Industrial Marketing Management 35 (2006) 961 973

Building competences for new customer value creation: An exploratory study

Liselore Berghman a,1 , Paul Matthyssens a,b,, Koen Vandenbempt a,c,2
a

University of Antwerp (Belgium), Faculty of Applied Economics, Department of Management, Prinsstraat 13, 2000 Antwerp, Belgium b Erasmus University Rotterdam (The Netherlands), Rotterdam School of Management, Prinsstraat 13, 2000 Antwerp, Belgium c University of Antwerp Management School, Prinsstraat 13, 2000 Antwerp, Belgium Received 10 October 2005; received in revised form 3 April 2006; accepted 20 April 2006 Available online 11 July 2006

Abstract Recent marketing literature suggests companies to become market driving (proactive business logic, changing the rules of the market) instead of market driven (reactive business logic, customer-led). This transformation implies that companies are able to boost their capacity to create new customer value. Based on survey data of business-to-business markets, we advance a tentative model that links competence development to new customer value creation. Although exploratory in its nature, our study exhibits that companies should build three types of competences: marketing practices for external knowledge absorption, general organizational competences and supply chain/network competences. Using cluster analysis, we are able to further link these competences to the capacity of new value creation. Four clusters are detected with different degrees of expertise in new value creation and each displaying their own profile of competences. Becoming market driving requires an integrated and balanced view on marketing practices. 2006 Elsevier Inc. All rights reserved.
Keywords: Value creation; Marketing competences; Market driving; Market orientation; Value innovation

1. Introduction This article explores the competences suppliers need to develop in order to continuously being able to create new customer value. Extant literature pinpoints the urgency of building marketing capabilities to become market oriented and to achieve a sustainable competitive advantage. Day (1994, 2002, 2003) stressed the importance of market sensing and customer linking capabilities. Lacking these capabilities, firms are more likely to get out of touch with their markets, and might be surprised by shifts in customer requirements and/or lose their ability to react or innovate. These firms will consequently lose their capacity to anticipate market changes. Moreover, flawed assumptions, misinformation and internal disagreements might slow down their reactions. On the contrary, market-driven firms are believed
Corresponding author. University of Antwerp, Department of Management Address: Prinsstraat 13, 2000 Antwerp, Belgium. Tel.: +32 32 75 50 63. E-mail addresses: liselore.berghman@ua.ac.be (L. Berghman), paul.matthyssens@ua.ac.be (P. Matthyssens), koen.vandenbempt@ua.ac.be (K. Vandenbempt). 1 Tel.: +32 32 75 50 74. 2 Tel.: +32 32 75 50 57. 0019-8501/$ - see front matter 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2006.04.006

to have superior processes for learning about markets consisting of sensing and sense-making activities. Such firms have also developed systems to effectively capture and retain the collected market information. More broadly, the market orientation literature looks at how market driven companies can learn about market developments, share this information within the organization and adapt the offering to the market (Kohli & Jaworski, 1990). However, companies facing professional customers and an intensified competitive arena must even go one step further, from market driven to market driving (Jaworski, Kohli, & Sahay, 2000; Tuominen, Rajala, & Moller, 2004). In fact, recent pleas for value innovation in business markets (Matthyssens, Vandenbempt, & Berghman, in press forthcoming) and other contributions stress the danger of dominant logics and persistence. Especially in the context of high-velocity markets (Bogner & Barr, 2000; Sinkula, 2002), scholars suggest that a market driving approach might be more apt to generate growth and build sustainable competitive advantage. The need to become market driving is also triggered through commoditization tendencies in business markets. Fighting commoditization often implies a strategy that emphasizes expertise of companies in the business (Golfetto & Mazursky, 2004) and/or

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that offers additional services (Sawhney, Balasubramanian, & Krisnan, 2004). This strategy of pursuing growth beyond mere products (Vandenbosch & Dawar, 2002), is however a risky and complex undertaking (Sawhney et al., 2004). Accordingly, the generation of a market driving strategy focused on the creation of new customer value calls for a different set of competences (Tuominen et al., 2004). Traditional market oriented capabilities might not be enough to face this continuous market challenge. Weerwardena and O'Cass (2004) report that entrepreneurship plays a critical role in building and nurturing market-driven capabilities. But what exactly enables a company to play this value creation game? Our previous qualitative empirical findings and literature study on strategic and value innovation (Matthyssens et al., in press forthcoming), as well as the aforementioned literature on marketdriving organizations (Jaworski et al., 2000) enabled us to reveal critical elements in the capacity to create superior new customer value. We define new value creation capacity as the capacity to: 1) create a fundamentally different and/or new business model (incl. market approach), and/or 2) change the roles and (power) relationships in industry/supply chain. This new value creation capacity is considered as the dependent variable in this paper. More specifically, we seek to identify what competences are needed to increase this new customer value capacity. The remainder of the paper is structured as follows. First, the concept of customer value is briefly summarized and linked to supplier competences. Next, market driving versus market driven companies is discussed, giving way to the notion of new value creation competences. Next, we introduce our empirical study and elaborate on the methodology and findings. The conclusion summarizes key learning points for managers and invites researchers for future researching this area. The Appendix shows the managerial relevance of this study. 2. Customer value and supplier competences Creating and delivering customer value is seen as a cornerstone of marketing and competitive strategy (Khalifa, 2004; Lindgreen & Wynstra, 2005) and relationship management (Payne & Holt, 2001). Customer value theory (Woodruff, 1997) stresses the importance of understanding customer perceptions of value-in-use and building the customer value hierarchy model. Suppliers are supposed to learn about customer value, create it and develop delivery processes. Slater (1997) agrees on the importance of continuous learning about customers, but adds two important issues. First, value creation implies a dedication to continuous innovation. Secondly, companies should develop a customer value process-focused organization. Woodruff (1997) and Lindgreen and Wynstra (2005) for their part, indicate that notwithstanding the centrality of customer value to marketing, relatively little is known about it. According to them, customer value has at least two dimensions (Lindgreen & Wynstra, 2005): (a) the total value of goods and services and (b) the relationship value, which is composed of direct and indirect functions of a customer relation (Walter, Ritter, & Gemnden, 2001).

