically a philosophy for managing the organisation’s human
resources based on a marketing perspective. Tansuhaj et al. (1988, p. 32) have
specifically mentioned employee recruitment, training, motivation,
communication and retention efforts as part of the mix. They observe that:
Internal marketing incorporates a multifaceted focus on employee development. A
comprehensive internal marketing program is concerned with employee recruitment,
training, motivation, communication and retention efforts.
Grönroos (1985) goes further by urging that IM must also consist of a work
environment that will motivate employees to respond to management’s
demand. Grönroos (1985, p. 43) states that:
The internal product consists of a job and a work environment which motivates the
employees to respond favourably to management’s demand for customer-orientation . . .
Therefore, we can generalise that the IM mix may include the “soft” and the The role of
“hard” aspects of organisation. These two aspects of organisation, although not organisational
explicit in the IM literature, are widely implied as the tools for developing a competences
successful marketing programme.
Hence, implementing any business strategy internally requires the whole
range of HRM tools to be added what we term the IM mix (analogous to the
external marketing mix). The IM mix framework proposed in this study 1223
employs what Galpin (1997) calls “organisational influence systems”. Based on
the review of the IM literature and elements of Galpin’s organisational
influence system the elements of the IM mix used in this study are:
.
strategic rewards;
.
internal communications;
.
training and development;
.
organisational structure;
.
senior leadership;
.
physical environment;
.
staffing, selection and succession;
.
interfunctional co-ordination;
.
incentive systems;
.
empowerment; and
.
operational/process changes.
The elements of the influence system/IM mix are in the main self-explanatory.
However, it is worth noting the distinction between strategic rewards and
incentive systems. The distinguishing feature of strategic rewards is their
emphasis on motivating only those behaviours, actions and accomplishments
that help advance the organisation towards specific business goals (Hale, 1998).
Incentive systems refer to the basic payment systems used by the organisation
to help establish a company’s culture by rewarding the business activities,
behaviours, and values that senior managers want to encourage (Pfeiffer, 1998).

IM mix and organisational competencies

In the proposed model IM is a strategy that aims for the creation of
high-performance work systems by managing the interdependent elements of
the IM mix to create and achieve greater individual and organisational
competencies and ultimately influence business performance.
In the strategy field, there are two major paradigms that are used to explain
superior competitive advantage: the competitive forces view (Porter, 1980,
1985) and the resource-based view (Prahalad and Hamel, 1990). The dominant
paradigm is the competitive forces view. Proponents of this view argue that the
success of a company’s competitive strategy depends on the choice of a
EJM strategy that positions the organisation within its industry environment, so
37,9 that it can defend itself against competitive forces or influence them in its
favour. Such forces include: the bargaining power of suppliers and customers;
the threat of new entrants or of substitute products; and rivalry among existing
firms. Alongside this dominant and widely accepted paradigm another view of
performance has developed which is gaining increasing acceptance in the
1224 strategic management literature; the resource-based view. This view is based
on the idea that a firm performs well over time because it develops a
“distinctive competence” or “core competences” (Prahalad and Hamel, 1990)
which allows it to outperform its competitors. Following Prahalad and Hamel
(1990), a core competence is defined as an organisation-based capability that
combines and integrates the skills of a set of practitioners working across
different business units, and creates superior value for customers. In other
words, a core competence is the organisational version of unique individual
know-how (Overmeer, 1997).
Following the resource-based approach, the IM mix framework is deployed
here as a means of creating competencies in organisations. That is, IM is used as
a philosophy for managing the organisation’s human resources based on a
marketing perspective to build internal competencies for external success
(George and Grönroos, 1989). Thus, it is argued that the IM mix is capable of
linking organisational competencies and business performance. In this model
the main objective of the IM mix is to translate the business strategy by
adjusting the IM mix in order to create the required competencies and, hence,
improve business performance. Three indicators of organisational competencies
that relate to IM constructs identified in this conceptual model are:
(1) customer/market orientation;
(2) employee satisfaction; and
(3) specific/ individual competencies.
There is considerable discussion of customer/market orientation (Grönroos,
1981) and employee satisfaction (Berry, 1981; Berry and Parasuraman, 1991,
Sasser and Arbeit, 1976) in the IM literature, but little discussion of individual
competencies. However, there is considerable discussion of competencies in the
HRM literature. For instance, Woodruffe (1993) defines competencies as
dimensions of behaviour, which are related to superior job performance.
Hoffmann (1999) highlights the fact that the use of competencies has been
described as part of a process to manage or improve human performance at
work through training or education. This is achieved by attaching competency
standards to levels of pay. Rewards are provided for achievement and
maintenance of standards, or the promise of future rewards if the standards are
eventually achieved. On the same notion, human resource managers view the
concept of “competencies” as a technical tool to implement strategic direction
through the tactics of recruitment, placement, training, assessment, promotion,
reward systems and personnel planning (Burgoyne, 1993). Green (2000) The role of
describes individual competency as a written description of measurable work organisational
habits and personal skills used to achieve a work objective. He emphasises that competences
individual competencies contribute to achieving a work objective, but they are
also part of a work system that leads to the results sought.
Carson and Gilmore (2000) and Gilmore and Carson, 1996) make a useful
distinction between management competencies and technical competencies.
1225
Technical competencies are related to operational and tactical aspects of a task
whereas management competencies are related to and required for managerial
decision-making purposes. A great number of studies have been conducted to
identify generic management competencies but it is generally agreed that there
is no single set of competencies that are suitable for all management jobs.
Management competencies are largely specific to a given situation but need to
be developed in order for the organisation to cope with changing circumstances
(Buchanon and Boddy, 1992). For instance, Gilmore and Carson (1996) develop
the idea of services marketing management competencies to reflect the fact that
services marketing managers require specific competencies because of the
special nature of services. In the proposed model, the IM mix is used as an
instrument to develop both management and technical competencies. In
aggregate, the development of individual competencies leads to organisational
competencies.

