Strategic human resource management, market orientation, and

organizational performance

Lloyd C. Harris*, Emmanuel Ogbonna

Cardiff Business School, Cardiff University, Column Drive, Cardiff, CF10 3EU, UK

Received 1 August 1998; accepted 1 February 1999

Abstract

Research emerging from different fields of organizational analysis has linked both market orientation and strategic human resource

management (SHRM) to organizational performance. Although both concepts are premised on the management of organizational culture, no

study has investigated their interrelationship or the dynamics between the two concepts and organizational performance. The findings of the

paper suggest a direct link between market orientation and performance and indicate that the association between SHRM and performance is

mediated by the extent of market orientation exhibited by the organization. Hence, it is argued that SHRM can be viewed as an antecedent to

market orientation. These findings lead to a number of conclusions and implications for both theorists and practitioners. D 2000 Elsevier

Science Inc. All rights reserved.

Keywords: Strategic human resource management; Market orientation; Organizational performance; Market-oriented culture

1. Introduction

In recent years, practitioners have been bombarded with

exhortations to develop an organizational culture that is

focused on external market needs, wants, and demands. This

has become known as a market-oriented culture (see e.g.,

Webster, 1994; Harris and Piercy, 1997). Paradoxically, at

the same time, organizational theorists have extolled the

virtue of an internal focus through developing appropriate

human resource policies which are consistent with organi-

zational strategy, that which has become known as strategic

human resource management (SHRM) (e.g., Schuler and

Jackson, 1987; Wright and McMahan, 1992; Lado and

Wilson, 1994).

Interestingly, both market orientation and SHRM have

been (separately) linked to increased organizational perfor-

mance (e.g., Jaworski and Kohli, 1993; Huselid, 1995; Pitt

et al., 1996; Guest, 1997). While the links between market

orientation and performance and between SHRM and

performance have been examined in isolation of each

other, both practices are founded on the management of

organizational culture. In the case of market orientation,

high levels of market orientation are argued to be depen-

dent on the establishment of an organizational culture

dominated by a focus on the market (Harris, 1998).

Similarly, developing SHRM requires the nurturing of core

organizational values and ensuring that these are consistent

with the strategic direction of the business (Gennard and

Kelly, 1994; Huselid, 1995). Surprisingly, despite similar

underpinnings, no existing study has examined the asso-

ciation between the two or the impact that such an

association may have on performance.

The aim of this study is to examine the relationships

between SHRM, market orientation, and organizational

performance. As such, this study is designed to contribute

to the linking of two (previously separately studied) areas.

Firstly, in relation to the SHRM literature, this study

partially fulfils the recommendations of researchers who

have suggested that SHRM should be examined in conjunc-

tion with other organizational variables (see e.g., Koch and

McGrath, 1996; Guest, 1997). Secondly, in examining the

links between market orientation and SHRM, this study

contributes to the call of Jaworski and Kohli (1993, p. 65)

`̀ to assess the role of additional factors in influencing the

market orientation of an organization.''

* Corresponding author. Tel.: +44-1-29-2087-5066; fax: +44-1-29-

2087-4419.

E-mail address: harrislc1@cardiff.ac.uk (L.C. Harris).

Journal of Business Research 51 (2001) 157±166

0148-2963/00/$ ± see front matter D 2000 Elsevier Science Inc. All rights reserved.

PII: S0 1 4 8 - 2 9 6 3 ( 9 9 ) 0 0 0 57 - 0

The literature review of this study entails the examination

of the concepts and performance implications of both

SHRM and market orientation leading to the development

of a research proposition. Thereafter, the research design

and methodology of the study is identified and discussed.

After the presentation of such methods, the analysis of

responses to a mailed questionnaire survey, is detailed and

the paper concludes with a series of implications for both

theory and practice.

1.1. SHRM and performance

Within the last two decades, there have been a number of

important developments in the literature dealing with issues

pertaining to the management of people. Significant atten-

tion has been directed towards human resource management

(HRM), which many have seen as representing a distinct

approach to managing people (Guest, 1997). Interestingly,

although researchers have highlighted the holistic nature of

HRM, much of the initial research into the concept focused

on a limited range of issues and has been criticized as `micro

analytic' (Delery and Doty, 1996). However, in the last

decade, researchers have sought to show the importance of

HRM in influencing organizational performance and it is

from this premise that the current interest in SHRM has

developed (Gennard and Kelly, 1994; Lado and Wilson,

1994; Cappelli and Crocker-Hefter, 1996).

