Industrial Marketing Management 43 (2014) 25–31

Contents lists available at ScienceDirect

Industrial Marketing Management

The impacts of marketing and operations capabilities on financial

performance in the UK retail sector: A resource-based perspective
Wantao Yu a,⁎, Ramakrishnan Ramanathan b,1, Prithwiraj Nath c,2
a
Norwich Business School, University of East Anglia, 102 Middlesex Street, London E1 7EZ, UK
b
Department of Business Systems, University of Bedfordshire Business School, Putteridge Bury Campus, Hitchin Road, Luton LU2 8LE, UK
c
Norwich Business School, University of East Anglia, Norwich Research Park, Norwich NR4 7TJ, UK

a r t i c l e i n f o a b s t r a c t

Article history: Drawing upon the resource-based view (RBV) of the firm, this study investigates the relationships among marketing
Received 1 July 2012 capability, operations capability, and financial performance. Using archival data of 186 retail firms in the UK, we find
Received in revised form 24 December 2012 that that marketing capability has a significant impact on operations capability, and that operations capability is
Accepted 1 July 2013
significantly and positively related to retail efficiency. The results also suggest that operations capability fully medi-
Available online 26 July 2013
ates the relationship between marketing capability and financial performance. The findings of this study provide
Keywords:
practical insights for practicing managers to consider when developing functional capabilities in order to achieve
Marketing capability superior financial performance.
Operations capability © 2013 Elsevier Inc. All rights reserved.
Financial performance
Retail
UK

1. Introduction The marketing literature has always focused on creation of customer

demand and how to provide customers a unique value proposition, such
The resource-based view (RBV) of the firm attributes superior as proposing that a firm can enhance its financial performance by im-
financial performance to organizational resources and capabilities proving its marketing capability (Vorhies & Morgan, 2005). Operations
(Bharadwaj, 2000). Capabilities have been broadly defined as “complex management researchers, on the other hand, have focused on manage-
bundles of skills and accumulated knowledge that enable firms to coordi- ment of supply to fulfill customer demand, such as examining the effect
nate activities and make use of their assets” (Day, 1990). Song, Benedetto, of operations capability on firm performance (Terjesena, Patelb, &
and Nason (2007) stated that each firm has a distinctive set of resources Covin, 2011). Porter (1985) argued that all functional areas of business
and capabilities, and some types of capabilities will be more closely contribute towards delivery of products and services but marketing and
related to superior performance than others. Grant (2002) described a operations are the two key functions that create value for customers.
hierarchy of organizational capabilities, where specialized capabilities There is a growing body of literature arguing the important role of inte-
are integrated into broader functional capabilities such as marketing gration of marketing and operations functions in improving firm perfor-
and operations capabilities. A growing number of researchers have mance (Balasubramanian & Bhardwaj, 2004; Hausmana et al., 2002; Ho
explicitly emphasized the importance of integrating operations and & Zheng, 2004; Roth & van der Velde, 1991; Wheelwright & Hayes,
marketing perspectives in gaining competitive advantage (Calantone, 1985). Mismatch between the two functions lead to production ineffi-
Dröge, & Vickery, 2002; Hausmana, Montgomery, & Roth, 2002; Nath, ciency and customer dissatisfaction, whereas a proper fit lead to sustain-
Nacchiapan, & Ramanathan, 2010; O'Leary-Kelly & Flores, 2002; Song able competitive advantage (Ho & Tang, 2004). It is widely accepted
et al., 2007). Although the integrated roles of the functional capabilities among business leaders that ability to integrate such cross-functional
have become more critical than ever in achieving competitive advan- expertise is vital to both competitive advantage and long-term success
tage (Ho & Tang, 2004; Nath et al., 2010), marketing and operations (Wind, 2005). Surprisingly, no other empirical studies have looked into
functions have been examined separately in the management literature the actual linkage between marketing capability and operations capa-
(Karmakar, 1996). bility and their impacts on financial performance. Hence, in the present
study, we seek to clarify the relationships among the three constructs
holistically.
⁎ Corresponding author. Tel.: +44 2070594479. We adopt a resource-based perspective for theory development and
E-mail addresses: Wantao.Yu@uea.ac.uk (W. Yu), ram.ramanathan@beds.ac.uk
(R. Ramanathan), P.Nath@uea.ac.uk (P. Nath).
hypothesis framing purposes. The RBV describes how an individual
1
Tel.: +44 1582743516. firm's resources (e.g. tangible and intangible assets and organizational
2
Tel.: +44 1603597324. capabilities) affect its financial performance (Barney, 1991; Wernerfelt,