Payne and Holt (2001) made an inventory of the customer value literature and conclude that value is a broader concept than generally recognized. They further argue that an integrative frame is needed and propose a multiple stakeholder view for relationship value management. Also Khalifa (2004) synthesized the recent literature on customer value and he too, concludes that the concept of customer value is one of the most overused and misused concepts in social sciences in general and in management literature in particular (:646). He proposed an integrative model that reflects the concept's richness and complexity. This approach builds on three perspectives from prior conceptions: the value components model, the benefits/costs ratio model, and Woodruff's (1997) means-ends value hierarchy model. In his conception, Khalifa looks at three complementary viewpoints: the value exchange model, the value build-up model and the value dynamics model. This triple conception starts from a benefitscosts perspective. The second component describes how intangible benefits can be added by focusing on the customer as a person and on the relationship as an interaction. As such, not only functionality is offered to the customer but also a solution, experience or meaning. The third component looks at the dynamics of value by introducing value magnifiers and destroyers. To be able to provide customers with superior value, the firm should grasp the forms and dynamics of the customer value model. From our point of view, Khalifa's conception is attractive in two respects. First, it pinpoints the importance of adding additional benefits to customers; a claim also made by the strategic marketing literature. Solutions (e.g., Sawhney et al., 2004), experience and meaning (e.g., Vandenbosch & Dawar, 2002) are frequently suggested as value enhancers. Second, it stresses the continuous need to add additional and new value attributes. Webster, Malter, and Ganesan (2005) consider the latter a clear break with the past short-termism of marketing literature. Such a dynamic value approach forces suppliers to develop additional competences besides the traditional marketing capabilities described in the market orientation literature (Day, 1994; Kohli & Jaworski, 1990): both the value of organizational and supply chain competence have been reported. Concerning the former, entrepreneurial skills come to play a vital role in building market driving capabilities (Tuominen et al., 2004). Furthermore, culture, people and organizational design are crucial elements in the migration to service additions (Sawhney et al., 2004). Furthermore, a (coordinated) supply chain competence to supplement the customer value process focused organization is suggested by, for example, Flint (2004). 3. Market driving versus market-driven: how to build new value creation competences? In the introduction to this paper, we mentioned the distinction between being market-driven, or, in contrast actively driving the market. Jaworski et al. (2000) introduced this distinction in order to refine the market orientation literature. Essentially founded on the cultural definition by Narver and Slater (1990) and the behavioral (market information processing) definition by Kohli and Jaworski (1990), market orientation has

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evolved towards an extensively studied marketing construct (Day, 1994; Deshpand, Farley, & Webster, 1993; Han, Kim, & Srivastava, 1998; Hult, Ketchen, & Slater, 2005). However, more recently, researchers have doubted the business performance benefits originally associated with market orientation (e.g., Jaworski & Kohli, 1993). Scholars have in fact argued that customer and market information may well offer insights into existing value systems, but not into new markets with different systems of use (Christensen & Rosenbloom, 1995). Traditional market research and analysis techniques, being primarily focused on intelligence generation from and on current customer needs (scarcely revealing unmet needs or long-bared vexations), may in this respect hamper innovation (Christensen, Johnson, & Rigby, 2002a,b; Christensen and Bower, 1996). In fact, hearing the voice of the customer might lead companies to merely adapt their offerings, while forgetting to also proactively reshape customer preferences (Kumar, Scheer, & Kotler, 2000). Zhou, Yim, and Tse (2005: 45) even speak of the tyranny of the served market. Given the dynamics in the customer value models as discussed in the preceding paragraph, the market orientation approach might in this respect be detrimental to both customer and supplier. Recent pleas in the market orientation literature have hence attributed more proactive shades of meaning to market orientation (see Table 1).
Table 1 Overview of definitions frequently used in the market orientation literature Definition Market orientation

First, Narver, Slater, and MacLachlan (2004) distinguish between responsive and proactive market orientation. Whereas a responsive approach is customer led, focusing on the satisfaction of expressed customer needs, a proactive market orientation aims towards the satisfaction of latent needs. Narver et al. (2004) demonstrated that proactive approaches will lead to more innovative products and services, and to more new product success. Second, a distinction has been made between market driven and market driving market orientation (e.g., Carrillat, Jamillo, & Locander, 2004). The former centres on keeping the status quo, a focus on existing customer preferences (Day, 1999) within an existing market structure (Jaworski et al., 2000). In contrast, driving markets implies not accepting the present market structure and/or market behavior (Jaworski et al., 2000). The market driving approaches suggested by Jaworski et al. (2000) refer to (a) the shaping of the market structure via deconstruction, construction or a functional modification approach, and (b) the shaping of market behavior via the creation of new customer preferences, reversing existing ones or changing competitor preferences. Similarly, Kumar et al. (2000) posit that market driving implies a substantially new customer value proposition and business system. Deep-seated, latent or emerging customer needs are addressed (Kumar et al., 2000).