Interestingly, the burgeoning interest in SHRM has not

been matched by the development of appropriate theoretical

constructs for the concept (Guest, 1997). Indeed, researchers

have criticized the underpinning theoretical foundations of

SHRM and many have called for the formulation of a theory

of SHRM (Dyer, 1985; Bacharach, 1989). Two major

reasons account for this criticism. The first is that the

concept of HRM, from which SHRM originated, has itself

been subjected to extensive criticisms for its poor theoretical

framework (see for instance, Keenoy, 1990; Noon, 1992;

Legge, 1994). The second, and perhaps more important

reason, is that researchers have approached the field of

SHRM from a variety of perspectives with little acknowl-

edgement of the differences within them and no attempt has

been made to identify the common threads in the perspec-

tives (Delery and Doty, 1996). Such an understanding is

important to enable an assessment of the viability and

adoption of the concept and a brief discussion is provided

in what follows.

In an extensive review of the literature, Delery and Doty

(1996) identify three categories of researchers and the

perspectives that they have adopted in theorizing SHRM.

They label the first group of researchers `universalists'

largely because of their interest in identifying `best practice'

SHRM policies. Delery and Doty (1996, p. 803) note that

`̀ these researchers . . . posit that some human resource

practices are always better than others and that all organiza-

tions should adopt these best practices.'' It is within this

perspective of theorizing in SHRM that the present interest

in developing `high performance work practices' is located

(see, Osterman, 1994; Pfeffer, 1994; MacDuffie, 1995).

Thus, the assumption is that the adoption of certain SHRM

policies is likely to result in increased organizational per-

formance (Kochan and Dyer, 1993).

The second strand of theorizing identified by Delery

and Doty (1996) comprises those researchers adopting a

contingency approach. In keeping with the early founda-

tion of the contingency perspective within organizational

theory, these researchers argue that the success of HRM

policies is contingent upon the achievement of a match

between human resource policies and other aspects of the

organization. For example, researchers adopting this per-

spective have demonstrated that different human resource

policies may be required at different stages in an organi-

zation's life cycle (Miles and Snow, 1984; Bird and

Beecher, 1995).

Delery and Doty (1996) identify a third group of SHRM

theorists as adopting a `configurational' approach. Delery

and Doty (1996, p. 808) note that this approach is more

complex and consists of researchers who seek to `̀ . . .identify configurations, or unique patterns of factors, that

are posited to be maximally effective.'' This category of

researchers are also said to approach their subject from a

more theoretical perspective and many of the phenomena

they identify may not necessarily be empirically observable

(Doty and Glick, 1994).

A consistent theme in all three theoretical perspectives of

SHRM is the assumption that SHRM is linked to organiza-

tional performance. However, while the literature is rich

with claims that both HRM and SHRM are linked to

performance, there is little empirical evaluation of this and

the theoretical foundations upon which these links are based

have been described as inadequate (Wright and McMahan,

1992; Kochan and Dyer, 1993; Koch and McGrath, 1996;

Guest, 1997). Indeed, it can be argued that there has been a

tendency for researchers to underplay the difficulties asso-

ciated with the pursuit of SHRM policies in organizations.

For example, the emphasis on strategic fit that has domi-

nated much of the studies in this area is based on underlying

assumptions of not only the supremacy of strategy but also a

rationalist interpretation of strategy, both of which have

been subjected to much criticism in the HRM literature (see

Lenz and Lyles, 1985; Kamoche, 1994).

To summarize, HRM has been developed into SHRM

by researchers seeking to highlight the importance of the

concept to the effective functioning of organizations. To

this end, many authors have claimed that SHRM is directly

linked to organizational performance and there is a form-

ing of consensus that high-performing work organizations

pay attention to adopting particular HRM policies and

linking these to the strategies of their organizations. How-

ever, despite the increasing popularity of SHRM, there has

been very few systematic evaluations of the claims that it

is linked to performance and doubts remain as to its

theoretical foundations.

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166158

1.2. Market orientation and performance

Prior to the late 1980s, there was little success in the

development of constructs related to market orientation.