0019-8501/$ – see front matter © 2013 Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.indmarman.2013.07.014
26 W. Yu et al. / Industrial Marketing Management 43 (2014) 25–31

1984). Resources that are valuable, rare, and inimitable can lead to com- (see Fig. 1) investigating that how a firm exploits its critical capabilities
petitive advantage when strategically selected and deployed (Barney, in marketing and operations to improve financial performance.
1991; Grant, 1991). Over the last few years, the RBV has been exten-
sively adopted in both the marketing and operations management liter- 2.2. Marketing capability
ature (Paiva, Roth, & Fensterseifer, 2008). Using the archival financial
data of 186 retail firms in the UK, we explore the links among marketing Marketing capability is defined as the integrative process, in which a
capability, operations capability, and financial performance. firm uses its tangible and intangible resources to understand complex
The remainder of this paper is organized as follows. First, a brief consumer specific needs, achieve product differentiation relative to
literature survey on concepts relevant to this study is provided, and competition, and achieve superior brand equity (Day, 1994; Dutta
research hypotheses are developed. Second, the design of this study et al., 1999; Song et al., 2005, 2007). Marketing capabilities include
and the methodological procedures are described. Third, the findings knowledge of the competition and of customers, as well as skill in
of the study are presented and discussed, and a set of theoretical and segmenting and targeting markets, in advertising and pricing, and in in-
managerial implications are drawn. Lastly, we conclude with a summary tegrating marketing activity (Song et al., 2007). A firm develops its
of findings and conclusions along with the main limitations and scope marketing capabilities when it can combine employees' knowledge
for future research. and skills with the available resources (Vorhies & Morgan, 2005).
Firms that devote efforts and resources to interacting with customers
2. Theoretical background and research hypotheses can enhance their “market sensing” abilities (Narsimhan, Rajiv, & Dutta,
2006). Such capabilities, once built are very difficult to imitate for com-
2.1. Resource-based view and capability peting firms (Day, 1994). Thus, marketing capability is considered to be
one of the most important sources of competitive advantage (Nath
The RBV considers a firm as a bundle of resources and capabilities et al., 2010). The marketing literature suggests that firms use capabilities
(Wernerfelt, 1984). It is an influential framework for understanding to transform resources into outputs based on their marketing mix
how competitive advantage is achieved through intra-firm resources strategies and such marketing capabilities is related to their business
and capabilities (Corbett & Claridge, 2002). In general, resources refer performance (Vorhies & Morgan, 2003). Song et al. (2007) argued
to tangible and intangible firm assets that could be put into productive that marketing capability helps a firm build and maintain long-
use (e.g. Amit & Schoemaker, 1993; Grant, 1991). Capability is defined term relationship with customers and channel members. Marketing
as the ability of the firm to use its resource “to affect a desired end” capability creates a strong brand image that allows firms to achieve
(Amit & Schoemaker, 1993). It is like “intermediate goods” generated superior firm performance (Ortega & Villaverde, 2008). Empirical
by the firm using organizational processes to provide “enhanced pro- studies have found a significant relationship between marketing capa-
ductivity to its resources” (Amit & Schoemaker, 1993). Compared to bility and financial performance (Dutta et al., 1999; Nath et al., 2010;
resources, capabilities are embedded in the dynamic interaction of mul- Song et al., 2005; Vorhies & Morgan, 2005). For instance, Nath et al.
tiple knowledge sources and are more firm-specific and less transfer- (2010) found that marketing capability has a significant impact on busi-
able thus leading to competitive advantage (Peng, Schroeder, & Shah, ness performance. Vorhies and Morgan (2005) also found that marketing
2008). Capabilities can be broadly categorized into those that reflect capability is positively and significantly related to firm performance.