Conceptual model
The controllable elements inside the organisation are identified as the IM mix,
which consists of all organisational influence systems inside the organisation.
A total of 11 of them are identified in this study. These controllable elements
(i.e. the IM mix) are used to influence the key target groups that are identified as
employees (or internal customers) equivalent to the key customer segments in
external marketing. The term IM mix implies that it consists of elements that
are controllable and need to be used appropriately to get the desired results.
The desired results of the IM programme in this framework are identified as
organisational “competencies” that will ultimately affect the business
performance.
The model is shown in Figure 1. This study examines the relationship
between the IM mix, organisational competencies, the use of marketing-like
philosophy, and marketing-like tools, and their effects on business
performance. First, the model indicates that the IM mix variable is positively
related to the organisational performance. Second, organisational competencies
mediate the relationship between the IM mix and business performance. In
particular market orientation, employee satisfaction and specific/individual
competencies are regarded as instrumental in mediating the relationship
between IM mix and organisational performance.
EJM
37,9

1226

Figure 1.
Conceptual model of
internal marketing

Market orientation mediates this relationship by ensuring that the organisation

is highly aware and responsive to customer needs and competitors’ capabilities.
According to Narver and Slater (1990) strong market orientation within a
business leads to greater effort being exerted to offer superior value continuously
to customers, and so there will be a greater likelihood that superior value will be
offered. Market orientation, therefore creates competitive advantage in the
customers’ perception, which leads to superior organisational performance.
Employee satisfaction facilitates superior performance as it leads to greater
attraction and retention of the best employees, which enhances the ability of the
organisation to deliver high quality services (Berry, 1981, Berry and
Parasuraman). Similarly, Grönroos (1981) postulates that employee satisfaction
leads to more highly motivated and customer-conscious employees, which leads
to improved service quality and organisational performance. Development of
specific/individual competencies can lead to improved and consistent quality of
work. As well as enabling the customisation of products and thereby meeting
customer needs more accurately. It also helps to improve the self-efficacy of
individuals, and thus improving their and the organisation’s performance
(Conger and Kanungo, 1988; Rafiq and Ahmed, 2000).
The model also postulates that the application of external marketing
philosophy and tools moderate the relationship between the IM mix and
organisational competencies. This is consistent with the IM literature. George
and Grönroos (1989) clearly state that IM is basically a philosophy for managing
the organisation’s human resources based on a marketing perspective. Berry
and Parasuraman (1991, p. 272), consistent with this proposition, advocate that
IM is about:
[. . .] viewing employees as internal customers, viewing jobs as internal products, and
endeavouring to offer internal products that satisfy the needs and wants of these internal
customers while addressing the objectives of the organisation.
Therefore, IM employs marketing-like philosophy in treating employees as the The role of
internal customers, the understanding of which results in the application of organisational
marketing-like tools and activities to achieve required outcomes. Grönroos competences
(1985, p. 42) mentions specifically that IM is about motivating the employees by
active marketing-like activities:
[. . .] holding that an organisation’s internal market of employees can be influenced most 1227
effectively and hence motivated to customer-consciousness, market-orientation and
sales-mindedness by a marketing-like internal approach and by applying marketing-like
activities internally.