However, the late 1980s witnessed an increased academic

and practitioner interest in the development of practical

models to define key marketing constructs such as market

orientation (Bruning and Lockshin, 1994). While a number

of studies present market orientation as synonymous with

other constructs such as `customer orientation' (Shapiro,

1988), more recent studies suggest that market orientation

is distinct and implies a less politicized nature (Kohli and

Jaworski, 1990) and a more proactive, longer term focus

(Slater and Narver, 1998). Research into market orientation

is dominated by the conceptualizations of two sets of

theorists. First, the information-based conceptualization of

Kohli and Jaworski (1990), which presents market orienta-

tion as collecting, disseminating, and responding to intelli-

gence about the market. Second, there exists the culture-

oriented approach of Narver and Slater (1990), which

defines market orientation as `̀ the organizational culture

that most effectively and efficiently creates the necessary

behaviors for the creation of superior value for buyers.''

While there is merit in both views, the Kohli and Jaworski

(1990) view has been subjected to criticism (see Diaman-

topoulos and Hart, 1993) while the Narver and Slater

(1990) conceptualization has been praised (see e.g., Green-

ley, 1995a,b).

The resurgence of interest into the concept of market

orientation can be attributed to its association with organi-

zational performance. Indeed, an examination of the sub-

stantial proportion of literature examining various aspects of

the marketing concept finds an over-riding and sometimes

explicit assumption that implementing the marketing philo-

sophy will increase organizational performance (see for

instance, Felton, 1959; Houston, 1986; Brownlie and Saren,

1992). Since the development of empirical models of market

orientation in the early 1990s, there has been a proliferation

of studies claiming an association between market orienta-

tion and organizational performance.

A review of the literature finds that studies linking market

orientation and organizational performance fall into three

distinct categories. The first are those studies that evaluate

the utility of conceptualizations of market orientation and

the association with performance. The second group com-

prises those studies that examine the association between

market orientation and performance in certain national

contexts. The third category consists of those studies that

examine the forms of orientation and performance.

The main studies within the first classification are those

forwarded by Kohli and Jaworski (1990), Narver and Slater

(1990), Jaworski and Kohli (1993) and Slater and Narver,

(1994). Following a detailed review of the literature and a

series of executive interviews, Kohli and Jaworski (1990)

suggested that market orientation can impact on customers,

employees, and businesses with the level of impact being

moderated by the supply and demand factors. They went on

to argue that the greater the level of market orientation of an

organization, the greater the overall performance of the

organization with performance expressed in terms of in-

creased return on investment, profits, sales and market

share. It is notable that in a later empirical study, Jaworski

and Kohli (1993) revised their model of the consequences of

market orientation to distinguish between the objective and

subjective measures of performance.

The second set of studies comprises research into the

market orientation±performance link in different national

contexts. Greenley (1995a) conducts a survey of UK

companies and finds that the association between market

orientation and performance is moderated by environmental

factors. Interestingly, the findings of Greenley (1995a) are

inconsistent with the findings of Narver and Slater (1990),

Slater and Narver (1994), Ruekert (1992), and elements of

Jaworski and Kohli (1993), but supports some elements of

Jaworski and Kohli (1993) and Diamantopoulos and Hart

(1993). In contrast, Selnes et al. (1996) conduct surveys of

market orientation in the United States and Scandinavia.

Selnes et al. (1996) find that the association between

market orientation and performance is similar for both

samples. Similarly, Pitt et al. (1996) undertake surveys of

market orientation in Malta and the UK and find similar

associations between market orientation and performance

for both samples.

The final category of studies focuses on different types

of orientation and their link with market orientation.

Greenley (1995b) identifies five differing forms of market

orientation (comprehensive, competitive-focused, custo-

mer-focused, undeveloped, and fragmented) along with

three factors that discriminate between them. Furthermore,

Greenley (1995b) finds that the forms of market orientation

are associated with differing levels of company perfor-

mance. Wong and Saunders (1993) also study the associa-

tion between orientation and performance. They address

the association between business orientation and perfor-

mance and find six clusters of business orientation (quality

marketers, mature marketers, innovators, aggressive

pushers, price promotions, and product makers), which

correspond respectively to a balanced or market orienta-

tion, marketing orientation, product orientation, sales or-

ientation, financial orientation, and production orientation.

Wong and Saunders (1993) conclude that an organization

with a balanced orientation out-performs other organiza-

tions with other business orientations.

1.3. Market orientation and SHRM

The preceding literature review finds that marketing

theorists are generally agreed that market orientation is

directly linked to organizational performance (Narver and

Slater, 1990). In contrast, while there is general agreement

that SHRM and performance are linked, the nature of this

link is less well understood and has been subjected to less

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166 159

empirical scrutiny. This may be illustrated by the recent

conclusions of a number of theorists who argue that the link

between SHRM and performance needs further empirical

research (e.g., Huselid et al., 1997) and greater conceptual

development (e.g., Guest, 1997).

