Chapter 4:
Market Orientation and
Cross-Functional (Marketing/R&D) Interaction

What is a market orientation?

What does a market-oriented firm look like?

Why is organizational memory important?

What is the purpose of cross-functional
teams?

How can the performance of cross-functional
teams be enhanced?
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
A philosophy of decision making focused on
customer needs
Market oriented firms gather, disseminate, and
utilize market-based information
◦ They exhibit a customer focus
 Decisions grounded in analysis of the intended user
◦ They harness the power of cross-functional teams to
deliver customer value

Result:
◦ Increased creativity
◦ Improved new product performance
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1.
Intelligence
Generation
2.
Intelligence
Dissemination
3.
Intelligence
Integration
4.
Coordinated
Action
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
Superior sales growth and profitability
Effects of market orientation on performance
may be stronger in dynamic (high-tech)
markets
◦ Firms with a strong R&D base gain the most from a
strong marketing capability

Proactive, market-oriented firms generate
more innovative products
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
Market intelligence: useful information
about market trends/stakeholders
◦ Current and future customer needs
◦ Competitors’ capabilities and strategies
◦ Emerging technologies across industries
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
Resource allocation to gathering marketbased data
◦ Must be budgeted for
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% of Revenue
# of Market Research
Personnel
Pharmaceuticals
0.78 %
52
Media Companies
0.68 %
22
Consumer Goods
0.51 %
18
Technology (B2B Sector)
0.25 %
15
Telecommunications
0.07 %
15
< $1 Million
0.07 %
5
> $5 Million
0.5 - 0.69 %
13-41
By Industry Sector
By Company Size ($ Revenue)
* Source: Corporate Executive Board, Market Research Executive Board, Member
Benchmarking Survey Analysis, “2003-2004 Benchmarking the Research Function”
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The Intelligence Continuum: Response to Proactive
Responsive
market
orientation
Information on:
Expressed
customer needs
Current
competitive threats
Proactive
market
orientation
Latent and future
customer needs
Anticipated
competitive threats
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
Responsive market orientation: responding
to current intelligence
 Customers articulate their needs (difficult in
high-tech market)
◦ Can result in marketing myopia and the
tyranny of the served market
◦ Reacting to existing threats means the firm
is always behind
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
Proactive market orientation: gather
anticipatory intelligence (latent needs, future
trends)
◦ Bifocal vision: current and future customer
needs
◦ Marketing driving firms seek to:
 Redefine market structure
 Introduce an innovative value proposition
 Focus on multiple stakeholders
* Market driving can be risky (high risk/high reward)
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
Responsive market orientation
◦ Associated with development of incremental
innovations

