Market Orientation, Differentiation Strategy and the Use of Non-Financial Measures: Impact on Firm Performance

Abstract

Market orientation and differentiation strategy are regarded as essential determinants of contemporary performance measurement practice. Despite this importance, studies investigating the association between market orientation and differentiation strategy on the use of non-financial measures (NFMs) in an emerging economy setting are still limited. This study examines whether these factors affect NFMs use and eventually firm performance. A survey method was used in which the questionnaires were distributed to Indonesian manufacturing firms. Analysis was undertaken using Partial Least Square (PLS) Structural Equation Modelling (SEM). Result from survey of 41 Indonesian managers documented positive and significant associations between market orientation and differentiation strategy, market orientation and NFMs use, differentiation strategy and NFMs use, and NFMs use and firm performance. Additional tests revealed significant mediating relations where NFMs facilitate positive impacts of market orientation and differentiation strategy on firm performance. These findings demonstrate the effect of market orientation and differentiation strategy in influencing NFMs use and illuminate the integral role of NFMs in bridging positive associations between market orientation, differentiation strategy and firm performance. This study contributes to contingency-based management accounting literature in emerging economies by showing empirical evidence about the association between market orientation, differentiation strategy, NFMs and firm performance in an emerging economy context.