Testing the boundaries of the marketing concept: Is market orientation a determinant of organizational performance in the nonprofit sector?

This thesis explores the relationship between market orientation and organizational performance in the nonprofit sector. While it has long assumed that the relationship exists, little empirical research has been conducted to date, and the implications of “multiple constituencies” and multiple performance dimensions have been virtually ignored. Thus, this thesis investigates whether market orientation influences organizational performance in all of the markets that nonprofit organizations have exchange relationships with, and which performance dimensions, if any, each market orientation influences.

Respondents for this study were Social Service, Community Support, and Arts and Culture organizations. Data collection was conducted in Toronto and Montreal, Canada. Executive Directors or General Managers provided information about their organization's values and behaviours with regard to three markets: clients/customers, government funders, and donors. They also provided information on three dimensions of nonprofit performance: client satisfaction, resource acquisition, and reputation among sector peers.

Three conceptual models were developed to test a series of hypotheses concerning the interrelationships between the market orientation toward each constituent group and the three performance dimensions. Structural equation modeling was used to test the overall fit of the three models and the significance of the individual parameters in each model. Generalizability of the findings was checked by testing model fit against Social Services, Community Support, and Arts and Culture sub-samples.

Results demonstrate that there is a positive, complex relationship between market orientation and organizational performance which exists across different constituencies and different nonprofit subsectors. Notably, results indicate that the development of market orientation in npo's may be “non-rational” with behaviours driving values rather vice-versa, as theorized in the for-profit literature. As well, although nonprofit market orientation has a direct relationship with client satisfaction and reputation among sector peers, it has an indirect relationship with resource acquisition, which is mediated by growth in an organization's reputation. This finding might be interpreted as meaning that resource acquisition is the ultimate goal of nonprofits. However, given that npo's have several other critical objectives, such as mission achievement, it is more likely that this means that resource acquisition is the reward that nonprofits receive for employing good management practices.