the ability to perform basic functional activities of the firm and those Using the above arguments, the following hypothesis is proposed.
that guide the improvement and renewal of the existing activities
(Collis, 1994). The RBV argues that firms will have different nature of H1. Marketing capability has a positive impact on financial performance.
resources and varying levels of capabilities. A firm's survival depends
on its ability to create new resources, build on its capabilities platform, 2.3. Operations capability
and make the capabilities more inimitable to achieve competitive ad-
vantage (Day & Wensley, 1988; Peteraf, 1993). The RBV has been widely Operations capability is defined as the integration of a complex set of
used in the marketing literature to understand the interaction between tasks performed by a firm to enhance its output through the most effi-
marketing and other functional capabilities and their effects on perfor- cient use of its production capabilities, technology, and flow of materials
mance improvement (Dutta, Narashiman, & Surendra, 1999; Song et al., (Dutta et al., 1999; Hayes, Wheelwright, & Clark, 1988). Superior oper-
2007; Song, Droge, Hanvanich, & Calantone, 2005). Previous studies ations capability increases efficiency in the delivery process, reduces
(e.g. Dutta et al., 1999; Nath et al., 2010; Terjesena et al., 2011; Vorhies cost of operations and achieves competitive advantage (Day, 1994).
& Morgan, 2005) have found that there is a significant relationship Operations capabilities are fundamental proficiencies that enable firms
between functional capabilities and firm performance. to achieve production-related goals such as consistent product quality,
In addition, the RBV suggests that heterogeneity in firm performance cost reduction, volume and product flexibility, and delivery dependabil-
is due to ownership of resources that have differential productivity ity and speed (Boyer & Lewis, 2002; Swink & Hegarty, 1998; Terjesena
(Makadok, 2001). Dutta et al. (1999) defined a firm's capability as “its et al., 2011; White, 1996). Superior operations capabilities have been
ability to deploy resources (inputs) available to it to achieve the desired long recognized as a source of competitive advantages and superior per-
objectives (outputs)”. Thus, the present study uses an input–output formance outcomes (e.g. Peng et al., 2008; Terjesena et al., 2011;
framework in the form of efficiency frontier function to understand Vickery, Droge, & Markland, 1993). It argues that a firm can achieve
the optimal conversion of a firm's resources to its objectives (Nath competitive advantage by handling an efficient material flow process,
et al., 2010). Day (1994) also suggested that “it is not possible to enu- careful utilization of assets, and acquisition and dissemination of supe-
merate all possible capabilities, because every business develops its rior process knowledge (Tan, Kannan, & Narasimhan, 2007). Among
own configuration of capabilities that is rooted in the realities of its the operations capabilities most commonly, strongly, and positively
competitive market, past commitments, and anticipated requirements”. associated with competitive success are those contributing to a firm's
For the purposes of this study, we will focus on two important organiza- ability to compete on the bases of time, flexibility, low costs, and product
tional capabilities (marketing and operations) (Day, 1994; Song et al., quality (White, 1996). Some empirical studies have identified the
2007) and investigate their effects on financial performance. important effect of operations capability on firm performance (Nath
As noted earlier, the RBV views a firm as a bundle of resources and ca- et al., 2010; Rosenzweig, Roth, & Dean, 2003; Terjesena et al., 2011).
pabilities, some types of functional capabilities (such as marketing and Using a sample of 167 UK-based high technology manufacturing firms,
operations) will influence firm performance (Day, 1994; Song et al., Terjesena et al. (2011) found that that firm performance (such as sales
2007). Drawing upon the RBV, we develop a conceptual framework growth, return on sales, and return on assets) is significantly predicted
 W. Yu et al. / Industrial Marketing Management 43 (2014) 25–31 27

Operations
Capability

Control
Variables
H3 H2

Marketing Financial
Capability Performance
H1

Fig. 1. Conceptual framework.