Key elements Cultural definition: customer orientation, competitor orientation, interfunctional coordination (Narver and Slater, 1990) Behavioral definition: intelligence generation, intelligence dissemination, responsiveness (Kohli and Jaworski, 1990) Respond to customers whishes: customer led Proactivity in the anticipatory sense: lead the customers Keep the status quo (existing customer preferences, existing market structure) (Jaworski et al., 2000) Matches a reactive business logic (Tuominen et al., 2004) Shape market structure: change composition of players and/or roles performed by them (deconstruction, construction, functional modification) Shape market behavior: focus on new attributes and/or new-to-the-world offering (directly, indirectly) (Jaworski et al., 2000) Matches a proactive business logic (radically innovative business concepts/ products that influence and/or create markets) (Tuominen et al., 2004) Revolutionizes industry by changing rules of the game (Kumar et al., 2000)

Market orientation is the organization culture [] that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business [] (Narver and Slater, 1990: 21) Market orientation is the organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence, across departments, and organizationwide responsiveness to it (Kohli and Jaworski, 1990: 6)

Responsive market orientation Proactive market orientation Market-driven market orientation

Market driving market orientation

[] a business attempts to discover, to understand, and to satisfy the latent needs of customers (Narver et al., 2004: 335) A business attempts to discover, to understand, and to satisfy the latent needs of customers (Narver et al., 2004: 335) A business orientation that is based on understanding and reacting to the preferences and behaviors of players within a given market structure (Jaworski et al., 2000: 45) superior ability to understand, attract, and keep valuable customers (Day, 1999: 5) Influencing the structure of the market and/or the behavior(s) of market players in a direction that enhances the competitive position of the business (Jaworski et al., 2000: 45) "Market-driving companies are able to match customer value opportunities with their capabilities precisely because they drive the structure of the market (Carrillat et al., 2004: 7) the success of market driving firms is based in radical innovation on two dimensionsal discontinuous leap in the value proposition and the implementation of a unique business system (Kumar et al., 2000: 130)

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Hence, a market driving approach logically involves a proactive market orientation (Narver et al., 2004). Companies acting as market drivers revolutionize the industry and change the rules of the game (Kumar et al., 2000). In this respect, the market driving approach resembles the kind of strategy innovation and/or disruptive new business development that is often referred to in the recent literature on value innovation (Kim & Mauborgne, 1997) and strategic innovation (Govindarajan & Trimble, 2004; Markides, 1997; Markides & Charitou, 2004). For instance, Markides (1997) pleads for a fundamental rethinking of the competitive game by redefining the business (and its fundamentals), the customer base, the offering, and the core competences. In a similar vein, Christensen et al. (2002a,b) proposed two strategies for creating disruptive growth. The first is to attract non-consuming customers (say, the unserved audience); the second implies a disruption of the industry leader's business model. Such strategies obviously need nourishment in order to be implemented successfully in a continuous way. Christensen et al. (2002a,b) speak of an innovation engine, consisting of the right mix of processes, values and resources enabling the company to generate and sense disruptive ideas and bring them to market. Apparently, the development of a market driving organization requires specific competences. Our main research question is hence: What underlying organizational competences and characteristics does a supplier need in order to enhance its capacity to create new customer value? These underlying competences can be categorized into three classes: a) Marketing practices for external knowledge absorption: recognition, assimilation and transformation b) General organizational competences, i.e. culture, cross-functional coordination and structure c) Competences embedded in the supply chain/network: referring to information from customers and suppliers and innovation stimulus from customers and suppliers. The first set of competences is linked to the concept of absorptive capacity as proposed by Zahra and George (2002). This notion can be used to enrich the notion of market sensing competences as described earlier. The value of market intelligence generation has moreover been emphasized both in the traditional market orientation literature (e.g., Slater & Narver, 2000; Tsai & Shih, 2004) and in articles on market driving approaches (Carrillat et al., 2004). Building further on Zahra and George's (2002) work, we distinguish three kinds of practices for external knowledge absorption: (1) marketing practices for knowledge recognition, (2) marketing practices for knowledge assimilation and (3) marketing practices for knowledge transformation. General organizational competences such as culture and cross-functional coordination are suggested to play an important role in this process by the literature on entrepreneurial market orientation (Christensen et al., 2002a,b; Hult, Hurley, & Knight, 2004; Weerawardena & O'Cass, 2004). Furthermore, contributions on market driving market orientation have pointed out the

value of specific organizational structural (Kumar et al., 2000) and cultural (Carrillat et al., 2004) arrangements as well. Supply chain/network competences and characteristics in value creation were mentioned by Flint (2004) and Walter et al. (2001) and refer to the structural characteristics of the supply chain under study. According to Tuominen et al. (2004: 214) a market-driving orientation matches the proactive business logic emphasizing a firm's capability to develop such radically innovative business concepts and products that influence and even create markets. They claim rightfully that such an approach requires not only a different internal learning mode (generative rather than adaptive) but also a different external perspective on collaboration and partnerships with lead customers. The central idea to this study is that new value creation capacity in business markets is determined by marketing knowledge absorptive capacity (marketing practices for external knowledge absorption) as well as organizational and supply chain/ network competences. It is assumed that differences in these competences will lead to different degrees of new value creation capacity. Identifying which (combinations of) competences lead to high new value creation capacity will help companies aiming at a market driving strategy, to focus on the right drivers. Based on this figure, we can further operationalize the research questions of this paper. Firstly, we seek to give a first indication on how the identified variables are correlated. Next, we try to uncover whether different profiles of value creation capacity exist and how these different types/profiles differ in the identified variables. 4. Methodology 4.1. Data collection In the context of our research questions persons in charge of marketing strategy seemed to be the best placed respondents, something we had also experienced during previous qualitative research (see, Matthyssens et al., in press forthcoming). In general, surveying marketing managers to examine an organization's marketing processes and strategy has been a popular data collection technique in marketing studies (e.g., Han et al., 1998; Joshi & Sharma, 2004; Tsai & Shih, 2004). Hence, the survey was administered to one person per organization or business unit; in large organizations this was usually the marketing manager; in small companies, the marketing strategy often came within the CEO's area of responsibility (Bowman & Ambrosini, 1997; Zahra & Covin, 1993). Although in our study marketing managers seemed to be the most appropriate respondents, we still do acknowledge the need to treat results of single-response studies with caution, due to possible reliability threats. The level of analysis was the business unit, or company in the case of small organizations. Data were drawn from a probability-based Web survey, more specifically a pre-recruited panels of Internet users' method (Couper, 2000). In this approach, firstly a probability sample of the target population is drawn. Non-Internet tools such as a telephone pre-notification are used to elicit initial cooperation and to obtain e-mail addresses. Persons who agree to further

