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Article Excerpt
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Introduction
One of the realities of the current global marketplace is that consumers expect more, have more choices, and are less brand-loyal (Best, 2004). Yesterday's invincible companies with their market domination and leadership, such as GM, Sears, AT&T, and IBM to name few, have had to restructure and reengineer their organizations to respond to changing customer needs, emerging global competitive forces, and new economic realities. Furthermore, there is no guarantee that current leaders, such as Microsoft and Wal-Mart, will continue to dominate over the next decade.
A number of studies have investigated the factors that are critical for success. Some of the factors identified are customer focus (orientation), quality of personnel, and innovation as key for better business performance (Best, 2004; Drucker, 2001; Kotler, 2003; Peter and Austin, 1985; Peters and Waterman, 1982; Wing, 1988). Treacy and Wiersema (1995) suggest that market leaders excel at delivering the best value to their customers through one of the value disciplines--best product, best total costs, or best total solutions. Feigenbaum (1997) asserts that companies that were pacesetters in the 1990s had two important characteristics: respect for and responsiveness to the customer, and an unrelenting drive to enhance business efficiencies. In addition, Nohria et al. (2003) identify strategy, execution, culture, and structure as four primary management practices that successful companies implement. They claim that these companies supplement their great skills with a mastery of any two of the four secondary management practices--talent, leadership, innovation, and mergers and partnerships.
The findings of these studies are consistent with the three key organizational excellence factors necessary for high performance presented by Darling and Nurmi (1995): care of customers, committed people, and constant innovation. Studies that investigated the impact of each of these factors on performance have supported the conclusions of Darling and Nurmi (1995). For example, prior research found a significant relationship between customer orientation (focus) and business performance (Best, 2004; Brynjolfsson and Hitt, 1996; Jaworski and Kohli, 1993; Kohli et al., 1993; Narver and Slater, 1990; Pinar et al., 2003; Van Egeren and O'Connor, 1988), suggesting that successful organizations have a customer-oriented business culture (Anthanassopoulos, 2000; Deshpande et al., 1993; Shapiro, 1998). Studies have also shown the effect of personnel quality and commitment on business performance (Hosmer, 2001; Kotler, 2002, 2003; Reichheld, 1996; 1993; Rucci et al., 1998; Wiley, 1991; Zacharias, 2001; Zeithaml and Bitner, 2000). Finally, several studies have documented the role of innovation on business performance (Aaker, 2001; Drucker, 1954; Hamel, 2002; Deshpande et al., 1997; Kotler, 2003).
In addition to these organizational excellence factors, leadership has been studied to understand its impact on an organization's performance. It is generally expected that "good" leadership is the key to the organizational success that leads to superior performance. Many years ago Sun Tzu explained that successful strategy results from effective leadership among other things (Wing, 1988). Kirkpatrick and Locke (1991) empirically showed that leadership characteristics were correlated with firm success. Darling and Nurmi (1995) suggested that one element connecting these three areas of organizational excellence attributes (care of customer, committed people, and constant innovation) is effective managerial leadership. They pointed out that organizational excellence is achieved through the development and implementation of leadership strategies. Based on their research, the four characteristics of successful leadership strategies are attention through vision, meaning through communication, trust through positioning, and confidence through respect. Prior research suggesting a positive correlation between leadership and performance for most organizations is also supported by Nohria et al. (2003).
While some studies emphasize customer focus, quality of personnel, and innovation as key requirements for organizational success, others suggest the importance of leadership. However, most studies combined the effects of the organizational success factors and leadership. Therefore, the main objective of this exploratory research is to empirically examine the relationship between the three organizational success factors and four leadership factors and their potential impact on the performance of Turkish firms, utilizing the framework developed by Darling and Nurmi (1995). Turkey, as one of the world's emerging economies, has been moving toward greater modernization as it has opened up to foreign competition since recently becoming an associate member of European Customs Union. Turkey's business environment and cultural values differ from those of U.S. and Western European nations. The authors believe that Turkey provides an excellent context for testing the effects of organizational excellence factors and leadership strategies on business performance.