by operations capabilities that promote low operating costs and product et al., 1999). A superior marketing capability can provide high-quality
quality. Rosenzweig et al. (2003) found that enhanced competitive capa- consumer feedback to operations function. For example, operations
bilities (such as product quality, cost, process flexibility, and delivery can use inputs and get feedback from marketing function on various
reliability) generally improve business performance. Using archival customer-ready prototypes, which in turn will enhance the likelihood
data of 102 UK-based logistics companies, Nath et al. (2010) also found of the final product being acceptable to consumers while being produced
that operations capability significantly impacts business performance at as a low cost as possible (Dutta et al., 1999).
(such as profitability). Based on the above argument and the results of Operations capability should be developed in the context of the mar-
these empirical studies, we propose the hypothesis below. keting capability. Using a sample of 117 leading retail banks, Roth and
van der Velde (1991) showed how critical success factors are used to
H2. Operations capability has a positive impact on financial performance. link operations and marketing in service firms. They suggested that
the marketing strategy embodies the management of demand, i.e., iden-
2.4. Marketing and operations capability tifying, understanding, and creating need satisfying products and ser-
vices, and that the operations strategy concerns the management of
The interdependence of manufacturing and marketing, in general, supply, i.e., the production and delivery of products and services.
has been widely recognized for a long time (St John & Hall, 1991). O'Leary-Kelly and Flores (2002) also argued that the “time differential”
Some previous studies (e.g. Dutta et al., 1999; Srinivasan, Lovejoy, & exists between marketing and operations decisions, in that marketing-
Beach, 1997) have identified the high complementarity between based decisions are typically a source of input for the operations-based
marketing and operations capabilities. Hill (1994) stated that “the links decisions. For example, in a typical marketing–operations planning
between design, manufacturing, and markets are the very essence of a cycle, the marketing/sales planning decisions serve as a primary input
business”. Customer needs to generate the product's functional specifica- for the operations planning decisions which then follow (Vollmann,
tion, which in turn generates the product specification (Hill, 1994). In the Berry, & Whybark, 1997). It can be argued that marketing and opera-
predominant marketing research paradigm, the marketing function tions must not only be structurally aligned for competitive advantage,
generates a spectrum of product concepts as a bundle of well-defined but also that marketing plays a pivotal role in affecting operations strat-
attributes, with price included as an attribute (Srinivasan et al., 1997). egy and capability. The firm's marketing capability (such as market
However, there is little empirical research that has directly explored the knowledge about customer needs and past experience in forecasting
linkage between marketing capability and operations capability. Based and responding to these needs) can proactively generate operations
on a review of the literature, in this study, we would argue that marketing capabilities in terms of quality, delivery, flexibility and cost. Based on
capability is an antecedent of operations capability. A firm's marketing the above argument, we propose the following hypothesis.
capability can strengthen its ability to develop innovative operations
processes. H3. Marketing capability has a significant impact on operations
Marketing capability spans processes that are established within capability.
organizations to decipher the trajectory of customer needs through
effective information acquisition, management, and use (Krasnikov &
Jayachandran, 2008). It involves the processes that enable a firm to 3. Methodology
build sustainable relationships with customers (Day, 1994), which in
turn will lead to improved operations capability such as new product 3.1. Data
development and more flexible delivery. Previous studies (e.g. Dutta
et al., 1999; Gatignon & Xuereb, 1997) have highlighted the important We chose retail firms in the UK to test our conceptual framework. All
role of marketing in improving operations capability, for example, view- the data required for this study were obtained from the Financial Analysis
ing marketing capability as important determinants of new product Made Easy (FAME) database (Bureau van Dijk Electronic Publishing,
development and success. Operations capability is “the skills and knowl- https://fame.bvdep.com/). Initially, we obtained top 500 retailers based
edge that enable a firm to be efficient and flexible producers or on their turnover in 2010. Out of that, 314 firms did not have complete
service providers that use resources as fully as possible” (Krasnikov & information. So, the final sample consisted of 186 retailers in the UK
Jayachandran, 2008). Overall, operations capability has been viewed and these retail firms operated their business in both food and non-
as focusing on efficient delivery of high quality products/services, cost food sectors, such as supermarket retailing, home appliances, DIY and
reduction, and flexibility improvement (Tan et al., 2007). Operations home improvement, and fashion retailing. The results of demographic
capability can draw on marketing capability to further its goals (Dutta characteristics of these 186 firms are reported in Table 1.
28 W. Yu et al. / Industrial Marketing Management 43 (2014) 25–31

3.2. Data envelopment analysis (DEA) Table 2

Variables and measures.