Collins and Payne (1991) suggest that in order to implement IM, external
marketing tools, including market research, segmentation, developing a
marketing mix, and controlling marketing activity, may be used within the
organisation.
From the discussion above it is possible to put forward three broad
hypotheses namely:
H1. There is significant and positive relationship between the IM mix and
business performance.
H2. Organisational competencies mediate the relationships of IM mix with
business performance.
H3. Application of marketing-like philosophy and application of
marketing-like tools moderates the relationship between the IM mix
and organisational competencies.

Methodology
Construct measures were based on extensive review of the literature on human
resources practices, organisational development, organisational performance,
market orientation and IM. A total of 49 items were generated in this way for
the 11 components of the IM mix (for reasons of space, discussion and
references are omitted but available from the authors). In the case of market
orientation construct, 14 items were adapted from Narver and Slater (1990)
market orientation scale. Nine items for employee satisfaction were developed
by consulting the works of Berry (1981), George and Grönroos (1989), George
(1990) and Rafiq and Ahmed (1993). Seven items for specific/ individual
competencies were developed by consulting the works of Overmeer (1997),
O’Connell (1996), Long and Vickers-Koch (1995), Day (1994), and Prahalad and
Hamel (1990). Four items for the application of marketing-like philosophy
internally were developed from the works of Berry (1981), George and Grönroos
(1989) and George (1990). The five items for application of marketing-like tools
internally were derived from Berry (1981), Grönroos (1985), Barnes (1989),
Rafiq and Ahmed (1993), and Piercy and Morgan (1991). The business
performance construct was measured judgementally with six items measuring
EJM the construct in relation to previous performance, and two items relating to
37,9 competitors. The performance measures used have been previously employed
in other published studies (Gupta and Govindarajan, 1983; McKee et al., 1989).
It is worth mentioning here that although there has been some criticism of the
market orientation measures developed (see for instance, Dawes, 2000; Mavondo
and Farrell, 2000), we nevertheless decided to employ Narver and Slater’s market
1228 orientation measure in this research because its psychometric properties (and that
of the MARKOR scale developed by Kohli et al. (1993)) are well understood. Also,
numerous studies have demonstrated the link between market orientation and
performance (see Dawes, 2000). A major reason for using the Narver and Slater
measure of market orientation in this study is that it has been shown to be a more
reliable measure of market orientation than MARKOR (Oczkowski and Farrell,
1998). There is also some evidence that Narver and Slater measure is more reliable
for cross-sectoral studies of market orientation (Mavondo and Farrell, 2000).
A sample of 504 companies (463 manufacturing and 41 services companies)
with more than 300 employees drawn from the FMM Directory (Malaysian
Manufacturers and Exporters, Federation of Malaysian Manufacturers, 1999)
were sent questionnaires with a cover letter to the CEO or senior executives. A
follow-up consisting of a fax reminder sent after one week, followed by a
second mailing of another set of questionnaires two weeks later resulted in a
total of 111 usable questionnaires for analysis. This gave an overall response
rate of 22 per cent. A total of 80 per cent of the respondents (89 respondents)
were involved in various types of manufacturing. The remaining 20 per cent
were involved in providing financial services, insurance or the consultancy
services sector. To check for non-response bias a test was performed to confirm
the existence or absence of bias, as suggested by Armstrong and Overton
(1977). Because previous studies on IM have in the main concentrated on the
services sector, a major motive behind employing a cross-sectoral sample in the
present study was to ascertain the role and impact of IM beyond a purely
services context.