The framework proposed by Darling and Nurmi (1995) has been augmented here to include business performance measures to examine the effects of organizational excellence factors and leadership on business performance. With this modified framework, the research attempts to determine whether 1) The three organizational excellence factors are the keys to achieving business performance; 2) The leadership factors are the keys to achieving a high level of business performance; 3) There are any synergistic relationships among the leadership and organizational excellence factors, and 4) Leadership factors mediate the relationship between organizational excellence and business performance. Because Darling and Nurmi (1995) do not include any performance measures in their framework, the authors of this study, drawing from prior studies (Deshpande, Farley and Webster, 1993; Narver and Slater, 1990), add the following seven business performance measures to the model: profitability, market share, growth, customer retention, sales growth, return on investment, and personnel turnover. The conceptual framework for this study will be presented after the literature review.
Literature Review and Hypotheses
Over the years, the importance of customer focus (orientation) and its impact on business performance have received significant attention. A study by Kumar and Subramanian (2000) found that hospitals with a strong customer focus had significantly higher performance in terms of success of new services and facilities and ability to retain patients. In another study, Brady and Cronin (2001) showed that customer orientation was indirectly related to organizational quality, customer satisfaction, and outcome behaviors, which suggested that firms with a customer orientation were viewed as more successful in the execution of their strategies. Pinar et al. (2003) concluded that Turkish companies with high customer focus emphasized satisfying their customers and rewarded personnel who took care of customers. They found significant performance differences between Turkish firms with high customer focus and firms with low customer focus. The former significantly outperformed the others. In addition, "focus on the customer" is one of the fundamental principles of successful Six Sigma implementation (Breyfogle, 2003; Harry and Schroeder, 2000), further signifying its importance for performance. Moreover, firms with strong customer focus were more productive than their counterparts (Brynjolfsson and Hitt, 1996). This focus enabled them to stay in close contact with customer needs to deliver high levels of customer satisfaction and retention (Best, 2004; Reichheld, 1993), which are key drivers of better business performance.
Companies have also realized that employees play a key role in satisfying customer needs, creating customer value, and achieving the company objectives. As Kotler (2002) and Zeithaml and Bitner (2000) point out, the firms make "promises" to their customers about their products and services through external marketing. However, it is the employees who deliver on those promises through internal and interactive marketing. Kotler (2003) asserts that it makes no sense to make promises unless a firm has the personnel to deliver them. For example, Southwest Airlines proved that their customer-oriented personnel were key to their success (Zacharias, 2001). Hosmer (2001) claimed that because human resources appear to be the most constrained resource for companies, attracting as well as retaining quality employees has become a critical strategic issue for competitive advantage and organizational success. According to Reichheld (1996), by reducing its employee turnover by just a few percentage points, one company increased its profitability 50%. He pointed out several benefits of employee retention and the collective effects of these benefits on productivity and profits. Research has shown that employee satisfaction is a key factor in delivering customer satisfaction (Wiley, 1991), where positive employee attitudes promote stronger customer loyalty (Kotler, 2003). For example, in a recent study Sears found a high correlation between customer satisfaction, employee satisfaction, and store performance and profitability (Rucci et al., 1998).
The research in five countries (Deshpande et al., 1997) showed that innovativeness of the firms was the most important factor in explaining performance differences, regardless of whether the managers were in Japan, the United States, France, Germany, or England. The significance of innovation was emphasized by Drucker (1954) when he stated that "any business enterprise has two--only two--basic functions: marketing and innovation." Also, Aaker (2001) claimed that long-term leadership in business requires continuous innovation. For example, Gillette returned to its innovative heritage to regain the leadership that it lost in 1960s (Aaker, 2001). Charles Schwab, one of the first major brokerage houses with Web-based trading, leads its competitors by providing innovative services, discount prices, and superior services via Internet (Lee, 2000). In the past, Sony, an innovative leader, introduced many new products, such as Walkmans and video cameras that created markets (Kotler, 2003). In a recent Fortune article (Kirkpatrick and Hamel, 2004) Hamel pointed out some of the myths about innovation being risky, and being about products and big ideas....
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