The RBV proposes that a firm uses its resources (inputs) to generate Variables Measures Mean S.D.
business performance (outputs) through functional capabilities
Marketing capability
(process transformation) (Nath et al., 2010). Thus, in this study, we Inputs Stock of marketing Sales, general and 252,949.924 542,514.742
evaluated operations and marketing capabilities and retail efficiency expenditure administrative
using Data Envelopment Analysis (DEA) (Cooper, Seiford, & Tone, 2007; expensesa
Intangible resources Intangible assetsa 148,428.790 507,814.239
Ramanathan, 2003). DEA is a mathematical programming technique
Relationship Cost of 40,005.833 323,783.405
commonly used for estimating the efficiencies with which different expenditure receivablesa

decision-making units (DMUs) (schools, hospitals, retailers, etc.) are Outputs Sales Turnovera 1,785,724.010 6,053,155.520
able to convert their resources (usually called inputs in the DEA litera-
Operations capability
ture) to good performance (usually called outputs). To calculate effi- Inputs Cost of capital Tangible assetsa 530,337.650 2,243,635.097
ciency scores employing DEA, two different assumptions can be made, Cost of labor Remunerationa 211,613.623 661,550.476
i.e. constant return to scale (CRS) and variable returns to scale (VRS). Outputs Cost of operations Cost of salesa 1,430,041.548 5,476,373.163
The VRS efficiency score measures pure technical efficiency, i.e. a mea- Financial performance (retail efficiency)
sure of efficiency without scale efficiency. On the other hand, the CRS Inputs Assets Total assetsa 1,158,246.193 4,096,310.017
efficiency score represents technical efficiency which measures ineffi- Number of employees Actual value 12,358.919 39,018.653
ciencies due to the input/output configuration and the size of opera- Outputs Return on assets Actual value (%) 10.420 8.670
Return on capital Actual value (%) 22.178 23.193
tions (Cooper et al., 2007). Scale efficiency can be computed by the
employed
ratio of CRS efficiency to VRS efficiency. Hence, scale efficiency of a a
Value in thousands of GBP.
DMU operating in its most productive scale size is one.

