Marketing, Market-based Assets and Capabilities, Core Business Processes, and Financial Performance in Finnish Companies - PDF

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Powered by TCPDF (www.tcpdf.org) Marketing, Market-based Assets and Capabilities, Core Business Processes, and Financial Performance in Finnish Companies Marketing Master's thesis Anssi Kiesi 2012 Department
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Powered by TCPDF (www.tcpdf.org) Marketing, Market-based Assets and Capabilities, Core Business Processes, and Financial Performance in Finnish Companies Marketing Master's thesis Anssi Kiesi 2012 Department of Marketing Aalto University School of Economics Marketing, Market-based Assets and Capabilities, Core Business Processes, and Financial Performance in Finnish Companies Master s Thesis Anssi Kiesi Spring 2012 Marketing Approved in the Department of Marketing and awarded the grade I AALTO UNIVERSITY SCHOOL OF ECONOMICS Department of Marketing Master s thesis Anssi Kiesi ABSTRACT MARKETING, MARKET-BASED ASSETS AND CAPABILITIES, CORE BUSINESS PROCESSES AND FINANCIAL PERFORMANCE IN FINNISH COMPANIES This study focuses on the role of marketing in the core business processes of companies and examining how those core business processes affect the financial performance of companies. This was done by creating a conceptual framework that included role of marketing in the core business processes, three core business processes that were product development management, supply chain management and customer relationship management and financial performance measures based on previous research and academic literature. The conceptual framework is based on six hypotheses developed from the literature review. The data used in this study was from StratMark s Markkinoinnin tila 2010-survey. The data was collected through an online questionnaire that targeted the senior management of Finnish companies. The questionnaire was send to 15,941 executives 1134 of whom completed the survey. The data was analyzed using two multivariate methods. Firstly, confirmatory factor analysis was used to develop the measurement model. Secondly, a structural equation model was used to test the hypotheses. The results of this thesis show that marketing does have a strong positive relationship with the three core business processes, especially with customer relationship management. This thesis also offers support for the positive relationship between the three core business processes and financial performance of a company however this relationship is not as strong as the one between marketing and the three core business processes. Based on the findings of this study managers are recommended to integrate marketing with their core business processes. This thesis provides a simple and generalized model that links marketing, core business processes and financial performance together. KEYWORDS: Marketing, core business processes, product development management, supply chain management, customer relationship management, market-based assets, market-based capabilities, resource-based view, financial performance II AALTO-YLIOPISTON KAUPPAKORKEAKOULU Markkinoinnin laitos Pro gradu - tutkielma Anssi Kiesi TIIVISTELMÄ MARKKINOINTI, MARKKINA RESURSSIT JA KYVYKKYYDET, YDINLIIKETOIMINTA PROSESSIT JA TALOUDELLINEN SUORITUSKYKY SUOMALAISISA YRITYKSISSÄ Tämä tutkimus keskittyy markkinoinnin rooliin yrityksen ydinliiketoimintaprosesseissa ja tutkii miten nämä ydinliiketoimintaprosessit vaikuttavat yritysten taloudelliseen suorituskykyyn. Tutkimus tehtiin luomalla konseptuaalinen viitekehys, joka perustui aikaisempaan tutkimukseen ja akateemiseen kirjallisuuteen. Viitekehys sisälsi markkinoinnin roolin ydinliiketoimintaprosesseissa, kolme ydinliiketoimintaprosessia, jotka olivat tuotekehityksen johtaminen, toimitusketjun johtaminen ja asiakassuhteiden johtaminen sekä taloudellisen suorituskyvyn mittarit. Tämä viitekehys perustui kuuteen hypoteesin, jotka kehitettiin tutkimuksen teoriaosuudesta. Tutkimuksessa käytetty aineisto perustui StratMark:n Markkinoinnin tila 2010-tutkimukseen. Aineisto kerättiin käyttämällä verkkopohjaista kyselylomaketta, joka oli suunnattu suomalaisyhtiöiden johdolle. Kyselylomake lähetettiin johtajalle, joista 1134 täyttivät kyselylomakkeen. Aineiston analysoimiseen käytettiin kahta monimuuttujamenetelmää. Ensimmäiseksi käytettiin vahvistusfaktorianalyysiä mittausmallin kehittämiseen. Toiseksi käytettiin rakenneyhtälömallia hypoteesien testaamiseen. Tämän tutkielman tulokset osoittavat markkinoinnin vahvan positiivisen suhteen yrityksen ydinliiketoimintaprosesseihin, erityisesti koskien asiakassuhteidenjohtamista. Tämä tutkielma tukee myös ydinliiketoimintaprosessien ja yritysten taloudellisen tuloksen välistä positiivista suhdetta, mutta tämä suhde ei ole niin vahva kuin markkinoinnin ja ydinliiketoimintaprosessien välillä. Tämän tutkielman tuloksien perusteella yritysjohdolle suositellaan markkinoinnin integroimista