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participate in the Web survey are then finally sent an e-mail request to participate in the Web survey (Couper, 2000). Early 2003 the sample was approached by telephone. General company demographics were noted, the aforementioned respondent condition (being in charge of the organization's or business unit's marketing strategy) was checked and respondents were asked for their co-operation in the subsequent Web survey. During spring 2003 all persons who had expressed their willingness to take part in further research were sent an e-mail invitation for the Web survey. This e-mail message explained briefly the research purpose, the sponsors and the time needed to complete the survey (Crawford, Couper, & Lamias, 2001). The message also contained a reference to the previous telephone call, the Website link to the on-line survey and a personal authorization code to enter the Website. Since a Web survey is a self-administered survey instrument, we were especially mindful of potential measurement error. Hence, we followed design recommendations as specified in the literature on Web surveys (Couper, Traugott, & Lamias, 2001; Dillman, 2000). In addition, in order to avoid differences in visual appearance and technical errors, the Website's stability was tested for several operating systems and browsers (Couper, 2000; Presser et al., 2004) and for all possible exceptional answers before being published online. 4.2. Sample description We selected from the entire population of Dutch industrial companies a stratified, proportional random sample of nearly 3000 industrial companies. Eight strata were defined, consisting of four size categories and two activity categories (industrial product and service companies). Since the survey content was developed from interviews and focus groups with the same type of respondents (persons in charge of marketing strategy) and since the topic proved to be relevant to these executives, we can reasonably assume that a sufficient degree of topic salience existed among the sample (TomaskovicDevey, Leiter, & Thompson, 1994). Furthermore, we used several response inducement techniques: a non-monetary incentive (resume of the research results), a telephone pre-notification call and two follow-up e-mail reminders (Couper et al., 2001; Umbach, 2004). We did so since these instruments have been found to be very effective in either industrial samples (Diamantopoulos & Schlegelmilch, 1996; Erdogan & Baker, 2002; Jobber & O'Reilly, 1998; Roth & BeVier, 1998) or on-line surveys (Deutskens, De Ruyter, Wetzels, & Oosterveld, 2004). Still, as can be seen in Table 2, only 14.3% of the effective telephone sample responded to the on-line survey. Of the original telephone sample, 598 respondents could not be reached because of wrong telephone numbers or premature bankruptcy. Of the effective sample size of 2372 companies, only 816 did answer the telephone pre-notification (43.4% of effective sample). Reasons for nonresponse to the telephone call were lack of time, company policies or an over-surveying effect (866). Also, twenty-two persons did not master the Dutch language, and the remaining 668 persons could not be reached (no answer on telephone, answering machine or continuously busy signal).

Table 2 Response rates Telephone pre-notification Sample size Number not deliverable Effective sample size (=sample size number of undeliverable) Telephone surveys answered Adjusted response rate (=surveys answered / effective sample size) Web survey Sample size (=persons willing to participate in web survey) Web surveys completed First wave Second wave Third wave Total Response rate relative to effective telephone sample 2970 598 2372 816 816 / 2372 = 34.4%

616 223 90 26 339 339 / 2372 = 14.3%

Still, no less than 75.5% (616/816) of the telephone respondents wanted to participate to the Web survey. More than half of these people eventually did so, which amounted to 14.3% of the original effective telephone sample (see Table 2). Non-respondents to the Internet survey were randomly contacted and asked for the reason of their nonresponse. Once more, lack of time, but also (persistent) technical problems of the Web survey were named as the main motive for nonresponse. For industrial mail surveys, estimated response rates generally fall in the range of 1020% (Paxson, 1992). A review of recent publications in prominent marketing journals revealed that in studies where surveys of marketing managers were used, on average, a response rate of 15 20% was obtained for traditional mail surveys (e.g., Joshi & Sharma, 2004; Menon, Bharadwaj, Adidam, & Edison, 1999; Reinartz, Krafft, & Hoyer, 2004). Furthermore, it has been demonstrated (Couper, 2000) that nonresponse is a major drawback specifically in the type of Web survey we applied. To conclude, the response rate we obtained seems acceptable given the specificities of the survey context. Since nonresponse bias may endanger the generalizability of findings (external validity) and the inference quality (internal validity) of conclusions (Sills & Song, 2002) nonresponse bias was also tested statistically. A generally accepted estimation method for nonresponse bias is to compare early versus late respondents (Van der Stede, Young, & Chen, 2005). This is a time trend extrapolation test that rests on the assumption that respondents who respond less readily (i.e. answering later or requiring more prodding to answer) are similar to non-respondents (Armstrong & Overton, 1977). If information obtained from late respondents compares favorably to information from early respondents, it can be assumed that the received responses are representative of a probability sample of the population (Gentry & Hailey, 1981). In order to ensure sufficient statistical power (Lindner, Murphy, & Briers, 2001) we compared the respondents of the first wave with respondents of the last two waves on general company characteristics (chi square tests) and on all theoretical constructs (independent samples t-tests). Results showed no

