Market orientation, market disruptiveness capability and social enterprise performance: An empirical study from the United Kingdom

Abstract

This study investigates whether and how the pursuit of certain commercial business practices such as market orientation and market disruptiveness capability improves both the economic performance and social performance of social enterprises. Based on the empirical data collected from 164 UK social enterprises, our results show that market orientation improves social performance and economic performance simultaneously, whereas market disruptiveness capability improves only the economic performance, not the social performance, of social enterprises. However, we found a positive interaction effect of market disruptiveness capability and market orientation on social performance, while its effect is negative on economic performance.

Introduction

Increasingly, social enterprises are recognised as playing a crucial role in solving complex social problems by employing innovative strategies, particularly in the context of limited resources and capabilities (Di Domenico, Haugh, & Tracey, 2010). ‘Social enterprise’ encompasses many different forms of organization. According to Defourny and Nyssens (2017), social enterprises can broadly be defined into four categories: entrepreneurial non-profits, that are charities and non-governmental organizations adopting an entrepreneurial approach towards accomplishing their social mission; social business, such as the Big Issue, commercial businesses applying business models and practices to develop business activities that are social mission(s)-driven; social cooperatives, such as the Co-op supermarkets, as well as credit unions: both are typically being run by members and stakeholders and can be found across the world; and public-sector social enterprise, essentially spin-offs intending to serve the needs of the target catchment with increased accuracy and efficiency through commercialisation. Despite these apparent differences, a similar characteristic among all social enterprises is pursuit of social mission (Defourny & Nyssens, 2017; Doherty, Haugh, & Lyon, 2014). Considering the definition suggested by the Department of Trade and Industry in the UK, social enterprises are businesses with ‘primarily social objectives whose surpluses are principally reinvested for that purpose in the business, or in the community, rather than being driven by the need to maximize profits for shareholders and owners’ (DTI, 2002, p. 13). In contrast to commercial firms, social enterprises pursue a dual mission, and not only have to engage in the generation of income to achieve financial self-sufficiency, and improve their economic performance, but also have to focus on enhancing their social performance (Dart, 2004b; DTI, 2002; Santos, 2012). Social performance refers to the performance of an organization in creating social values to the customers or in achieving social missions, goals, and objectives (Coombes, Morris, Allen, & Webb, 2011), while economic performance refers to the performance of an organization in capturing economic value from its activities (Kropp, Lindsay, & Shoham, 2006). A successful social enterprise should be able to improve the dual objectives simultaneously (Dart, 2004b; Di Zhang & Swanson, 2013). Because of the dual emphasis, however, deciding on the right strategies for social enterprises can be more complex than for conventional businesses. Social enterprises are facing huge pressures to find market strategies that can not only address the needs of those they intend to target, but also to be financially viable (Maclean, Harvey, & Gordon, 2013; Rey-Martí, Ribeiro-Soriano, & Sánchez-García, 2016). As a result, whether a social enterprise can attain both is far from guaranteed (Foster & Bradach, 2005; Massetti, 2008; Rispal & Servantie, 2016).

Two marketing-related concepts stand out within the existing literature: market orientation and market disruptive capability. Market orientation (Hult, Ketchen, & Slater, 2005; Jaworski & Kohli, 1993; Kirca, Jayachandran, & Bearden, 2005; Morgan, Vorhies, & Mason, 2009; Narver & Slater, 1990) has long been considered in commercial business literature as a valuable resource that improves performance of commercial businesses (Morgan et al., 2009; Narver & Slater, 1990; Ngo and O'Cass, 2012a, Ngo and O'Cass, 2012b; Zhou, Li, Zhou, & Su, 2008). It refers to the extent to which a firm will expend efforts to generate, and respond to, information about customers and competitors (Deshpandé & Farley, 1998; Kohli & Jaworski, 1990; Narver & Slater, 1990). Equally, studies have found that, as social enterprises become more aware of the needs of their targeted catchment, they can devise better approaches in serving them (Liu, Eng, & Takeda, 2015).

While, however, market orientation is undoubtedly crucial for social enterprises, the mainstream literature is increasingly viewing it as a static and largely current-looking perspective of market resources (Helfat & Peteraf, 2003; Priem & Butler, 2001). The dynamic capability view (Teece, Pisano, & Shuen, 1997), for instance, has long suggested that it is not just the ability to understand the current market that is crucial to the long-term prospects of an organization, but also the capability to keep up with the changes in the external marketplace. Therefore, while market orientation is current-looking in its focus on market intelligence that would be useful for the ‘now’, market disruptive capability is focused on the future.