yritysten ydinliiketoimintaprosesseihin. Tämä tutkielma tarjoaa yksinkertaisen ja yleistetyn mallin, joka yhdistää markkinoinnin, ydinliiketoimintaprosessit ja taloudellisen suorituskyvyn. AVAINSANAT: Markkinointi, ydinliiketoimintaprosessit, tuotekehityksen johtaminen, toimitusketjun hallinta, asiakassuhteiden johtaminen, markkinaperusteiset resurssit, markkinaperusteiset kyvykkyydet, resurssiperusteinen näkökulma, taloudellinen suorituskyky III Contents 1. Introduction Background Research Problem and Objectives Methodology and Scope Key Concepts Structure Literature Review Market-based assets and capabilities Marketing and product development management Marketing and supply chain management Marketing and customer relationship management Financial Performance Conceptual Framework Research Methods Collecting the Data Research Data Construction and operationalization of variables Endogenous Variables Exogenous Variables Methods of Statistical Analysis Confirmatory Factor Analysis Structural Equation Modeling Assessing Structural Model Validity and Reliability Results and analysis Confirmatory Factor Analysis Structural Equation Modeling Summary and Conclusions Discussion Key Results and Conclusions Managerial Implications Limitations Implications for Future Research References..60 Appendix A: The original Stratmark 2010-questionaire 68 Appendix B: List of Indicators per Construct...83 Appendix C: Goodness of Fit Indexes...86 Appendix D: Discriminant and Convergent Validity..87 Appendix E: Indicator Correlations with Total and Cronbach s Alpha Values.88 IV List of Figures and Tables Figure 1: The relationship between resource heterogeneity and immobility, value, rareness, imperfect imitability and sustainability and sustained competitive advantage.10 Figure 2: Overview of market-based resources and company financial performance..11 Figure 3: Combining marketing with product development management 15 Figure 4: Focal firm perspective of a business network 19 Figure 5: Supply chain network structure..20 Figure 6: Types of intercompany business process links.21 Figure 7: The working relationship between marketing and SCM for demand chain activities..24 Figure 8: Evolution to customer-centric marketing.27 Figure 9: CRM implementation model.29 Figure 10: The CRM continuum.32 Figure 11: Theoretical framework of this study.35 Figure 12: EFA model 42 Figure 13: CFA model 42 Figure 14: Simple structural equation based on path diagram..44 Figure 15: The initial CFA model 50 Figure 16: The final CFA model..53 Figure 17: The structural equation model.54 Table 1: Top 15 respondents by industry...37 Table 2: Company size by number of employees and market share..37 Table 3: Market type.38 Table 4: Final standardized loadings and communalities 51 Table 5: Correlation matrix of constructs..52 Table 6: Composite reliability and average variance extracted.53 Table 7: The relationships between constructs and their statistical significance.55 Table 8: Summary of results 57 V 1. Introduction The main objective of this study is to examine the role of marketing in company business processes and company performance. This chapter introduces the motivation and contents of this study by describing the background, followed by the definition of the research problem and the objectives. This is followed by a description of the methodology and scope of the study. Next, the key concepts of the study are defined and, finally, the structure of the study is presented. 1.1 Background There is an increasing demand for marketing and marketing actions to be held accountable for both market performance and financial performance (e.g., Stewart, 2009; Srinivasan & Hanssens, 2009; O Sullivan & Abela, 2007; Rust, et al, 2004). The lack of accountability and clear metrics for measurement marketing performance has threatened the position of marketing in many firms (Rust, et al, 2004). In Stewart (2009) one chief financial officer (CFO) said Marketing is not strategic. It s just tactics and we just control the cost. It is clear that if marketing activities cannot be viewed as an investment rather than just as expenses and as strategic in nature, the position of marketing in the company will be undermined. This is not only a challenge to the discipline of marketing; it can also undermine company performance in time when customer needs and wants are becoming more individualistic and complex. In response to the challenges of marketing in contemporary business climate, there has been a lot of academic debate on the future role of marketing as a function and as an activity. Webster (1992) argued that marketing will focus on strategic partnerships and positioning the firm between vendors and customers in the value chain with the aim of delivering superior value to customers. This is supported by Moorman and Rust (1999), who viewed the role of marketing as playing a key role in managing the connections between customers and critical firm elements. This leads to the concept of market-based