Proactive market orientation
◦ Associated with development of radical innovation
Firms must be ambidextrous—
- both responsive and proactive
- pursue both incremental innovations
(serve known customer needs) and
radical innovations for markets of the future.
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
Disseminate information: actively
encourage information sharing
◦ Obstacle: knowledge hoarders
◦ Goals:
 Create a “boundary-less” organization
 Cultivate a team orientation
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
Integrate intelligence: shared interpretation
of the information
◦ Debate, discuss, disagree, & dialogue
◦ Create an organizational memory to retain
knowledge
 Explicit knowledge: can be documented
 Tacit knowledge: not easily recorded
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Knowledge Management
◦ Practices used to document, preserve,
store, & disperse “knowledge assets”
◦ Creates an organizational memory
◦ Associated with a learning orientation
◦ Requires investments in hardware,
software, and Web 2.0 technologies (wikis,
etc.)
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Execute: implement decisions through
coordinated actions
Requires cross-functional (interfunctional
& interdivisional) integration
Barriers
◦ Culture that disregards marketing input
◦ Organizational politics
◦ “Coopetition”
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See Box 4-1 in Text.
Management rates the business using the scale:
(use items next slides)
Strongly
Disagree
-3
Disagree
Moderately
-2
Disagree
Slightly
-1
Agree
Slightly
1
Agree
Moderately
2
Strongly
Agree
3
The sum of the scores indicates market orientation.
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Responsive Customer Intelligence Generation:
 We continuously work to better understand of our
customers’ needs.
 We pay close attention to after-sales service.
 We measure customer satisfaction systematically and
frequently.
 We want customers to think of us as allies.
Responsive Competitor Intelligence Generation:
 Employees throughout the organization share
information concerning competitors’ activities.
 Top management regularly discusses competitor’s
strengths and weaknesses.
 We track the performance of key competitors.
 We evaluate the strengths and weaknesses of key
competitors.
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Proactive Customer Intelligence Generation:
 We continuously try to discover additional needs of our
customers of which they are unaware.
 We incorporate solutions to unarticulated customer needs in our
new products and services.
 We brainstorm about how customers’ needs will evolve.
 We work with lead users, customers who face needs that
eventually will be in the market – but face them months or years
before the majority of the market.
Proactive Competitor Intelligence Generation:
 We try to anticipate the future moves of our competitors.
 We monitor firms competing in related product/markets.
 We monitor firms using related technologies.
 We monitor firms already targeting our prime market segment
but with unrelated products.
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Intelligence Dissemination:
 We have interdepartmental meetings to discuss
market trends and developments.
 Marketing personnel spend time discussing
customers’ needs with other functional departments.
 We share information about major market
developments.
 Data on customer satisfaction are shared at all levels
in the organization.
 When one function acquires important information
about customers or competitors, it shares that
information with other functions.
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Intelligence Integration:
 We have cross-functional meetings for the purpose of
intelligence integration.
 We reach organizational consensus regarding the holistic
meaning of related pieces of information before taking action.
 We utilize cross-functional teams or task forces for important
initiatives to ensure that all points of view are considered before
decisions are made.
 Collaboration is valued in this business.
Coordinated Action:
 We are quick to take advantage of market opportunities.
 The activities of different functions in this business are wellcoordinated.
 We make sure that all critical functions understand our objectives
and strategy before we take action.
 There is a high level of cooperation and coordination among
functional units in setting the goals and priorities for the
organization to ensure effective response to market conditions.
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
Given the value of being market oriented,
why is it so hard?
◦ Requires a cultural shift from technology to
customer/market focus.
◦ Requires resource commitment to gathering data
◦ Requires cross-functional collaboration
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D
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Difficult to comprehensively scan hightech environments
 Scanning efforts must be focused

◦ Identify issues by the four strategy types
(see Table 4-1 in text)

Avoid “paralysis by analysis”
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Supply new technology solutions to address
customers' expressed and latent needs
Information focus:
◦ highest priority on understanding customers’
unarticulated needs through creative market
research techniques

Must stay ahead or abreast of technological
developments
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Bring out improved or less expensive versions
of products introduced by Prospectors
◦ Simultaneously defend core markets and products

Information focus:
◦ Closely monitor customer reactions to Prospectors’
offerings
◦ Monitor competitors’ activities, successes, and
failures

Limit new product introductions to categories
that have shown promise in the marketplace
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Provide quality products or services at the
lowest overall cost
◦ Generally less technologically sophisticated product
lines
◦ Role of technology is in process/operations

Information focus: Competitor orientation:
◦ Competitors are a benchmark against which prices,
costs, and performance are compared
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Focus on customer value for individual/niche
segments
Information focus:
◦ Skilled at segmentation to identify customer segments
that value superior quality and service
◦ Closely monitor customer satisfaction
◦ Identify opportunities to increase share of customer’s
wallet
◦ Analyze reasons for customer defections
◦ Assess customer profitability
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Unequivocal, visible commitment of
top managers:
◦ To customers
◦ To collecting, gathering, and using
market-based information
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Fluid job responsibilities
Informal, extensive, and frequent
lateral communication
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
Organizational factor with the greatest
impact on market orientation
◦ Less emphasis on short term sales and
profit goals
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Creating a market-oriented culture
requires:
 Initiation: Recognize need to change
 Reconstitution: Build market-oriented
processes

