Market orientation and firm performance: can there be too much of a good thing?

Abstract

PurposePast research has generally purported that market orientation (MO) leads to superior firm performance, despite emerging evidence suggesting that the highest levels of MO are not always rewarded. Drawing on resource-based view and MO literature, the authors posit that too much MO may be as detrimental as too little for firms seeking to achieve better performance, and that moderate MO capabilities may be the most beneficial. Furthermore, the authors propose and test for organizational confidence as a first potential moderator of the MO-performance inverted U-shaped link.Design/methodology/approachThe authors use Computer-Assisted-Text-Analysis (CATA) methodology assess constructs from annual reports matched with a 5-year longitudinal dataset of 2,245 firm-year observations drawn from the S&P 500.FindingsThe results not only support the presence of an inverted U-shaped link between MO and firm performance, but also identify organizational confidence as an important moderator of this newly uncovered curvilinear relationship.Practical implicationsWhen it comes to the effect of MO on firm performance, there can be indeed be “too much of a good thing,” and managers should be aware of the trade-offs that come attached with overcommitting to a MO strategy.Originality/valueThe authors contribute to extant research on the MO–performance link by moving beyond simple linear relationships and identifying an inverted U-shaped relationship between MO and firm performance. This newly found curvilinear relationship may explain and reconcile prior contradicting findings on the benefits of MO. Organizational confidence is also found to trigger a shape-flip of the MO–performance link, thereby suggesting a new boundary condition.