Results
For measurement validation, conventional methods, namely coefficient alpha,
item-to-total correlations, and exploratory factor analysis, were used. For the
IM mix elements all items for the organisational structure construct were
dropped from further analysis, as the correlation coefficient scores for all items
were below the benchmark level of 0.30. One item each for the internal
communication, staffing, selection, and succession, and empowerment
constructs was also dropped for the same reason. Also, for the external
marketing-like tools construct, one item was dropped. All remaining variables
and items were retained for further analysis. For the refined measures the
Cronbach alpha coefficients for all the variables except one (application of
marketing-like tool, Cronbach alpha ¼ 0.68) ranged between 0.71 and 0.92 and The role of
item-total correlations were between 0.31 and 0.96. organisational
The IM mix variables were submitted for factor analysis (using principal competences
component analysis and varimax orthogonal rotation methods) which
identified three factors (see Table I). The interpretation of the three-factor
solution was accomplished by relating them to the theoretical concepts of IM. 1229
The first factor seemed to fit very well with the top management support
theme. Theoretically, all the elements such as empowerment, senior leadership,
strategic reward and physical environment suggest a very strong tie with top
management initiative. For these elements to be effective top management
support is deemed necessary. Thus, Factor 1 is named “Top management
support mix”. Factor 2 reveals the elements that are highly related to enabling
the process. In this case, staffing, selection and succession, process changes,
and incentive system are all related to enabling a smooth process of achieving
organisational goals and objectives. All the three elements stood out to be
related to one another in a way that can be termed “Business process support
mix”. Factor 3, with the combination of internal communication, interfunctional
co-ordination, and training and development captures the essential elements of
cross-functional interaction. It is clear from previous discussion that
interfunctional co-ordination is one of the central concepts in IM and market
orientation literature. Thus, Factor 3 is referred to as “Cross-functional
co-ordination mix”.

Composite
reliabilities
Standard (Cronbach Factor No of
Mean deviation alpha) loading items

Factor 1 Top management support mix 3.9514

Empowerment 3.8422 0.5268 0.8637 0.958 4
Senior leadership 4.2793 0.6996 0.720 0.882 3
Strategic reward 4.0248 0.8771 0.9239 0.745 4
Physical environment 3.6595 0.4980 0.8158 0.654 3
Factor 2 Business process support mix 3.5545
Staffing, selection and succession 3.8686 0.3674 0.7883 0.885 6
Process changes 3.7117 0.5289 0.7149 0.855 2
Incentive system 3.0833 0.8767 0.8775 2 0.749 4
Factor 3 Cross-functional coordination mix 3.7535
Internal communication 3.5014 0.7030 0.871 0.904 6
Interfunctional co-ordination 3.6306 1.0107 0.8872 0.872 3
Training and development 4.1284 0.6665 0.8422 0.682 4
Notes: The scale used is a five-point scale where 5 ¼ strongly agree, 4 ¼ agree, 3 ¼ neither Table I.
agree nor disagree, 2 ¼ disagree and 1 ¼ strongly disagree; eigenvalues: Factor 1 ¼ 4.698, Descriptive analysis of
Factor 2 ¼ 2.649, Factor 3 ¼ 1.292 IM mix factors
EJM The effect of IM mix elements on business performance
37,9 H1 predicts that there is linear relationship between the IM mix elements and
business performance. Given that factor analysis revealed that the IM mix has
three components we can add the sub-hypotheses that all the IM mix
components (i.e., top management support mix, business process support mix
and cross-functional co-ordination mix) have a significant positive effect on
1230 business performance. These hypotheses can be expressed in a multiple linear
regression equation as:
Y 1 ¼ a þ b1 X 1 þ b2 X 2 þ b3 X 3 þ e
where:
Y1 = business performance;
X1 = top management support mix;
X2 = process optimisation;
X3 = cross-functional co-ordination mix;
b1, b2, b3 = coefficients; and
e = error term.
The results in Table II for this regression model show that 57.2 per cent of the
observed variability in business performance is explained by the three
independent variables (R 2¼0.583, Adjusted R 2¼0.572). Also the value of the F
ratio of 49.93 ( p ¼ 0.0005) indicates that it is safe to accept H1, that there is
significant linear relationship between IM mix elements and business
performance.
To test the null hypotheses that the population partial regression coefficient
for a variable is zero, t-statistic and its observed significance level were used.
Results from Table II also indicate that we can safely reject the null hypotheses
that the coefficients for top management support mix (b1 ¼ 0.583, t ¼ 7.888, p,
0.001) and cross-functional co-ordination mix (b3 ¼ 0.181, t ¼ 2.31, p , 0.05)
are zero. However, we have to accept the null hypothesis for business process