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significant differences on any variable (p2-tailed > 0.05). The comparison of the first one-third of respondents to the last onethird (Joshi & Sharma, 2004) yielded the same insignificantresults. Results hence suggest that a threat of non-response bias could not be discerned. In the final dataset, companies/BUs in the different size categories are more or less evenly distributed. Company size proportions reflect well population distributions (Amadeus database), with the exception of the under-representation of small companies. When compared to population data, type of activities are relatively well spread, with the exception of an under-representation of, for instance, transport, storage and logistics and other services companies. In contrast, consultancy, training and counseling companies are somewhat overrepresented. 4.3. Questionnaire development Item development was largely based on previous qualitative research on this topic (see, Matthyssens et al., in press forthcoming). Eleven focus groups with suppliers at different levels in the supply chain, and 39 interviews with marketing managers of Dutch industrial companies were held. Managers were questioned about the characteristics of new value creation initiatives in their industries, critical success factors, bottlenecks and organizational characteristics and competences required for new value creation. All interviews were tape-recorded, transcribed and analyzed. These outputs, along with an extensive literature review, were used to develop a preliminary questionnaire version. Before the final questionnaire was administered to the target sample it was first subjected to a multiple-stage pre-testing process in order to reduce measurement error (Mathews & Diamantopoulos, 1995; Presser et al., 2004; Reynolds & Diamantopoulos, 1996). Overall, we followed Bagozzi's (1994) guidelines to firstly perform a critical review by ourselves, followed by a review by a group of knowledgeable experts and a pilot test. The returned questionnaires from the pilot test were statistically analyzed in order to further purify the measures (Churchill, 1979; Presser et al., 2004).

Finally, we conducted a telephone debriefing method (Hunt, Sparkman, & Wilcox, 1982); we called several pilot respondents and asked them to comment on the questionnaire thereby reflecting on meaning and clarity of questions. The questionnaire was accordingly revised. Questions addressed the company's practices for external knowledge absorption, new value creation capacity, general organizational competencies and supply chain/network-related competences and characteristics. 4.4. Measures All constructs from the tentative model (see Fig. 1) were operationalized using multi-item measures. Items were all measured by a five-point Likert scale ranging from 1 (fully agree) to 5 (fully disagree); an additional don't know or not applicable category was added as well (Andrews, 1984). Wherever possible existing, validated scales were used. All scales were factor analyzed (exploratory factor analysis, principal axis factoring, oblique rotation, Kaizer criterion). Proportion of variance extracted, (cross-) loadings and communalities all yielded satisfactory results (Tabachnick & Fidell, 2001). Cronbach alphas for all scales ranged from .70 to .90. 4.4.1. Marketing practices for external knowledge absorption Nonexistence of validated scales for these constructs forced us to develop measures ourselves. Scales were hence based on previous qualitative research (see, Matthyssens et al., in press forthcoming) and on existing conceptual literature. Marketing practices for external knowledge absorption were conceptually rooted in the literature on absorptive capacity (Cohen & Levinthal, 1990; Zahra & George, 2002). However, contrasting the rather reactive notion traditionally attributed to absorptive capacity, in the creation of the items we explicitly paid attention to the inclusion of the characteristics of a market driving and proactive market orientation. The marketing practices were conceptualized as systematic and formalized marketing processes (see for recent

Fig. 1. Tentative model of new value creation capacity.

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literature for instance Reinartz et al., 2004) targeted at external knowledge absorption. As said above, knowledge absorption breaks down in knowledge recognition, knowledge assimilation and knowledge transformation. Marketing practices for recognition were defined as practices (processes, procedures, mechanisms) an organization implements to acquire external information. Practices for outward looking (Zollo & Winter, 2002) and for recognizing information about current and future customers and markets are central (Day, 2002). The measure consisted of 18 items. Exemplary items are: In our business unit we have processes, procedures or mechanisms that stimulate us to systematically study information about the end customer; In our business unit we have processes, procedures or mechanisms that stimulate us to study fundamental changes in our industry (e.g., technology, competition, regulation). Marketing practices for assimilation were defined as practices an organization implements to analyze, interpret and critically reflect upon newly acquired information. Collective sense making processes (Bogner & Barr, 2000; Weick, 2002) play a central role. Eleven items were measured. Exemplary items are: In our business unit we have processes, procedures or mechanisms that stimulate us to systematically question the very way the marketplace is perceived. In our business unit we have processes, procedures or mechanisms that stimulate us to critically reflect upon the way we perceive our customers. Finally, marketing practices for transformation were defined as practices an organization implements to absorb new external knowledge within existing organizational knowledge (Kogut & Zander, 1996; Zander & Kogut, 1995). This category of practices is related to facilitating behavioral change and to the adoption of new routines (Sinkula, 2002). The construct was measured by means of 10 items. Exemplary items are: In our business unit we have processes, procedures or mechanisms that stimulate us to support new initiatives, even to the detriment of existing products/ service. In our business unit we have processes, procedures or mechanisms that stimulate us to change the way tasks are being carried out. 4.4.2. Value creation capacity The dependent variable, a supplier's capacity to create new customer value, was defined as the organization's/BU's capacity, relative to its main competitors' capacity, to systematically launch initiatives that entail: 1) the creation of superior, new customer value, by 2) the creation of a fundamentally new and different business model (or market approach), and by altering the roles and relationships among industry players. The construct was operationalized by means of 9 items. Exemplary items are: In order to create fundamentally new customer value, in comparison to our largest competitors, our business unit takes more initiatives to alter traditional roles and relationships in the industry; In order to create fundamentally new customer value, in comparison to our largest competitors, our business unit takes more initiatives to change our business model. 4.4.3. General organizational competences The constructs of organizational culture, structure and crossfunctional information dissemination were all largely based on