3.3. Measures measure operations resources: cost of capital and cost of labor. The retail
industry is highly labor intensive. Operations capability is the closeness
We measured functional capabilities of firms in terms of their effi- of the firm to the cost frontier. Similarly, we used input-oriented CRS
ciency in transforming marketing and operations resources (function DEA model (Cooper et al., 2007) to measure the efficiency of such trans-
specific inputs) to marketing and operations objectives (function formation for retail firms. The DEA efficiency score measures operations
specific outputs). The measures used in this study for marketing capa- capability of each firm.
bility, operations capability, and financial performance are reported in As mentioned earlier, the present study employed DEA (Cooper et al.,
Table 2 and described in more detail below. 2007; Ramanathan, 2003) as a tool to measure input–output transforma-
Marketing capability is an integrative process, in which a firm uses tion. To measure retail efficiency, we used two inputs in this study, name-
its resources to achieve its market related needs of business (Vorhies ly, total assets and number of employees (Nath et al., 2010; Yu &
& Morgan, 2005). Thus, we used the input–output framework to mea- Ramanathan, 2008, 2009) (see Table 2). We chose two output measures —
sure marketing capability and archival financial data is the best way to return on assets and return on capital employed which directly reflect
do it. Following the work of Nath et al. (2010), we used sales as the out- how well a retail firm is able to convert its inputs to generate supe-
put measure. Using sales as an output for marketing activity is also sup- rior profitability (Nath et al., 2010). We used input-oriented CRS
ported in the marketing literature (Kotabe, Srinivasan, & Aulakh, 2002; DEA model (Cooper et al., 2007) to measure the efficiency of such
Slotegraff, Moorman, & Inman, 2003). We used three inputs as measures transformation.
of marketing resources: stock of marketing expenditure, intangible re- We used two control variables: firm age and retail characteristic
source, and relationship expenditure. In the input–output classification, (food and non-food sectors). Firm age is the number of years since
marketing capability of a firm measures how close it is to the sales fron- firm formation. Firm age was controlled in the current analyses because
tier given in a set of resources. Thus the closer is the sales value realized older retailers may possess more fully developed functional capabilities
by the firm from the sales frontier, the better is its marketing capability (Terjesena et al., 2011). Older firms will be more likely to overcome per-
(Nath et al., 2010). We used input-oriented CRS DEA model (Cooper formance threatening liabilities. The effects of services and functional
et al., 2007) to measure the efficiency of such transformation for the capabilities on improved retail efficiency are different among retailers
retailers. The DEA efficiency score measures marketing capability of (e.g. grocery retailers vs. clothing and footwear retailers).
each retailer.
Drawing upon the RBV, we also employed the input–output frame-
work to measure operations capability of a firm. We used cost of opera- 4. Results
tions as the output measure (Dutta et al., 1999; Narsimhan et al., 2006).
In accordance with Nath et al.'s (2010) work, we used two inputs to To test the hypothesized links in our conceptual framework, struc-
tural equation modeling (SEM) was used in this study. The results of
structural model using AMOS 20 are reported in Table 3. The overall
fits of the structural model are good, with the CFI, IFI, and TLI well
Table 1 above the recommended threshold of 0.90 (Hu & Bentler, 1999), the
Profile of 186 retail firms.
RMSEA less than 0.10 (Kline, 1998), and the SRMR less than 0.08
Number of firms Percent (%) (Hu & Bentler, 1999). While firm age (β = − 0.070, n.s.) does not
Retail sector affect retail efficiency, retail characteristic (β = 0.115, p b 0.10)
Food 38 20.4 has a positive impact on retail efficiency. As shown in Table 3, the
Non-food 148 79.6 results indicate that marketing capability has a significant positive
Firm age (year) impact on operations capability, which lends support for H3. Similarly,
1–20 88 47.3 the structural model shows that operations capability is significantly
21–50 54 29.0 and positively related to financial performance. Hence, H2 is fully sup-
51–100 37 19.9 ported. However, marketing capability has no significant direct effect
More than 100 7 3.8
on financial performance. As such, H1 is rejected.
 W. Yu et al. / Industrial Marketing Management 43 (2014) 25–31 29

Table 3 and marketing functions) in order to obtain financial benefits from the
Results of hypotheses 1–3 tests using SEM. development of functional capabilities.
Structural paths Standardized t-Value Hypothesis test Our structural path analysis indicates that there is no significant
coefficient direct path between marketing capability and financial performance,
Marketing capability → operations 0.634⁎⁎⁎ 11.155 H3: Supported which provides stronger evidence of fully mediating effects of opera-
capability tions capability. The Sobel test results further confirm the significance
Operations capability → financial 0.432⁎⁎⁎ 5.211 H2: Supported of paths between marketing capability and operations capability and
performance
between operations capability and performance, thus casting opera-
Marketing capability → financial 0.081 0.962 H1: Not supported
performance tions capability as a mediator. This provides support for the argument
Model fit statistics: χ2/df (4.848/2) = 2.424; RMSEA = 0.088; CFI = 0.981; that those firms that develop an effective operations capability are
IFI = 0.982; TLI = 0.905; SRMR = 0.035 able to obtain superior financial performance compared to those who
⁎⁎⁎ p b 0.001. do not develop an effective operations capability (Terjesena et al.,
2011; Vickery et al., 1993). Our findings suggest that retailers operating
in an increasingly competitive market should place greater emphasis on
To identify the particular extent to which operations capability the development of operations capability because it is operations
mediates the effect of marketing capability on financial performance, capability that directly affects retail efficiency. Superior operations
we conducted the Sobel test (Sobel, 1982) to directly examine the sig- capabilities are reflected in efficient and reliable delivery processes,
nificance of the mediation effects using the interactive tool provided cost reductions and control, increased volume and mix flexibility,
by Preacher and Leonardelli (2003). As an additional test for mediation, and exceptional conformance quality (Boyer & Lewis, 2002; Swink
Mackinnon, Lockwood, Hoffman, West, and Sheets (2002) suggested & Hegarty, 1998; White, 1996), and lead to competitive advantage
that the Sobel test is superior in terms of power and intuitive appeal. and the corresponding financial rewards. However, marketing capabil-
The Sobel test lends additional support for the mediated relationships ity should not be ignored because it strengthens operations capability
hypothesized through a change in significance of the indirect effect. and has an important effect on retail efficiency, but the influence is
The result of the Sobel test provides support for the fully mediating articulated through and modified by operations capability.
effect of operations capability (t = 4.725, p b 0.001) on the relation-
ship between marketing capability and financial performance. 5.2. Theoretical implications