The uncertainty surrounding the links between SHRM

and performance may be potentially explained by looking

at the mediating role of other organizational variables. This

paper argues that the link between SHRM and performance

is mediated by the extent to which such HRM policies are

geared towards the market, that is are market-oriented.

This may be illuminated by a brief review of literature

examining the impediments to developing market orienta-

tion. While extant marketing theory has produced a useful

list of potential individual obstacles to market orientation,

many studies have packaged such obstacles into the

generic barrier of organizational culture (e.g., Messikomer,

1987; Day, 1994; Harris, 1996). Indeed, Harris (1998)

argues that the development of a market-oriented culture

is contingent on the development of an organizational

culture dominated by strongly and widely held beliefs in

a market focus. Similarly, evidence in HRM literature

suggests that HRM is premised on the management of

organizational culture (see Fombrun, 1983; Ogbonna,

1992). Thus, an appropriate organizational culture devel-

oped via SHRM may be a key antecedent to market

orientation. Hence, by integrating marketing and culture

theory into the SHRM-performance debate, it is possible to

propose the following.

Proposition 1. The association between market orienta-

tion and organizational performance is direct while the link

between SHRM and organizational performance is indirect

being mediated by the extent of market orientation.

To summarize, this paper has provided a review of the

literature on SHRM and performance and market orientation

and performance. This review finds that both concepts have

achieved widespread popularity largely because of claims

by many researchers of an association with organizational

performance. Surprisingly, although the successful develop-

ment of market orientation and SHRM are both founded on

managing culture, no study combines the investigation of

the two concepts. This gap in existing knowledge provides

the rationale for this study.

2. Research methodology

Research methodology literature indicates that in order

to examine the issues involved in this study, a descriptive

quantitative research design was appropriate. Consequently,

a multi-industry sample of 1000 units was established from

the FAME database of registered UK firms. Utilizing a

systematic random selection procedure, suitable medium

and large firms were selected according to set criteria

(which included the date of registration, turnover, and

number of employees).

Responses were required from key informants knowl-

edgeable in a variety of tactical and strategic activities

(Bowman and Ambrosini, 1997). Discussions with senior

managers found that Human Resource Managers were

comparatively ignorant of strategic marketing activities.

However, Strategic Marketing Managers were relatively

well informed of HRM issues (largely due to their promi-

nent role in strategy development and their roles in internal

communication and internal marketing). Furthermore, dis-

cussions with senior executives found that a significant

proportion of those executives responsible for `marketing'

also were responsible for wider more general management

issues. Hence, focusing on the `Head of Marketing' pro-

vided key informants knowledgeable in both areas of

strategy some of which would be `General Managers' and

some (purely) `Marketing Managers'.

To improve the content validity, response reliability, and

response rates, the survey was conducted in a manner

recommended by Dillman (1978), Conant et al. (1990),

Churchill (1991), and Faria and Dickinson (1992). These

recommendations encompassed a variety of issues includ-

ing: questionnaire design, survey piloting, and pre-notifica-

tion and post-survey follow-up reminders.

A survey research instrument was developed using both

measures adapted from extant literature. There are two

dominant measures of market orientation, namely those of

Narver and Slater (1990) and Kohli et al. (1993). While, the

Kohli et al. (1993) measure of market orientation has been

successfully utilized in a number of studies (e.g., Pitt et al.,

1996), the Kohli et al. (1993) battery has been subjected to

academic criticism (see Diamantopoulos and Hart, 1993;

Oczkowski and Farrell, 1998). Consequently, the Narver

and Slater (1990) measure of market orientation was used to

gauge the levels of market orientation.

SHRM was measured via a scale of items designed to

capture the essence of the construct. Eight specific items,

based on one generic question, were developed based on the

SHRM measures of Delery and Doty (1996) and Huselid et

al. (1997). Further, pre-testing and survey piloting through

extensive and prolonged interviews with HRM practi-

tioners, general managers, and appropriate academics re-

duced these items to the five key questions adopted for the

study. The precise wording of questions and items pertain-

ing to measures of market orientation and SHRM are

presented in Table 1.