existing scales in the literature. Organizational culture was conceptualized as an innovative, pro-active and risk-taking culture. It was measured by means of 13 items. Items were borrowed from Matsuno, Mentzer, and zsomer (2002) (5 items) and Calantone, Cavusgil, and Zhao (2002) (4 items); 2 items were developed from previous field research. Eleven items adopted from Matsuno et al. (2002) were used to measure organizational structure as the degree of formalization, centralization and departmentalization. Finally, the measurement of cross-functional information dissemination pertained to the sharing of market information internally across different functional areas of the organization/BU. This measure was based on 9 items, borrowed from Martin and Grbac (2003) and Matsuno et al. (2002). 4.4.4. Competences embedded in the supply chain/network Network information potential measured the degree to which market and other information can be obtained through the working relationships with suppliers and customers (Mller & Trrnen, 2003). 6 items were used: 3 items were originally developed by Walter et al. (2001). The other three items we developed ourselves, conceptually according to Mller and Trrnen (2003). Network innovation stimulus was conceptualized as the degree to which other network or supply chain parties (suppliers, customers, and competitors) stimulate the focal organization to innovate. Four items were based on Walter et al. (2001), 11 items were newly developed based on our previous qualitative findings. An exemplary new item of network innovation stimulus was: Our innovation efforts are largely rewarded by our customers; they rarely show free-rider behavior. 4.4.5. Company demographics as control variables To measure the organization's position in the supply chain we used a 10-point scale ranging from 1 (raw material producer) to 10 (end customer). Levels 14 represented upstream companies, levels 57 were considered as midstream companies and levels 89 stood for downstream companies. Organization/BU size was defined as the number of full time employees. Finally, the main activities of the organization were asked for (product manufacturer or service company). Product activities were further subdivided into 8 classes; service activities were classified into 6 categories, all based on Dutch industry classification codes (BIK). To examine the presence of common method bias Harman's one-factor test was run (Podsakoff & Organ, 1986). In the unrotated factor solution no single factor emerged. Neither did the first factor account for the majority of variance. Both results pointed to the absence of common method variance. 5. Findings Table 3 shows the Pearson correlations (two-tailed) among all constructs. All variables show strong and significant intercorrelations (0.228 to 0.691, p < 0.01), with the exception of the structure network information potential relation (0.075). Furthermore, all constructs are positively related to each other. Only structure is apparently a negative variable in this context. The examination of

968 Table 3 Correlations Mkt practices recognit. Mkt practices for recog. Mkt practices assimil. Mkt practices transfor. Culture Structure Crossf. info dissem Nw info potential Nw innovat. stimulus Value creation capacity

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Mkt practices assimil. 0.651

Mkt practices transfor. 0.471 0.507

Culture

Structure

Crossf. info dissem 0.691 0.614 0.460 0.478 0.411

Nw info potential 0.409 0.348 0.240 0.335 0.075 0.436

Nw innovat. stimulus 0.423 0.352 0.324 0.476 0.228 0.442 0.540

Value creation capacity 0.495 0.485 0.475 0.597 0.255 0.413 0.352 0.508

0.480 0.222 0.551 0.330 0.621 0.410 0.484

Pearson correlation, 2-tailed: p < 0.01, p < 0.05.

extremely high correlations (>0.6) reveals that companies having marketing practices in place for recognition, also apply practices for assimilation: or, in companies where deliberate effort is taken to gather external information, processes to analyze, interpret and critically reflect upon this information are also being adopted. Furthermore, both these categories of marketing practices are more often applied in the case information travels easily across different organizational departments (i.e. cross-functional information dissemination). Finally, the application of practices for transformation seems to go hand in hand with an innovative, proactive and risk taking organizational culture. In the context of our research question especially the last column in Table 3 deserves particular attention. On the one hand marketing practices for external knowledge absorption, organizational and network characteristics are all strongly related to new customer value creation. On the other, a departmentalized, formalized and centralized organizational structure will hamper new value creation initiatives. We also squared the Pearson correlation coefficient in order to give a measure of association: the proportion of variance explained in a supplier's new value creation capacity. A salient finding is the very strong association of organizational culture with new value creation capacity (36%). The three categories of marketing practices for knowledge absorption largely contribute to the variance explained as well. Also the importance of network innovation stimulus becomes clear (26%). The sample was clustered on all variables. Mean values were used in order to assure equal weighing of the variables. We applied a combined clustering method. First, a hierarchical clustering analysis with Ward's method (minimum variance) and squared Euclidean distance was performed. Next, results were entered into a consecutive K-means cluster analysis (optimization of stop criterion after 5 iterations). Four clusters appeared; an additional ANOVA on each variable demonstrated that at least two out of the four groups differed significantly on each variable (p < 0.001). Eleven percent of the respondents belonged to cluster 1, 40% to cluster 2, 42% to cluster 3 and 7% to cluster 4.

The clustering results confirmed the strong inter-correlations among the variables. In fact, the clusters turned out to represent four gradations of new value creators. A remarkable finding is that these four value creation profiles represented a continuum on all variables (see Table 4 for mean cluster scores on the variables, indicated on a ten-point scale for ease of interpretation). A higher level of new value creation capacity implies higher levels of all the variables; investing in new value creation capacity means also investing in marketing practices for external knowledge absorption, as well as aligning organizational and network characteristics. As can be read from Table 4, the non-active group specifically underperforms on their market learning (marketing practices for recognition and assimilation) as well as on cross-functional information dissemination. A quantum improvement in these processes is necessary to start improving the new value creation ability of these companies or business units. The real value creators and the non-active group not only differ on the market learning and internal dissemination
Table 4 Cluster scores