This study fills a gap in the existing literature since there is limited
5. Discussions and implications work that integrates functional capabilities (operations and marketing)
to examine their roles in improving firm performance. Our study con-
5.1. Discussions tributes to the literature on marketing and operations in several ways.
Drawing upon the RBV theory, we develop a framework to investigate
Our structural model strongly supports Hypotheses 2 and 3. There- the relationship between operations capability and marketing capability
fore, marketing capability has a significant impact on operations capa- and their impacts on financial performance. As noted earlier, the empir-
bility, and that operations capability is significantly and positively ical findings of this study support the conceptual arguments from some
associated with financial performance. However, there is no significant scholars (e.g. Grant, 2002) who suggested that specialized capabilities
direct relationship between marketing capability and retail efficiency. are integrated into broader functional capabilities such as operations
This finding suggests that operations capability is a mediator of the rela- and marketing capabilities. Although the impact of marketing and/or
tionship between marketing capability and financial performance. operations capability on a firm's financial performance has been studied
Although the value of marketing and operations capability has been (e.g. Nath et al., 2010; Song et al., 2005; Terjesena et al., 2011), our study
recognized (e.g. Nath et al., 2010; Song et al., 2005; Terjesena et al., is unique that it explores the link between marketing capability and
2011; Vorhies & Morgan, 2005), few empirical studies have looked operations capability and reveals the mediating role of operations capa-
into the actual link between the two functional capabilities and their bility on the marketing capability–financial performance relationship.
impacts on financial performance. Our structural path analysis suggests Hence this study empirically examines the relationships among the
that marketing capability helps retail firms enhance their operations three constructs holistically.
capability, which in turn leads to improved financial performance. Re-
tailers with better resource-performance transformation ability have 5.3. Managerial implications
superior market knowledge and create better value for their customers.
This corroborates with market orientation literature (Jaworski & Kohli, The managerial implications of this study are twofold. First,
1993; Narver & Slater, 1990). A retailer's marketing capability depends according to the RBV, it is important for firms to invest in and exploit
on its ability to understand customer needs and build long-term rela- their functional capabilities (such as marketing and operations) in
tionships. Using its unique and inimitable marketing capability, the order to achieve competitive advantages and superior firm performance.
retailer can devote its marketing resources more effectively to creating Thus, retail managers are encouraged to improve their marketing and
superior customer value. To survive in an increasingly dynamic and operations capabilities, such as deploying resources to improve their
competitive marketplace, better marketing capability leads to competi- marketing communication strategies and providing innovative new
tive advantage for retailers and help them strengthen operations capa- products and services. Second, it is important for managers to under-
bility (such as providing higher quality products and services at lower stand the relationship between operations and marketing capabilities.
prices). Our finding of the positive effect of operations capability on im- Our results suggest that there is no significant direct relationship be-
proved business performance (retail efficiency) is consistent with the tween marketing capability and financial performance, indicating a full
predictions of the RBV (Amit & Schoemaker, 1993; Grant, 1991) and mediating role of operations capability. We believe that this can give
previous studies (e.g. Nath et al., 2010; Terjesena et al., 2011). The empir- retail managers a new way to understand the relationships between
ical findings support the conceptual arguments from some researchers functional capabilities and their impacts on operational efficiency. Suc-
(e.g. Roth & van der Velde, 1991; Wheelwright & Hayes, 1985) who em- cessful integration of functional capabilities is the key to success. Firms
phasized that the functional integration of operations and marketing has should emphasize on the development and maintenance of operations
a significant impact on business performance. Hence, retail firms should capability in order to gain superior financial performance. Careful de-
consider integrating their functional departments (such as operations ployment of resources on operations improvement such as capacity
30 W. Yu et al. / Industrial Marketing Management 43 (2014) 25–31

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