Existing literature indicates that measuring business

performance is complex due to the multi-dimensional nature

of organizational performance (see Lenz, 1981; Venkatra-

man and Ramanujam, 1987). However, significant evidence

exists to indicate a close association between objective and

perceptual measures of business performance (e.g., Dess

and Robinson, 1984; Pearce et al., 1987; Venkatraman and

Ramanujam, 1987). Indeed, the choice of primary percep-

tual business performance measures is widely viewed as

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166160

valid in many fields (Jaworski and Kohli, 1993; Deshpande

et al., 1993). A review of relevant literature led to the

decision to measure performance using 10 questions

adapted from the constructs of the preceding authors.

Performance measures were phrased around two generic

questions pertaining to long- and short-term performance,

complemented by five variables referring to performance in:

customer satisfaction, sales growth, market share, competi-

tive advantage, and sales volume.

The 7-point Likert-type scoring was adopted for all items

(Likert, 1932a,b). The Narver and Slater (1990) measure of

market orientation had previously been employed using 5-

point scales. However, Barnes et al. (1994) argue that the

switch to 7-point scales has no effect on principal compo-

nents analysis and improves construct reliability. Hence, 7-

point scales were used to improve reliability and for reasons

of ease of response and administration (Churchill and Peter,

1984; Malhotra, 1993).

After a number of reminder letters, a total of 342

responses were received. Unfortunately, 20 were ineligible

for reasons including: company policy of non-participation

in survey, company liquidation, and inadequate completion

of the survey instrument. The Council of American Survey

Research Organizations (CASRO, 1982) method of re-

sponse rate calculation (which removes ineligible responses

from the sample size) produced a return rate of 34.22%.

This yield is notably above comparable studies, possibly

reflecting the utility of adopting of the survey design and

administration recommendations of Dillman (1978), Conant

et al. (1990), Churchill (1991) and Faria and Dickinson

(1992) discussed earlier. No major differences were found

between the early and late respondents or between popula-

tion and sample industrial classifications, suggesting that

these forms of response bias may not be a problem.

Responses to the questionnaires were analyzed using the

SPSS package. The analysis ranged from univariate ana-

lyses to more sophisticated multivariate techniques. Section

3 details the results of this analysis.

3. Findings

In order to evaluate the developed proposition, it was

first necessary to construct meaningful indices of market

orientation, SHRM and organizational performance. Conse-

quently, principal components analysis with varimax rota-

tion was conducted of items pertaining to SHRM and

market orientation (see Table 1). As expected, this principal

components analysis led to the extraction of two factor

solutions. Factors were only retained if they possessed an

Table 1

Principal components analysis of measures of market orientation, and SHRM

Factor loadinga

Item Market orientation Strategic HRM Communality

Understanding customer needsb 0.82299 0.69494

Focusing on customer commitmentb 0.76203 0.59927

Getting all functions to contribute to customer valueb 0.76172 0.59051

Sharing information across departmentsb 0.76049 0.64057

Measuring customer satisfactionb 0.74750 0.62243

Setting customer satisfaction objectivesb 0.73395 0.60114

Creating value for customersb 0.73202 0.55003

Sharing information about customersb 0.73088 0.55202

Targeting opportunities for competitive advantageb 0.72720 0.61196

Sharing resources across the whole companyb 0.65333 0.49231

Top managers discussing competitors' strategiesb 0.64269 0.42964

Responding rapidly to competitors' actionsb 0.58086 0.34094

All departments contributing to company strategyb 0.56860 0.36984

Human resource managers play a key role in developing strategyc 0.83965 0.72736

A key task of our human resource department is forward planning

and integrating management resourcesc

0.82373 0.72073

This company practices `strategic human resource management'c 0.80031 0.71458

A key task of our human resource department is ensuring high levels

of motivation and commitment. (r)c

0.74417 0.64176

Human resource systems drive the strategic objectives to this companyc 0.70093 0.49250

Eigenvalues 8.13860 2.35681

% Variance explained 42.8 12.4

Cumulative % variance 42.8 55.2

a Principal components analysis with varimax rotation, converging in seven iterations (all loadings less than 0.3 suppressed).b Question wording was `Please indicate the extent to which the following statements are true of the personnel, policies, or procedures of your company by

circling the appropriate point' measured on a 7-point Likert-type scale respectively anchored by (1) Not At All and (7) Very Great Extent.c Question wording was `To what extent does your company place a high priority on the following?' measured on a 7-point Likert-type scale respectively

anchored by (1) Not At All and (7) Very Great Extent.

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166 161

eigenvalue greater than one, accounted for over 5% of

variance and if they were conceptually clear and interpre-

table (Kaiser, 1958; Churchill, 1991).