In contrast with market orientation, market disruptive capability is a relatively less touched-upon concept in social entrepreneurship. The term was first coined by McKelvie and Davidsson (2009) in the entrepreneurship literature; the authors were looking at the magnitude and persistence of small firms in their attempt to explore new markets through innovations. Its use follows the tradition of the innovation literature which describes such disruptive capability as dynamic and change-orientated, and distinguishes it from the more static, incremental modes of change (Christensen & Overdorf, 2000). Such capability would enable firms to bring out radical product and service innovations ahead of their competitors; this would disrupt the market status quo and force competitors to act accordingly (Markides, 2006; McKelvie & Davidsson, 2009; Tellis, Prabhu, & Chandy, 2009). As developing market disruptive capability entails costs (Assink, 2006; Henderson, 1993) and risk (McDermott & O'Connor, 2002; O'Connor, Ravichandran, & Robeson, 2008), each organization would make a calculative judgement in determining whether the cost associated with such innovation could be compensated by the long-term potential prospect of bringing the innovation to the market, which could enhance the firm's competitiveness. In the literature regarding conventional businesses, such cost is often deemed justified as market disruptive capability is found to be of crucial importance in a firm's exploration and, by implication, its economic performance (Prange & Verdier, 2011). In the social enterprise context, it is also likely that such emphasis on market disruption capability would help social enterprises to increase social performance because, as with conventional businesses, such innovation would enable them to better serve the demands of those they intend to serve.

Nevertheless, it is important to note that market orientation and market disruptive capability are not mutually exclusive, and that a firm could, if intended, pursue both to enhance its current position within the market, while exploring new opportunity through change (Connor, 1999; Raisch, Birkinshaw, Probst, & Tushman, 2009). However, the impact of pursuit of both of these strategies specifically in the context of social enterprises with dual objectives is not clear. While dynamic capability scholars (Teece et al., 1997) argue that some valuable resources such as marketing orientation of a firm should be combined with capabilities in order to improve the firm's performance and it has been empirically supported in the marketing literature (Morgan et al., 2009), others argue that the simultaneous adoption of these two strategies may not be fruitful. Both academic research and conventional wisdom suggest that only a very few companies could serve the varied needs of different segments of customer (Short & Ketchen Jr, 2005). Therefore, the danger of focusing both on the now and on change is that the two goals can be contradictory (Koryak, Lockett, Hayton, Nicolaou, & Mole, 2018); the result is that firms become ‘stuck in the middle’ (Porter, 1980), and consequently perform poorly (Cronshaw, Davis, & Kay, 1994; Pertusa-Ortega, Molina-Azorín, & Claver-Cortés, 2009). Furthermore, investing in both current and forward thinking undoubtedly has a cost implication. Facing a resource-poor context, social enterprises need to be even more prudent over how their resources will be spent (Tasavori, Kwong, & Pruthi, 2018), which means that understanding the performance implications of such investments would be crucial.

Utilising quantitative data obtained from an online survey of 164 UK social enterprises, our main research aim is to explore whether developing both market orientation and market disruptive capability would offer a social enterprise an additional advantage in their ability to attain good economic and social performance. To do so, we set out our research questions into three logical steps:

• Does adoption of market orientation enhance both social and economic performance of social enterprises?

• Does pursuit of market disruptiveness capability improve both social and economic performance of social enterprises?

• Does simultaneous implementation of both market orientation and market disruptiveness capability contribute to better performance (social and economic) of social enterprises?

This study offers several contributions to theory and practice. First, we believe that the exploration of how marketing orientation and market disruption capability interact in affecting social and economic performance is the main contribution of this paper. At present, to the best of our knowledge, no information is available regarding whether the simultaneous development of both market orientation and market disruptiveness capability can contribute to superior economic and social outcomes. Practically, understanding this could help social enterprise managers to make an informed decision regarding how their resources could be best directed. This guidance is crucial and timely because the current political and economic climate is encouraging social enterprises not only to generate income from the market but also to solve increasing complex social problems (Kerlin & Pollak, 2011). Theoretically, by empirically analysing the individual and combined effects of market orientation and market disruptiveness capability on the economic performance and social performance of social enterprises, we can shed light on the theoretical conundrum of ‘stuck in the middle’ within the existing strategic management literature (Brenes, Montoya, & Ciravegna, 2014; Porter, 1980; Salavou, 2015) by exploring whether the emphases on both now and the future would result in superior performance outcomes. Our paper also contributes to the social enterprise literature in relation to the complications of dual foci. Secondly, our study serves a confirmatory purpose in allowing us to extend the existing knowledge on market orientation and market disruptive capability that is specific to our research context. This is particularly the case with the latter, where only a few studies have been conducted not just in the context of the social sector but in resource-poor environments in general. Finally, by adopting a quantitative research design, this study responds to the call for more quantitative studies in the field of social entrepreneurship research (Dacin, Dacin, & Tracey, 2011; Grimes, 2010; Liu et al., 2015; Meyskens, Robb-Post, Stamp, Carsrud, & Reynolds, 2010).