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RESEARCH INSIGHT | Market Orientation and Strategic Flexibility: Managers Need Both

The Research

This classic study has never been more relevant. Although the authors began this research in response to late-1990s economic crises in Asia, Europe, and South America, their findings can help managers in the current economic crisis as well as prepare them for future disruptions. The authors show that market orientation and strategic flexibility work together to impact firm performance after a crisis. Market orientation has an adverse effect, but it is moderated by demand and technological uncertainty and is enhanced by competitive intensity. Strategic flexibility has a positive influence, which is enhanced by competitive intensity and moderated by demand and technological uncertainty. Market orientation and strategic flexibility complement each other to help firms manage varying environmental conditions.

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What You Need to Know

  • Market orientation is useful for managing crises only in conditions of high demand uncertainty or high technological uncertainty, and it should not be emphasized when competitive intensity is high.
  • When firms emphasize market orientation, they get locked into institutionalized thinking about competitors. But these assumptions of competitive behavior are no longer valid after a crisis, and as a result market-oriented firms tend to get hurt.
  • In contrast, the tools and skills developed by posturing strategic flexibility are useful in crisis situations, especially in environments with high competitive intensity.
  • However, flexibility is not a cure for environments with either high demand uncertainty or high technological uncertainty.
 

Abstract

Firms around the world often must manage and survive economic crises. Recent cases in Asia, Eastern Europe, and South America bear testimony to this point. As economic weak spots are integrated into the global economy, it is timely to develop an understanding of organizational capabilities that can help firms manage their way through such crises. The authors investigate the role of market orientation and strategic flexibility in helping Thai firms manage the recent Asian crisis. The results demonstrate the contingent nature of the influence of market orientation and strategic flexibility on firm performance after a crisis has occurred. As hypothesized, market orientation has an adverse effect on firm performance after a crisis. This effect is moderated by demand and technological uncertainty and is enhanced by competitive intensity. In contrast, strategic flexibility has a positive influence on firm performance after a crisis, which is enhanced by competitive intensity and moderated by demand and technological uncertainty. It seems that market orientation and strategic flexibility complement each other in their efficacy to help firms manage varying environmental conditions.

Rajdeep Grewal and Patriya Tansuhaj (2001), “Building Organizational Capabilities for Managing Economic Crisis: The Role of Market Orientation and Strategic Flexibility,” Journal of Marketing, 65(2), 67-80.