assets and capabilities. Market-based assets are marketspecific resources that are mostly intangible, such as information of customers and relations with them (Srivastava et al, 1998). This intangible nature is especially meaningful since according to Doyle (2000 p. 18; 19) approximately 75 percent of the value of Fortune 500 companies lies in intangibles (brands, marketing-based intangibles, etc.). Doyle (2000 p 18; 19) argued that these 1 intangibles are the root source of shareholder value. Market-based capabilities are the skills that determine how well these market-based assets are created and leveraged (Ramaswami et al. 2009; Day, 1994). Marketing investments are investments in market-based assets and capabilities since they are directed towards acquiring and retaining customers and building brand equity and superior value in the eyes of the customers (Sheth & Sisodia, 2002). However superior value to the customer can only be offered if all functions in the organization contribute together. This requires cross-functional integration with all the key areas and processes of the organization (Slater & Narver, 1994a) meaning marketing must be integrated with other functions and processes in a company. In order to provide value for a customer, a firm must develop solutions for the customer, acquire inputs and transform them into desired customer outputs, and manage the linkages and relationships with external marketplace actors, especially with customers (Srivastava, Shervani & Fahey, 1999) This study focuses on the effect that marketing processes and activities have on firm performance and the effect that marketing has on to core business processes. Srivastava et al. (1999) defined firm s core business processes as product development management (PDM), supply chain management (SCM) and customer relationship management (CRM). This study evaluates the effect that marketing has on each of the three main business processes in terms of how they affect a firm s financial performance (for example return on investment). 1.2 Research problem and objectives The objective of this study is to link marketing to key business processes and through that to the financial performance of Finnish companies. A study by Ramaswami, Srivastava, and Bhargava (2009) empirically tested the effect of the three core business processes on a firm s financial performance. However, that study had a small sample size (88 firms) and used only a few metrics for the core business processes. While Ramaswani et al. s (2009) study focused how market-based assets affect the three core business processes the present study focuses on the influence of marketing. However, by examining whether the role of marketing on the three core business processes is strategic, minor, non-existent and its effect on company performance, this study will 2 expand Ramaswami et al. s study on the subject by having a larger sample size of 1134 and including more metrics for the core business processes. In order to reach the objectives of this thesis the main research question is: What effect does marketing have on company performance? The main research question is answered by four sub-questions - How do market-based assets and capabilities affect core business processes? - How are market-based assets and capabilities integrated to core business processes? - What effect do of market-based assets and capabilities have on core business processes? - How do these core business processes affect financial performance? 1.3 Methodology and Scope The empirical part of this study is based on data collected in a national survey as a part of the StratMark research project. The survey, known as Markkinoinin tila 2010, contains answers from 1134 decision makers from companies ranging widely in size. The data received from the questionnaire broadly covers the current state of marketing and other activities and topics in these companies. The focus of the present study is the role of marketing in key business processes (PDM, SCM and CRM) through market-based assets and capabilities, the performance of those processes and the financial performance of the companies. This research can be divided into two parts: the literature review and the empirical research. The literature review covers the existing literature related to the topic under review in order to provide a conceptual framework for the empirical research. 