Collinearity
Unstandardised coefficients statistics
Model B Std error Beta T Sig. Tolerance VIF

Constant 21.034 0.628 21.648 0.102

Top management support 0.767 0.097 0.583 7.888 0.000 0.714 1.401
Business process support 0.361 0.229 0.131 1.575 0.118 0.563 1.775
Cross functional co-ordination 0.198 0.086 0.181 2.310 0.023 0.637 1.571
Table II.
Regression of business Notes: Dependent variable: business performance; adjusted R square ¼ 0.572;
performance on IM mix F3,107 value ¼ 49.93 ( p ¼ 0.000)
support mix, since the partial coefficient does not contribute significantly to the The role of
model (b2 ¼ 0.131, t ¼ 1.575, p . 0.05). The beta weights show that top organisational
management support mix (0.583) is relatively stronger than cross-functional competences
co-ordination mix (0.181) in explaining the changes in business performance.

Testing for mediator variables 1231

Since H2 tested in this study involves testing the effects of mediation, it is
imperative to first define the roles of mediator in terms of independent variable
and dependent variable relationships. A mediator variable is one that explains
the relationship between the other variables. More accurately, mediation
implies a causal hypothesis whereby an independent variable causes a
mediator, which causes a dependent variable. A given variable may be said to
function as a mediator to the extent that it accounts for the relation between the
predictor and the criterion variables. While moderator variables specify when
certain effects will hold, mediators indicate how or why such effects occur
(Baron and Kenny, 1986, p. 1176).
A series of regression models suggested by Baron and Kenny (1986) were
used to test the mediating role of organisational competencies in the
relationship of IM mix and business performance. First, the independent
variable (a composite measure of IM mix was used) was regressed on
business performance (Test 1), to ascertain that there is an effect that may
be mediated. Second, the mediator variable (i.e. the organisational
competencies) was regressed on IM mix (Test 2), treating the mediator as
if it is an outcome variable. Third, the dependent variable (business
performance) was regressed on both the independent and the mediator
variables (Test 3), hence providing control to the regression model, as the
initial variable must be controlled to establish the effect of the mediator on
the outcome variable.
The first test showed that there was significant relationship between the
independent variable and the dependent variable (B ¼ 0.719, t ¼ 10.813, p ,
0.001), signifying that there exists a significant relationship to be mediated.
The results in Test 2 also showed that there was a significant relationship
between the independent variables and the mediator variables (B ¼ 0.808,
t ¼ 14.304, p , 0.001). Finally, the effect of the mediator on the outcome is
ascertained in Test 3, which provides control to the regression model as the
initial variable must be controlled to establish the effect of the mediator on
the outcome. The results show that the effect of a mediator was present
since the standardised beta weight of the mediator variable, Organisational
Competencies, (B ¼ 0.645, t ¼ 6.802, p , 0.001) was greater than that of the
independent variable, IM mix (B= 0.198, t ¼ 2.090, p , 0.01). However, there
was not enough evidence to show any one of the mediators was a “pure”
mediator, since the relationship between IM mix and the dependent variable
was not zero while controlling the effect of the mediator variable. Further
EJM analysis showed that the standardised beta weight for market-oriented
37,9 behaviour and individual/specific competencies on business performance
was significantly stronger than the effect of the independent variable (IM
mix), we can safely regard them as partial mediators. However, in the case
of employee satisfaction, since the standardised beta weight was weaker
than the independent variable, we have to reject the hypothesis that
1232 employee satisfaction is a mediator of the IM mix and business performance
relationship.

