The Capabilities of Market-Driven Organizations

George S. Day, 1993, 93-123

Understanding Market Orientation

Considerable progress has been made in identifying market-driven organizations, understanding what they do, and measuring the bottom-line consequences. The next challenge is to better understand how this organizational orientation can be achieved and sustained.

The emerging capabilities approach to strategic management offers a rich array of ways to design change programs that will enhance a market orientation. This approach seeks the sources of defensible competitive positions in the distinctive, difficult-to-imitate capabilities the organization has developed. Capabilities are complex bundles of skills and knowledge, exercised through organizational processes, that ensure the superior coordination of functional activities and enable the organization to continuously learn and improve. Examples of defining processes include such typical business activities as order fulfillment, new product development, and service delivery.

Capabilities of Market-Driven Organizations

Capabilities are embedded in the business's "outside-in" processes, which guide the creation and delivery of value in the organization. Two capabilities stand out as essential ingredients of a market orientation:

Market Sensing. This capability enables the business to learn about customers, competitors, and channel members, with the purpose of acting on events and trends in the market. Market-driven organizations are more adept at learning and more systematic, thoughtful, and anticipatory in gathering, interpreting, using, and remembering market information.

Customer Linking. Market-driven firms are distinguished by an ability to create and manage collaborative relationships with customers. Mastering this capability so that it becomes a competitive advantage requires (1) close communication, (2) joint planning, (3) the coordination of joint activities, and (4) joint problem solving and conflict resolution.

Enhancing Market-Driven Capabilities

A comprehensive change program aimed at enhancing market-sensing and customer-linking capabilities has the following elements:

  • diagnosis of current capabilities, using mapping and benchmarking methodologies
  • anticipation of future needs for capabilities in light of the strategy for creating customer value
  • bottom-up redesign, based on the formation of teams responsible for continuous improvement or radical redesign of underlying processes
  • top-down direction from senior managers, who demonstrate a clear, continuing commitment to putting customers first
  • use of information technology to enable the organization to do things it couldn't do before

George S. Day is the Geoffrey T. Boisi Professor and Director of the Huntsman Center on Global Competition and Innovation at the Wharton School of the University of Pennsylvania.

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