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processes. Also the network information potential is much better tapped by the new value creators, which also report a higher network innovation stimulus. The latter seems to refer to a chickenegg issue. Companies might only attract and/or perceive innovation stimuli once their marketing knowledge absorptive capacity reaches a threshold level. The building of new value creation is clearly not just a process of building marketing capabilities. The clusters show that externally and boundary spanning oriented competence building efforts must be accompanied by a gradual and consistent improvement in organizational structure and culture. This is clearly evident from Table 4 and Fig. 2. Further, our findings show that the road to excellence is a difficult and complex one. In fact, many variables (see Table 5) show that mean and median values of all variables are indeed situated above the scale midpoint (2.5); minimum values for network innovation stimulus and organizational culture even approach 2. Also the cluster analysis shows relatively good values (i.e. low values on structure and high values on the other variables) for non-active companies, especially on organizational culture and network innovation stimulus. All these findings hence suggest high minimum threshold values on several variables. The highly kurtotic pattern we found in variable scores is moreover indicative of difficulties to achieve very high scores. This is especially the case with culture, network information potential, network innovation stimulus, cross-functional information dissemination, and to a lesser degree, with assimilation capacity. Excelling in these competences seems hard. Yet, some of exactly these variables were highly associated with new value creation capacity (Table 3). Finally, marketing practices for external knowledge absorption displayed somewhat lower mean scores than did the other competences. Yet, their large association with value creation capacity should urge suppliers to implement them to a higher degree.

Table 5 Descriptives Min Max Median SD Practices for recognition Practices for assimilation Practices for transformation Organizational culture Organizational structure Crossfunctional information dissemination Network information potential Network innovation stimulus New value creation capacity 1 1.36 1.60 1.85 1.09 1.00 1.00 1.93 1.22 4.89 4.91 4.60 4.62 4.18 4.89 5.00 4.73 5.00 3.17 3.09 3.00 3.46 2.55 3.56 3.67 3.40 3.13 0.66 0.68 0.58 0.59 0.57 0.76 0.72 0.49 0.69 Mean 3.14 3.03 3.02 3.34 2.53 3.37 3.70 3.39 3.17

The analysis of the socio-demographic differences (control variables) of the clusters did not result in significant statistical differences. Nevertheless, some patterns can be observed. First, cluster 1 has more midstream and downstream companies whereas cluster 4 (non-actives) consists more of up-stream companies. Second, cluster 2 (value conscious) shows an underrepresentation of service providers whereas cluster 4 shows an over-representation. 6. Discussion In today's competitive business markets, suppliers are continuously challenged to anticipate rather than follow changes in customer value. Customers often seek innovative suppliers that are offering new value concepts or total solution packages. Global competition undermines differentiation in ever shorter time. This study consequently focused on the mix of competences suppliers should develop in order to be able to meet these customer and market expectations. It shows the importance of building the right combination of competences for absorptive capacity (defined as marketing practices for external knowledge recognition, assimilation and transformation), organizational and network

Fig. 2. Four types of value creators.

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competences. Real market driving companies seem to be able to reach high excellence in all three categories of competences. The study indicates that all three activities within external knowledge absorption are equally important in new value creation. First, weak signals and out of the box observations must be captured (so-called recognition). A real value creator senses market trends (recognition) at different levels in its supply chain and in adjacent chains. This study shares with Day (1994) the importance of market sensing as a starting point of value creation, thereby stressing the importance of wide screening horizons (outside the existing dyadic relations). Traditional market sensing capability is not enough, though. This feeds the company with information, but the recognized information must also be assimilated and transformed. The latter processes are in line with Sinkula's (2002) unlearning concept and Day's (2002, 1994) assertion that marketing capabilities and organizational processes are intertwined (e.g., diffusion of learning, interpretation of knowledge). This study extends this stream of literature as it shows that real strategic learning (Thomas, Watts Sussman, & Herderson, 2001) must take place in order to generate market driving value creation. The supplier must develop marketing practices to simultaneously integrate the new information with the present knowledge base, stimulate sense making (Day, 2002) and be willing to transform its processes. The study shows how an innovative, pro-active and risk taking organizational culture and cross-functional coordination facilitate this absorptive capacity. A rigid structure can inhibit it. The latter shows parallels with literature linking technological entrepreneurial proclivity to market orientation. Matsuno et al. (2002: 25) stress that organizations with a high level of entrepreneurial proclivity generally avoid high levels of organizational formalization, centralization, and departmentalization and achieve a greater degree of market orientation trough a low level of departmentalization in general. Also, Hult et al. (2004) show that entrepreneurial orientation supported by a marketing and a learning orientation stimulates firm innovativeness. In their conceptualization, entrepreneurial orientation is characterized by a culture of boldness and tolerance for risk. The analysis indicates that without a strong alignment of absorptive capacity, organizational processes and network capability, the new value creation potential of the supplier will dry up. Business customers seeking innovative suppliers should audit their suppliers also in this respect. As such, our exploratory findings also add to the extant literature on strategic/value innovation. They suggest that the preliminary conceptual model of strategic innovation by Schlegelmich, Diamantopoulos, and Kreuz (2003) might be defined too narrowly. In this model four antecedent variables to strategic innovation have been proposed: culture (questioning attitude), process (creative exploration), people (wide participation) and resources. Our study indicates the necessity of a much broader conceptualization of strategic innovation. It furthermore expands Weerawardena and O'Cass' (2004) conception of entrepreneurial posture and how firms build and nurture marketfocused learning. Our findings are also in line with Gulati and Oldroyd (2005), who show how a proactive and real time market