Test for moderator effect

H3 proposes that the application of the external marketing framework
moderates the relationship between the IM mix and organisational
competencies. In other words, the hypothesis predicts that external
marketing-like tools and philosophy have a significant influence on the
strength of a relationship between the IM mix and organisational competencies.
In general, a moderator variable is one that influences the strength of a
relationship between two other variables. According to Baron and Kenny (1986,
p. 1174), a moderator is a variable that affects the direction and/ or strength of
the relation between an independent (or predictor) variable and a dependent or
criterion variable.
To test for pure moderators, moderated regression analysis was used as
suggested by Sharma et al. (1981). A pure moderator effect implies that the
moderator variable modifies the form of the relationship (i.e. the slope of the
regression line as represented by the regression coefficient) between the
predictor variable and the criterion variable. Moderated regression analysis
was determined by creating multiplicative interaction terms by multiplying the
values for independent variable (IM mix) by the values for the hypothesised
moderators (external marketing-like tools and philosophy). Both application of
marketing-like philosophy (B ¼ 3.066, t ¼ 34.160, p , 0.001) and application of
marketing-like tools (B ¼ 2.561, t ¼ 47.451, p , 0.001) were found to be
statistically significant moderators of the relationship between IM mix and
organisational competencies variables.
In order to ascertain whether the hypothesised moderators were a pure
moderator or a quasi moderator, or other variables, one then needs to
determine whether the hypothesised moderator is related to the predictor or
criterion variables. This was tested using bivariate correlation analysis. The
results show that while marketing-like tools are significantly related to the
predictor variable (IM mix, r ¼ 0.408, p , 0.001) alone, the hypothesised
moderator of marketing-like philosophy was related significantly to both the
predictor (IM mix r ¼ 0.603, p , 0.001) and the criterion variables
(Organisational competencies, r ¼ 0.579, p , 0.001). Therefore, we can
conclude that both of the variables are quasi-moderators, as characterised by
Sharma et al. (1981).
Discussion and conclusion The role of
In this paper we have proposed and empirically evaluated a new IM organisational
implementation framework. In the paper we propose the concept of IM mix or a competences
set of controllable instruments inside the organisation that can be used to
influence employees effectively so that they are motivated and act in a
customer-oriented fashion. An innovative feature of the model presented is that 1233
the IM mix is employed as a means of creating and enhancing competencies in
organisations to improve business performance namely customer/market
orientation, employee satisfaction, and specific individual competencies. Thus,
the IM mix affects business performance through organisational competencies.
Or in more formal terms, organisational competencies mediate the relationship
between IM mix and business performance. In a departure from previous
research, the marketing-like approach advocated by various IM authors (e.g.
Berry, 1981; Berry and Parasuraman, 1991; Grönroos, 1981; George and
Grönroos, 1989; George, 1990) is separated into two components namely the
application of marketing-like philosophy and marketing-like tools.
Additionally, the model postulates that these two variables moderate the
relationship between IM mix and organisational competencies.
The empirical research provides strong support for the hypothesised model.
All the major hypotheses were supported. In particular the refined IM mix
consisting of ten variables (i.e. excluding the organisational structure variable
from the original list of 11 variables) was shown to be a reliable measure and
strongly related to business performance. The IM mix consists of three factors
namely: top management support mix; interfunctional co-ordination mix; and
business process support mix. These findings provide support for a number of
extant IM conceptualisations and constructs. For instance, in the case of top
management support mix, Barnes (1989) states that the ultimate responsibility
for initiating IM rests with senior management. In fact, IM programme requires
continuous management support to be effective (George, 1990; Grönroos, 1985).
For Grönroos (1981) a key dimension of strategic IM is the adoption of
supportive management styles. In fact, he goes further and argues that IM
should become part of the strategic management philosophy to be successfully
implemented. The findings also lend further support to Kohli and Jaworski
(1990) identification of the senior management factor as one of the most
important antecedents to market orientation. In a similar assertion from a
classical marketing literature, Felton (1959, p. 55) suggests that the most
important ingredient in achieving market orientation is an appropriate
supportive state of mind of “the board of directors, chief executive, and
top-echelon executives” (see also Webster, 1988; Narver and Slater, 1990). The
major thrust of this literature is that unless an organisation receives clear
signals from top managers about the importance of being responsive to
customer needs, it is unlikely to be market oriented.
EJM Our findings on interfunctional co-ordination support one of the major
37,9 themes in IM literature. For a number of authors, the implementation of IM
requires inter-functional co-ordination, especially between the human resources
and marketing departments (George, 1990; Rafiq and Ahmed, 1993).
Gummesson (1990, p. 65) emphasises that:
1234 When companies do not consider the linkages between all functions they end up with “broken