The first factor solution extracted, loads heavily onto a

vector generating an eigenvalue of 8.13860 and explains

42.8% of variance. The 13 items that load on to this factor

were originally derived from the Narver and Slater (1990)

scale measuring market orientation. Consequently, the solu-

tion is accepted and the factor allocated the label market

orientation. The second factor extracted also loads heavily

on to a vector, generating an eigenvalue of 2.35681 and

explains 12.4% of variance. The five items that load onto

the second factor were originally derived and adapted from

the measures of Delery and Doty (1996) and Huselid et al.

(1997), designed to gauge the extent of SHRM. Thus, the

solution is accepted and the factor labeled strategic human

resource management with a short-hand notation of Strate-

gic HRM. Given that judgmental comparative measures of

performance are widely used and accepted, an index of

performance was constructed by calculating the summated

means of items. Thus, indices were constructed for perfor-

mance, market orientation, and Strategic HRM by calculat-

ing the summated means of scales.

Prior to the evaluation of the developed proposition, it

was considered prudent to establish the reliability and the

validity of each of the three scales utilized in this study.

Reliability gauges `̀ the degree to which measures are free

from error and therefore yield consistent results'' (Peter,

1979, p. 6). Slater (1995) argues that the most commonly

reported measure of reliability is the Cronbach alpha and

that the usual criterion is 0.7. The Cronbach alpha coeffi-

cient (Cronbach, 1951) test of reliability led to coefficients

that ranged from 0.9259 to 0.8666 (see Table 2). The high

level of the coefficients and the finding that deletion of

items would reduce the coefficient led to the conclusion that

the scales were acceptably reliable (Peterson, 1994).

As stated earlier, the questionnaire was piloted, pretested,

and adjustments made to improve content validity. However,

analyses of the validity of index operationalization and

discriminant validity were also undertaken. The validation

of the index operationalization test of correlating items to the

scale, indicated that the correlations were high and in the

expected direction indicating an acceptable level of conver-

gent validity (see Table 2). The level of discriminant validity

was gauged via the adoption of the test recommended by

Gaski (1986). This test indicates evidence of discriminant

validity in that the correlation between market orientation

and Strategic HRM is lower than either scales' alpha

coefficient. Consequently, it was concluded that each of

the scales used in the study are acceptably reliable and valid.

As stated previously, the items used in the study were all

measured on 7-point scales resulting in a mid-point of four.

Each of the scales ran low to high in scoring (e.g., score of 1

suggesting low performance and a score of 7 indicating high

performance). Primary data exploration was undertaken via

the analysis of descriptive statistics (see Table 3). The

descriptive statistics of Table 4 illustrate that the mean

scores of measures of market orientation and performance

are notably above the mid-point with a low level of

variance. In contrast, the scale gauging the level of Strategic

HRM is significantly below the mid-point while the stan-

dard deviation is relatively high indicating varying degrees

of Strategic HRM within the sample. Comparatively few

meaningful findings can be derived from the analysis of

descriptive statistics, however, these statistics would appear

to indicate that the levels of market orientation and organi-

zational performance are significantly above the measure of

Strategic HRM. Furthermore, given that the sample of the

study consists of larger firms, the descriptive statistics

tentatively support theorists who have claimed an associa-

tion between organizational size and market orientation (see

e.g., Liu, 1995).

Table 2

Reliability and scale validation test results

Inter-Item correlations*

Scale Number of scale items Cronbach alpha coefficient Lowest Highest

Market orientation 13 0.9259 0.5042 0.7783

Strategic HRM 5 0.8666 0.4161 0.7436

Performance 10 0.8980 0.4161 0.7436

* Pearson correlation coefficient. All correlations significant at the 0.001 level.

Table 3

Descriptive statistics

Mean Standard deviation Valid cases

Market orientation 4.89 1.05 321

Strategic HRM 3.34 1.30 311

Performance 5.05 0.95 321

Table 4

Zero-order correlations between organizational performance, market

orientation, and strategic SHRM

Performance

Market orientation 0.3259***

Strategic HRM 0.2162***

*** p < 0.001.

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166162

The evaluation of Proposition 1 was initiated by the

zero-order correlation of market orientation and Strategic

HRM to organizational performance. The results of this

analysis are presented in Table 4. The zero-order correla-

tion of market orientation to organizational performance

found that market orientation is positively and significantly

associated with performance at the 0.001 level. The

strength and direction of this association (r = 0.3259)

indicates preliminary support for the claim that market

orientation is linked to performance. This finding is con-

sistent with much of the strategic marketing literature (see

e.g., Narver and Slater, 1990; Jaworski and Kohli, 1993;

Wong and Saunders 1993; Pitt et al. 1996; Selnes et al.