3 The literature review is conducted by reviewing the literature regarding marketing as well as the relatively new concepts of market-based assets and capabilities and the core market-facing business processes. The purpose is to examine the relationships between these concepts. To this end, a number of many frameworks, hypotheses and theories were examined before developing a conceptual framework and hypotheses. The literature review does not review all of the available literature instead it focuses on the information, concepts and theories that are relevant for this study. The second part of this uses statistical analysis methods that are relevant for testing the conceptual model. The purpose of the empirical part is to test the hypotheses based on the literature review. The statistical analysis is performed using two statistical methods: confirmatory factor analysis (CFA) and structural equation modeling (SEM). These methods are ideally suited to examine the relationships between marketing and the three core business processes and between the three core business processes, and financial performance. In chapter 4.1, confirmatory factor analysis is used to test the validity of the factors and their indicators in the conceptual model. This is done in order to test the goodness-of-fit between the measurement model and the actual data. In chapter 4.2, structural equation modeling is used to test the hypotheses related to the conceptual model, whit the intention of evaluating the relationships between marketing and the core business processes and between the core business processes and financial performance. 1.4 Key Concepts Marketing: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large (American Marketing Association, 2007). Core business processes: These are business processes in which companies engage in order to achieve defined business purposes or objectives that explicitly contribute to generating and sustaining customer value (Srivastava et al., 1999). For the purposes of the present study there are three core business processes: product development management (PDM), supply chain management (SCM), and customer relationship management (CRM). 4 Product development management (PDM): A process that aims to create solutions that, customers need and want (Srivastava et al., 1999). Supply chain management (SCM): SCM encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, SCM also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third- party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies (Council of Supply Chain Management Professionals). Customer relationship management (CRM): A process that identifies customers, creates customer knowledge, shapes customer perception of the firm s products and image, builds customer relationships through satisfactory experiences and maximizes customer responses for optimal revenue and profit growth (Srivastava et al., 1999). CRM is an ongoing process that involves the development and leveraging of market intelligence for the purpose of building and maintaining a profit-maximizing portfolio of customer relationships (Zablah et al., 2004). Market-Based Assets: Market-specific and mostly intangible resources that can be leveraged in order to create competitive advantages. Market-based assets are divided into relational and intellectual assets. Relational assets are outcomes of relations with the firm and key external stakeholders. Intellectual assets are knowledge that the firm possesses about its environment (Srivastava et al., 1998). Market-Based Capabilities: Bundles of skills and knowledge used to manage, create and leverage market-based assets in order to create positional and/or competitive advantages that are not easy for competitors to imitate (Ramaswani et al., 2009; Day, 1994). 5 Resource-Based view: A company s resources are its source of competitive advantage. In order for the company to gain a competitive advantage these tangible and intangible resources must be valuable; rare; imperfectly mobile and there cannot be any strategically equivalent substitutes (Wernefelt, 1984; Barney, 1991). Financial performance: the profitably of a company. This what evaluates a company s performance. In this study, the metrics used to evaluate companies profitability are profit margin, return-on-investment (ROI), and return-on-assets (ROA). 1.5 Structure Chapter 2, the literature review of this study, provides the theoretical background for the empirical part of this study. Section 2.1 focuses on what are market-based assets and capabilities are and how they create competitive advantages. The three core business processes are then examined in order to understand what they are and how they affect the firm. This is followed by a discussion about integrating marketing into these core business processes. Finally, the benefits that marketing and market-based assets and capabilities can bring to these processes in order to increase firm performance are discussed. Section 2.2 focuses on product development management (PDM). Section 2.3 focuses on supply chain management (SCM). Section 2.4 focuses on customer relationship management (CRM). Section 2.5 briefly presents the methods used to measure financial performance and, 2.6 introduces the conceptual framework for the study. Chapter 3 presents the empirical study in order to answer the research questions. The data collection, contents of the survey and the resulting data are all presented here in detail. Chapter 3 also presents the statistical methods used in the study st
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