chains” and “tribal warfare” in which each specialist department is a tribe with loyalty
towards its own members and not towards the company as a unified entity.
In the market orientation literature (e.g., Kohli and Jaworski, 1990; Narver and
Slater, 1990) argue that interdepartmental interactions facilitate the exchange
of information, as well as leading to a concerted effort to act on the information
to respond to customers’ needs in terms of the quality of the entire marketing
mix, including the product and/or service offering.
The identification of the business process support factor supports Varey’s
(1995) view that IM should involve improvements in the overall business
process of the organisation. As IM is concerned with the internal processes,
overall improvement of the business process is deemed necessary. Treacy and
Wiersema (1993) make the case that superior strategies are based on delivering
customer value in operational excellence. Consequently as a part of the
business process support mix, attraction of the best personnel, their retention
and motivation through incentive systems becomes of critical importance
(Sasser and Arbeit, 1976, p. 64).
Our findings highlight the fact that strong and committed top management
support as well as integrated effort towards interfunctional co-ordination are
critical factors for business performance. However, our findings revealed that
business process support mix did not contribute significantly to the business
performance model (B ¼ 0.131, t ¼ 1.575, p . 0.05), and to organisational
competencies model (B ¼ 0.045, t ¼ 0.613, p . 0.05). Two explanations can be
offered for this phenomenon. First, investigation of its effect on business
performance reveals that it has a significant linear relationship. This suggests
that with the other two predictors in the regression model, its impact on
business performance was overshadowed. Second, it could be that there exist
interactions of other variables that moderate and/or mediate the relationship
with performance variable. To confirm the reliability of these observations
future research should be carried out in a different setting or cultural context to
ascertain the real effect of business process support mix on business
performance.
Organisational competencies were shown to be a partial mediator of business
performance. This mediational evidence has been found at both the
supra-component and each-component level and, thus, provides a more complete
understanding of how the IM mix might be related to performance. Our finding
that market-oriented behaviour is a significant mediator between the IM mix
components and business performance is supported by a number of prior studies.
Specifically, a positive and significant relationship between top management The role of
support on market-oriented behaviour and business performance is consistent organisational
with the pattern found in a number of groundbreaking market orientation studies competences
(e.g. Kohli and Jaworski, 1990; Narver and Slater, 1990). Substantive evidence can
also be found in the strategy literature relating the characteristics of top
management teams to organisation strategies and performance (Gupta, 1984;
Hambrick and Mason, 1984; Michel and Hambrick, 1992).
1235
A positive and significant relationship between the IM mix components (i.e.
top management support and interfunctional co-ordination) on employees’
competencies and performance is consistent with the findings of Arthur
Andersen and Schoonover Associates (2000). Their results show that
competency-based initiatives yield significant enhanced employee and
business performance. Studies in other countries have also revealed
consistent findings. Li (2000), for example, in a study of competitiveness and
performance of Chinese manufacturers find positive support for the effects of
human resource competence on performance.
Although the IM mix components appeared to be strong predictors of
employee satisfaction, employee satisfaction was not found to be a significant
mediator of the IM mix-performance relationship. Some reasons for this may be
found in existing research. For instance, Herrington and Lomax (1999) in their
study of financial advisers of UK found no relationship between job
satisfaction and customer perceptions of service quality. It is also possible, of
course, that employee satisfaction operates through an intervening variable
such as organisational commitment rather than directly on performance (see
for instance Brown and Peterson, 1993; Caruana and Calleya, 1998).
Our study has also shown that the application of marketing-like philosophy
has a moderating influence on the IM mix and organisational competencies
variables. Also, the application of marketing like tools had a moderating
influence only on the IM mix. Some supporting evidence for these findings is
provided by of Brooks et al. (1999) and Quester and Kelly’s (1999) study of
Australian firms, which found that the majority of companies surveyed use
market techniques internally such as marketing research to assess the
attitudes, needs and wants of employees.
From a managerial point of view the paper has several implications. First,
the paper has demonstrated the importance of developing organisational
competencies to improve business performance. In particular it has shown that
customer/market orientation and specific/individual competencies are
particularly important in influencing business performance. The support for
customer/market orientation reaffirms the results obtained in the market
orientation literature (e.g. Narver and Slater, 1990). Job satisfaction does not
receive clear support in this research but that does not mean that it is not
important. Second, the paper has demonstrated that these competencies are
best developed through ten elements/ instruments of the IM mix. In particular
EJM Item-total Alpha if
37,9 Independent variables – IM mix correlation item deleted Alpha