1996) but is not wholly consistent with some theorists (see

e.g., Slater and Narver, 1993; Greenley, 1995b; Liu, 1995)

who argue that the link between market orientation perfor-

mance is not universal.

The zero-order correlation of the measure of Strategic

HRM to organizational performance also found a strong

association (r = 0.2162). Consistent with the suggestions of

a number of HRM writers, Strategic HRM was found to be

positively and highly significantly associated with organiza-

tional performance at the 0.001 level (Kochan and Dyer,

1993; Osterman, 1994; Pfeffer, 1994).

However, while correlation analysis provides a strong

indication of association, in order to undertake a more

complete examination of the proposed relationships and to

evaluate whether such associations are direct or indirect, a

simple path analysis was conducted (see Fig. 1). A form of

path analysis, which evaluated the directness of associations

and the cumulative impact of any independent factors on the

dependent factor of organizational performance, was re-

quired. Consequently, a form of path analysis was adopted

that followed the path analysis technique recommendations

of Duncan (1966) and Pendhazur (1982). In defense of their

use of path analysis Szymanski et al. (1993, p. 8) argue that

path analysis provides a clearer understanding of associa-

tions than the use of `̀ regression per se'' and conclude that a

path methodology enables the examination of `̀ whether an

indirect effect embellishes, diminishes, or negates an asso-

ciated direct effect.''

The path model illustrates the direct and indirect relation-

ships between Strategic HRM, market orientation, and

performance. Table 5 presents the standardized regression

coefficients and Table 6 presents the direct and indirect

effects of market orientation and strategic HRM on the

measure of performance. The indirect effect of strategic

HRM is calculated as a simple multiplicative measure of the

magnitude of sequential beta weights. It should be noted

that (respectively) the Goldfeld and Quant (1965), Ramsey

(1974), Belsley et al. (1980), and Hair et al. (1998) tests for

multicollinearity, linearity, normality, and homoscedasicity

were conducted and no problems encountered.

The path analysis presented in Fig. 1 suggests that both

market orientation and strategic HRM are associated with

organizational performance (see Table 6). This provides

further support for claims of an association between market

orientation, strategic HRM, and performance. However, the

association between strategic HRM and organizational

performance is found to be indirect. The regression and

path analysis indicates that the strength of the zero-order

correlation between strategic HRM and organizational per-

formance (presented in Table 4) is misleading. The regres-

sion analysis used to construct the simple path analysis

presented in Fig. 1, indicates that the link between strategic

HRM and performance is purely indirect due to the asso-

ciation between Strategic HRM and market orientation.

Thus, a high level of support is found for the claim that

the link between strategic HRM and performance is

mediated by the extent of market orientation exhibited by

the organization. In this sense, strategic HRM can be

viewed as an antecedent to market orientation, which, in

turn, is an antecedent to performance.

Fig. 1. Path analysis of the links between Strategic human resource management, market orientation, and organizational performance.

Table 6

Direct and indirect effects of independent factors on performance

Independent variables Direct effect Indirect effect Total effect

Market orientation 0.33 ± 0.33

Strategic HRM ± 0.46 0.15

Table 5

Total effects of independent factors (market orientation and strategic HRM)

and performance regression

Dependent Independent Beta R2 Sign of F

Performance Market orientation 0.33 0.15 0.0000

Market orientation Strategic HRM 0.46 0.25 0.0000

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166 163

4. Conclusions and implications

In summary, a review of existing literature finds that

Strategic HRM and market orientation are both developed

concepts which have been linked to organizational perfor-

mance (see e.g., Jaworski and Kohli, 1993; MacDuffie,

1995). However, a review of literature pertaining to orga-

nizational culture (e.g., Ogbonna, 1992) and literature on

the barriers to market orientation (e.g., Harris, 1998) finds

that strategic HRM centers on managing organizational

culture while market orientation can be facilitated or im-

peded by cultural barriers. Consequently, this paper theo-

rizes that the association between market orientation and

organizational performance is direct while the link between

strategic HRM and organizational performance is indirect,

being mediated by the extent of market orientation. Briefly,

a study designed to investigate these issues demonstrates

that strategic HRM and market orientation are both linked

to organizational performance although strategic HRM is

associated indirectly.