Institutionalization:
Solidify the cultural
change

Maintenance:
Sustain over time
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Marketing is a boundary-spanning activity
◦ Effective marketing decisions are dependent
on interactions with:
 Personnel in other departments
 External stakeholders
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
Cross-Functional Product Development
Teams
◦ Requires all functional areas to be closely
integrated
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See Box 4-2 in Text.
Management rates the business using the scale:
(Use items next slides)
Strongly
Disagree
-3
Disagree
Moderately
-2
Disagree
Slightly
-1
Agree
Slightly
1
Agree
Moderately
2
Strongly
Agree
3
The sum of the scores indicates the level of crossfunctional interaction within the organization.
©2010 Pearson Education, Inc. publishing as Prentice Hall
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The activities of functional units are tightly
coordinated to ensure better use of our market
knowledge.
Functions such as R&D, marketing, and manufacturing
are tightly integrated in cross-functional teams in the
product development process.
R&D and marketing and other functions regularly
share market information about customers,
technologies, and competitors.
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There is a high level of cooperation and
coordination among functional units in setting the
golas and priorities for the organization to ensure
effective response to market conditions.
Top management promotes communication and
cooperation among R&D, marketing, and
manufacturing in marketing information
acquisition and use.
People from marketing, R&D, and other functions
play important roles in major strategic market
decisions.
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
Characteristics for Successful NPD Teams
◦ Commitment of senior management
◦ Clear/stable vision to guide the project over
time
◦ Improvisational approach to development
◦ Information exchange on continual basis
◦ Collaboration under pressure by focusing
on goals rather than personal issues
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
Greater inter-functional coordination
◦ Associated with development of radical innovations
◦ Reinterpretation of competencies
◦ Recombines existing knowledge to generate
breakthrough ideas
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Information
Integration
+
Product Quality
Quality
Orientation
+
+
Team
Identity
+
+
Encouragement
for Risk-Taking
Product
Innovativeness
+
Customer
Influence
+
Monitoring
by Senior
Management
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
What determines the effectiveness of
team interactions?
1.
Communication
2.
Team Orientation
3.
The Reward System
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
Communication. Teams must:
◦ Simultaneously cooperate and compete
◦ Harness diverse functional perspectives
◦ Reduce language barriers across
functions
◦ Engage in constructive conflict resolution
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Team Orientation
◦ Leaders with a clear set of values
◦ Confidence in other team members
◦ Reward system promotes organization
(not individual) performance
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
Reward System
◦ Reward team as a group; split:
 Equally amongst members –or Based on position
◦ Reward individual team members
 Process-based: tied to procedures
 Outcome-based: tied to bottom-line
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
Findings on Reward Systems
◦ Individual vs. Group
 If an individual’s contribution to the team is easily
evaluated, then position-based rewards are best;
 If individual’s contribution is not easily evaluated, does
not mean company should use equal rewards—
 Rather, invest in monitoring to measure individual
contribution to team.
◦ Outcome vs. Process
 For long, complex projects, used outcome based
rewards, including employee stock options
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Cross-functional Marketing and R & D
collaboration particularly important in hightech firms
◦ Associated with greater new product success

Need for R&D-Marketing integration greater
when:
◦ Innovations are complex
◦ Environmental uncertainty is higher
◦ Product development is in the early “fuzzy front
end”
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Rivalry between R&D and Marketing:

Roles:
◦ Reduces the use of information
◦ Contributes to failure
◦ Marketing brings the voice of the customer
into the development process
◦ R&D brings the knowledge of what is
technically feasible
◦ Both participate in customer visit programs,
etc.
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1
Match Nature of Interaction
to the Type of Innovation
2
Understand barriers to R&D-Marketing
interaction
-High-tech culture that values Engineering
more than Marketing
-Differing backgrounds/orientation between
Engineers & Marketers
-Spatial distance
-Competition for resources/rivalry
3
Implement Strategies to
facilitate interaction
- Cooptation
- Foster Cooperation
- Communication
4
Enhance
Opportunities for
Communication
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Tailor the nature of R&D-Marketing
interaction to the type of innovation
 For Breakthrough Products,
Marketing-R&D interaction:
◦ Assess market opportunities
◦ Determine what industry/market segment
company should compete in
◦ Set market development priorities
◦ Assess desired product feature set
Generally, R&D takes the lead role
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For Incremental Innovations, R&DMarketing interaction:
◦ Establishes direction for
commercialization
◦ R&D assists with marketing strategies and
materials
Generally, Marketing takes the lead role
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
Dominant engineering culture of
many high-tech firms
◦ Manifested in “jokes” (see Table 4-2), job titles,
responsibilities for marketing activities, etc.
Differing values (see following table)
 Physical separation of personnel
 Competition for resources