1. Strategic reward 0.9239

Our reward system is linked to our business goals 0.8239 0.9062
Our employees are informed about how they are
1236 rewarded 0.8726 0.8867
Our employees are informed about why they are
rewarded 0.8820 0.8832
Our reward system emphasises motivating those
behaviours, actions, and accomplishments that
help advance our organisation towards our
business goals 0.7697 0.9209
2. Internal communications 0.8710
Our internal communications is the key to creating
understanding among our employees 0.6697 0.8493
Our internal communications is the key to building
ownership among our employees. 0.6839 0.8497
Our internal communications is the key to
providing information to all our employees 0.5811 0.8696
Our internal communications is consistent with our
advertising to external customers 0.8431 0.8168
Our internal communications is consistent with our
external public relations. 0.4771 0.8801
Our internal communications is consistent with all
forms of our external communications 0.8463 0.8150
3. Training and development 0.8422
We set aside adequate resources to train our
employees 0.6145 0.8299
Our training and development programme is
clearly directed at creating the competencies that
are important to our business 0.7006 0.7951
We believe that keeping up with changing
technologies requires continuous re-examination
of our training programmes 0.6680 0.8106
We believe that keeping up with changing business
demands requires continuous re-examination of
our training programmes 0.7884 0.7490
4. Senior leadership 0.7200
We believe that our leadership possesses the moral
ability to move the company and its employees
towards the right direction 0.5468 0.6250
We believe that our leadership possesses
intellectual ability to move the company and its
employees towards the right direction 0.7219 0.3874
Our strategic leadership puts emphasis on
Table III. path-finding and culture-building to bridge the
Results of reliability gap between strategy formulation and strategy
analysis for a sample of implementation 0.3822 0.8157
internal marketing mix Notes: The scale used is a five-point scale where 5 ¼ strongly agree, 4 ¼ agree, 3 ¼ neither
components agree nor disagree, 2 ¼ disagree and 1 ¼ strongly disagree
the elements relating to management support mix (empowerment, top The role of
management support, strategic rewards and physical environment) and organisational
interfunctional co-ordination mix (internal communication, interfunctional competences
co-ordination and training and development) are most influential in developing
the requisite organisational competencies (see Table III). Third, managers can
enhance the effect of IM mix variables on organisational competencies through
the use of a marketing-like philosophy to human resources issues and the use of 1237
marketing -like tools (market research, segmentation etc.) for the
implementation of human resource strategies.
Future research needs to replicate this research in order to establish the
reliability of the measurement instruments used in this study and to address
some of the limitations of this study. One line of enquiry could address the
question whether a more parsimonious measure of the IM mix could be
developed given that the business process support mix variable was found to
have non-significant impact on business performance. Another potential line of
enquiry could address the question as to how employee satisfaction should be
operationalised in IM research given that in the present study employee
satisfaction was not found be a significant mediator between IM mix and
business performance. It may be that an intervening variable such as
organisational commitment captures the impact of employee satisfaction more
accurately. Research is also required to establish the relationship between
components of the IM mix and organisational competencies. Also, future
research should concentrate on specific sectors (e.g. services) given that the
present study used a cross-sectoral sample.

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