orientation is only possible when the organization evolves. Our cluster analysis indeed indicates that suppliers must attain a minimum threshold level on all competencies in order to grow their new value creation potential. The study highlights network competences and characteristics as a facilitator in this process. The more open the chain partners can exchange information and jointly stimulate innovation, the higher the probability becomes of new customer value creation on behalf of the supplier. It is clear that a real market driver stimulates supply chain partners to exchange information and share risks. This finding supports prior literature on the role of networks in technological innovation (Ford et al., 2002). 7. Conclusions and future research This study suggests that in order to become a market driving supplier, the simultaneous and gradual development of marketing knowledge absorptive capacity, organizational competences and network competences is necessary. A threshold level seems to exist, but once reached, additional steps seem to develop smoother. Facilitators for new value creation are network information sharing and network innovation stimulus, which might be harder to influence and manage than the organizational conditions. Therefore, this study suggests business marketers seeking to lead the pack in value creation to develop and display their new value creation potential and track record to stimulate network partners to cooperate. Acknowledging the limitations of single-informant research (e.g., Bowman & Ambrosini, 1997) future research might also focus on the different perceptions of key players in new value creation/market driving projects, where decision making as well as market implementation often implies the participation of different functions, as well as various hierarchical levels. Notwithstanding the study's interesting results, several limitations are acknowledged. The sample might not be fully representative and results so far are based on exploratory statistics. First, comparing the characteristics of the sample in the final data set to the real population shows that results are generalizable to all positions in the supply chain, but may be biased towards product companies. In particular, findings may apply less to small service companies. Second, given the underdevelopment of the research area we studied the importance of several supplier competences in an exploratory way. Further multivariate research seems hence the obvious way to proceed. Within the limits of this cross-sectional design, structural equation modeling could be used to model the effects more accurately. Also, a more detailed study on mediating and moderating effects could shed more light on the mechanisms by which supplier new value creation capacity is developed. The high association between marketing practices for recognition, marketing practices for assimilation and cross-functional information dissemination may suggest the existence of mediating relationships and general organizational prerequisites. The same conclusion applies to the role of an innovative, pro-active and risk taking organizational culture in the adoption (and maybe effectiveness) of deliberate transformation processes. In addition, network characteristics, and especially the innovation stimulus

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provided for by network parties, may moderate the impact of marketing practices and organizational characteristics on new value creation capacity. Notwithstanding the exploratory nature of this research, a number of managerial recommendations can be derived. The literature agrees on the urgency of continuously creating new customer value in high-velocity markets. But what competence configuration does a company need to accomplish this? Our findings suggest that customer value creation capacity depends heavily on a company's capacity to absorb external market and customer knowledge into their own organization. Furthermore, successful absorption of knowledge requires that marketing practices and activities are focused on three areas: knowledge recognition (acquisition of external information on market and customers), knowledge assimilation (interpretation of external information, sense making) and knowledge transformation (implementation of knowledge into new procedures/routines, unlearning, re-framing, etc.). Transforming a company from market driven to market driving, thus requires a balanced and integrated marketing approach. Investments in external information acquisition (the most traditional role of marketing) will not lead to new customer value creation when the other two areas (assimilation and transformation) are neglected. A market driving orientation requires changes in organizational structure, standard procedures/ routines and culture. In this way, marketing can play a steering role in organizational development and change processes. Lastly, managers should develop a strategic view on how they can leverage the knowledge embedded in networks and supply chain. They should develop competences that can extract the maximum of information and knowledge out of network partners. The latter often implies a more strategic and long term view on relationships. The strategy literature tells us that successful organizations are able to strike a balance between exploration activities (innovation) and exploitation activities (stability) (March, 1991). In fast changing markets where margins are continuously under pressure, this balance becomes even more important, but more difficult to reach (Govindarajan & Trimble, 2005). Companies must be designed in such a way that they can absorb quickly new knowledge into the organization and thus create new customer value; while in the mean time exploiting existing best practices (Tushman & O'Reilly, 1996). This definitely calls for ambidextrous marketing organizations. Acknowledgment The authors would like to thank STEM (Foundation of Technique; Marketing) in The Netherlands for their funding, and the anonymous reviewers and the guest editors for their constructive comments. Appendix A. New value creation on the management team agenda In early 2006, we discussed new value creation initiatives with several general or business unit managers and members of their management team (MT). We will reflect briefly on three of these companies experiences.

The first company is a regional (Benelux) importer and wholesaler of sealing and flow technology. Another is a pan European steel mill. A third one is a global upstream chemical company. The three companies strive at driving theirs markets. They seek differential advantage by offering new value concepts, enter into innovative e-enabled supply chain deals and build unseen service packages around their products. All three companies have undertaken some successful value initiatives (although they all struggle with the value capturing). The top managers and their management team look for ways to continuously replicate new value creation efforts. They have experienced that increasing traditional market research budgets is not enough. Driving markets requires out of the box market sensing. Focus groups, trend watching and looking further (downstream) into their supply chain are knowledge recognition practices which seem to help at generating creative marketing ideas. The three companies, though, reckon that this kind of out of the box thinking is not yet institutionalized. The wholesaler recently established a team to generate ideas on how to become also a leader in anticipative market sensing. The management of all three companies is convinced that tapping new value creating (NVC) opportunities implies a combination of structural change, systems and incentives. The managers in the three companies consider it one of their duties to limit the traditional control and planning routines. For instance, the chemical company curtailed its annual plans, in order to free their managers to come up with path-breaking ideas and run more experiments. The steel mill uses a variety of stimuli to make their market focus team planning a more exploratory exercise. They bring in customers to share ideas during the planning cycle. Difficulties in sharing/cross fertilization among divisions and the unlearning of old mental models seem to block the transformation of ideas to change the business model. Huge efforts to facilitate and stimulate cross functional communication and learning and to create an entrepreneurial organizational climate are high on MT's agendas. Different degrees of NVC capacity attained by these three companies can be explained through their level of complementarity of the different marketing competences. The market focus teams of the steel mill consist of five functions: product management, R and D, production, logistics and finance. The three companies, though, have experienced by now that their supply and network competences must be aligned to these internal efforts. The management teams of the three companies have learned that new value creation and value capturing cannot be secured by an internal alignment only. Market and supply chain partners must be streamlined as well. This addendum has shown the high priority of the central concepts of this paper on the agenda of top managers. To conclude, our contacts with these management teams seem to reinforce our main finding, i.e. a congruent mix of competences is required to reach excellence in new value creation. References
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