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Different Orientations Between R&D and Marketing Personnel
R&D
Marketing
Time Orientation
Long
Short
Projects Preferred
Breakthrough
Incremental
Ambiguity Tolerance
Low
High
Department Structure
Informal
Moderately Formal
Bureaucratic Orientation
Less
More
Orientation to Others
Permissive
Permissive
Professional Loyalty
Profession
Firm
Professional Orientation
Science
Market
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Formal systems specify marketing role
in new product development
Informal Techniques:
1. Co-optation
2. Cooperation
3. Communication
4. Constructive
Conflict
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
Co-optation - merge R&D/Marketing
interests:
 Build informal networks
 Gain product knowledge and credibility
 Build consensus through questions and subtle
influence
 Form strategic coalitions
 Work on minor improvements to products
outside of R&D
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
Cooperation - Enhanced by:
◦ Physical co-location of Marketing and R&D
◦ Job rotation of personnel across functions
◦ Informal cross-functional networks
◦ Decentralized organizational structure and
tolerance for risk; joint reward systems
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
Communication
◦ Moderate amount of interaction is
optimal
 Must exceed minimum threshold
 Too much interaction may exacerbate
conflict and result in information overload
◦ Formal dissemination enhances
credibility
 Informal channels provide openness and
spontaneity
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Communication (Continued)
◦ Information-sharing norms:
expectations about how departments communicate
 If marketing managers identify more with the company
(than with the marketing function), they communicate
more
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Communication (Continued)
◦ Integrated goals – organization’s goals take
precedence over departmental goals
 Even if marketing managers identify strongly with
the marketing department, they communicate more
when integrated goals are stressed
 Caveat: Such marketing managers may use coercion
to gain R&D compliance
Implications: Encourage information
sharing norms and set integrated goals
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 Relationships
that are too close can
result in “groupthink”
◦ Precludes alternative views
 Formalized
roles
(i.e., for devil’s advocate)
◦ Can help overcome groupthink
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
Must have a strategy to manage
conflict between marketing & R&D
◦ Conflict handling strategies (next slide)
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
Constructive conflict strategies for improved
innovation performance
◦ Integrative - Demonstrate high concern for self and others
◦ Accommodating - Low concern for self and high concern for
others


Destructive conflict strategies that lower innovation
performance
◦ Forcing – High concern for self and low concern for
others
◦ Avoiding – Low concern for both self and others
Compromise - moderate concern for self and others -
associated with less destructive conflict as well
©2010 Pearson Education, Inc. publishing as Prentice Hall
See Box 4-3 in Text.
Management rates the business using the scale:
(see items next slide)
Strongly
Disagree
-3

Disagree
Moderately
-2
Disagree
Slightly
-1
Agree
Slightly
1
Agree
Moderately
2
Strongly
Agree
3
Sum the scores: negative scores indicate room
for improvement, while high scores (rare)
indicate a strong capability
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Marketing and R&D:
 Coordinate work activities smoothly.
 Have senior managers who share values and
perspectives.
 Enhance each other’s performance.
 Cooperate with each other.
 Have compatible goals and objectives.
 Agree on the priorities for each function.
 Respect each other’s capabilities.
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Customer
Sure
Marketing
Engineering
Product Technology
Rock Pile
Would you
like a rock?
Find me a big, cheap,
fast, dense,
sharp...rock
Wrong
rock
OK
Here’s a
blue rock?
Do you have a
red rock?
What’s wrong
with blue?
OK, but only
if its square
I can make a
purple one
We don’t have
square ones
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

Opening Vignette: Buckman Labs
Technology Experts:
◦ Hewlett Packard (Product Manager)
◦ Xilinx Software (Engineer)
◦ Appendix: Agilent Senior VP of R&D and Marketing


Technology Solution: Aravind Eye Hospital
End-of-Book Case: Xerox, ESRI, Goomzee
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