The findings of the study lead to a number of interesting

implications for both marketing and HRM theorists and

practitioners. The first (and rather obvious) implication can

be derived from the finding that both strategic HRM and

market orientation are related to organizational performance.

Consistent with a variety of extant theories and studies,

evidence was found to suggest that both strategic HRM and

market orientation are linked to the overall performance of

an organization. Hence, organizations wishing to improve

company performance should focus their attention on the

needs, wants, and demands of the market, while paying

attention to harnessing its human resource in order to ensure

that these are met.

More profound implications can be derived from the

finding that Strategic HRM is not directly associated with

performance but rather is purely indirectly linked to com-

pany performance. This finding may provide some justifica-

tion for the claims of past theorists that the link between

strategic HRM and performance is not as clear as is

suggested by some authors (as noted by Wright and McMa-

han, 1992; Koch and McGrath, 1996; Guest, 1997). This

finding provides some support for the `universalist' per-

spective on HRM theorizing (Delery and Doty, 1996) in that

Strategic HRM is found to be linked to performance (albeit

indirectly). However, the findings also support aspects of

the `contingency' perspective (Delery and Doty, 1996)

through the implication that the success of strategic HRM

is dependent on policies being consistent with the needs,

wants, and demands of the market. Thus, for Strategic HRM

to lead to increased performance, the policies and practices

arising from it must not only be internally consistent they

must also be focused on generating a market-led organiza-

tional culture.

The findings demonstrate that the development of market

orientation is partially dependent on the appropriate strate-

gic management of the human resource facilitating the

development of an appropriate organizational culture. In-

deed, an examination of the coefficient of multiple determi-

nation (R2) in Table 5 finds that the measure of strategic

HRM explains 25% of the variance of market orientation

around its mean. Put differently, the level of strategic HRM

may predict 25% of the level of market orientation exhibited

by an organization. This finding may appear to some to pose

an organizational paradox in that the development of an

external focus appears to be dependent on an internal

orientation. Thus, the avoidance of marketing myopia is

contingent on a myopic focus on the organization. This

argument would hold if strategic HRM is purely focused on

internal dynamics as may have been the case with early

research into HRM (see Delery and Doty, 1996). However,

recent theorizing in strategic HRM emphasizes both an

internal and external focus (see e.g., Huselid et al., 1997).

A key issue that emerges is the need for an `appropri-

ately' oriented strategic human resource. A contentious

issue in management theory related to the development of

sustainable competitive advantage is that the sources of such

an advantage should be imperfectly imitable (Fiol, 1991;

Reed and DeFillippi, 1990). Hence, Barney (1986; 1991)

argues that providing an organizational culture is unique, it

may provide a source of sustainable advantage over com-

petitors. A potential implication of the findings of this paper

is that a singular focus on discipline-specific sources of

competitive advantage (such as market orientation or a

flexible human resource policy) may not provide a unique

and imperfectly imitable advantage, which may be sus-

tained. However, it is possible to argue that a market-

oriented culture developed as the result of a market-focused

(strategic) HRM may provide the means to develop a unique

and unimitable source of competitive advantage derived

from both an internal and an external orientation.

The findings, conclusions, and implications of this study

are bounded by a series of limitations. These limitations

suggest that caution is needed in interpreting parts of this

study but they also indicate a number of potentially fruit-

fully avenues for future research. Firstly, the data presented

in this paper was obtained using a cross-sectional metho-

dology that precludes definitive causal claims (although it

has been argued that statistical association in combination

with extant theory provides adequate evidence to suggest

tentatively some level of prediction). Furthermore, while the

sample of the study comprises large organizations, the

sample is culturally biased in that sample companies were

based in the UK, suggesting that future research could

examine these issues in alternative contexts. The study is

focused on certain aspects of organizational performance,

which a number of authors (see Guest, 1997) suggest

overlooks other performance indicators (such as employee

satisfaction and well-being). Consequently, a recommenda-

tion for future research is to broaden measures of perfor-

mance to evaluate alternative predictors. Finally, this paper

argues that valuable insights into the antecedents to market

orientation and the strategic HRM-performance link have

L.C. Harris, E. Ogbonna / Journal of Business Research 51 (2001) 157±166164

been gained via the study of such issues from alternative

perspectives. Thus, it is suggested that researchers continue

to draw upon diverse literatures and perspectives to provide

illuminating insights into traditionally narrow disciplines.

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