Family Owned Business Institute

Research Scholar's Abstracts 2001 - Ram Subramanian

Is Market Orientation Related to Performance? An Empirical Analysis of Family Owned Businesses
Ram Subramanian
2001

Successful organizations deal effectively with their external environment.This is true of all firms, whether they are big or small, publicly owned or family owned. Recently, researchers from the discipline of marketing operationalized a firm's nexus with its external environment by means of a scale called the "market orientation" scale.The market orientation scale looks at how an organization collects information about the external environment (customers and competitors), how it transmits that information among the different units within it, and how well the organization responds to such changes. An example of this would be where a company's salesmen bring market information (say a discernable change in customer expectations) and how the organization responds to this. Studies have indicated that a high score on the market orientation scale leads to better performance in terms of growth in revenue, return on capital, success of new products, control over costs, and market share.

Prior research indicates that family owned businesses are more long-term in their orientation than other types of firms.This is because non-family firms have a more diverse group of stakeholders who may pressure the firm to obtain quick results. However, studies also indicate that family owned businesses are typically more risk averse than other types of firms simply because of the high personal stakes involved and the dependence of the family on the business.The interplay of these two factors (long-term orientation vs. risk aversion) leads to family firms being a good setting to study the phenomenon termed market orientation.