Internal marketing impact on business performance in a retail context

Download Internal marketing impact on business performance in a retail context

Post on 21-Dec-2016




0 download


  • Internal marketing impacton business performance

    in a retail contextGeorge G. Panigyrakis

    Department of Business Administration,The Athens University of Economics and Business, Athens, Greece, and

    Prokopis K. TheodoridisDepartment of Business Administration of Food and Agricultural Enterprises,

    University of Ioannina, Agrinio, Greece


    Purpose The majority of research pertaining to internal marketing (IM) is conceptual and stillremains so even at present. The lack of widely accepted definitions of the IM concept and a relevantvalid measure has lead to increased attempts by academia to investigate the relative concepts andmeasures. The purpose of this paper is to examine a synthesis of IM and investigates its effect onbusiness performance in a retail context.

    Design/methodology/approach The context of this paper is within supermarket chains inGreece with nation wide coverage. A survey is designed and implemented using the branch managers.

    Findings SEM analysis indicates five dimensions of the IM construct: formal interaction, rewardsystems, feedback, internal procedures and policies and internal customer orientation (ICO). Retailersseem to adopt in an embryonic stage a concept of IM. IM indeed has a positive effect on businessperformance.

    Research limitations/implications Single key informant, single context of the paper areconsiderations when examining research limitations.

    Practical implications The embryonic stage of adopting and implementing IM withinsupermarket chains illustrates a certain manner of managing the internal customer; centralisationof procedures and tactics. Even if the concept of IM is partially exploited, the respective organisationalbehaviours clearly have a positive impact on both financial and non-financial aspects of retailperformance, thus revealing their importance.

    Originality/value This paper contributes to the rare empirical investigation of the IM notion in thefirm and provides evidence on both its synthesis and its impact on business performance. The authorssynthesize the concepts of internal market and ICOs providing a new approach to IM. Construct andresearch propositions have been axiomatic and in an only conceptual context until recently.

    Keywords Internal marketing, Business performance, Retailing, Supermarkets, Greece

    Paper type Research paper

    IntroductionSince the 1970s, internal marketing (IM) appeared to be a solution to the problem ofdelivering high service quality (Berry et al., 1976). The literature devoted to IM israpidly growing (Sasser and Arbeit, 1976; Berry, 1981; Gronroos, 1981; Richardson andRobinson, 1986; Barnes, 1989; George, 1990; Piercy and Morgan, 1990, 1991; Collins andPayne, 1991; Piercy, 1995; Foreman and Money, 1995; Varey, 1995; Cahill, 1996;Sergeant and Asif, 1998; Pitt and Foreman, 1999). The majority of the work pertaining

    The current issue and full text archive of this journal is available at



    Received March 2008Revised June 2008Accepted November 2008

    International Journal of Retail &Distribution ManagementVol. 37 No. 7, 2009pp. 600-628q Emerald Group Publishing Limited0959-0552DOI 10.1108/09590550910964620

  • to IM, especially in the 1980s and 1990s, is conceptual and still remains so even atpresent (Flipo, 1986; Gronroos, 1994; Rafiq and Ahmed, 1993; Cahill, 1995; Varey, 1995;Pitt and Foreman, 1999; Varey and Lewis, 1999; Rafiq and Ahmed, 2000; Bansal et al.,2001; Ballantyne, 2003; Lings, 2004).

    In the literature IM has two prime motives. First, it complements external strategicmarketing efforts, through interactions between the personnel and customers. Theseinteractions are perceived as instrumental in encouraging customer attraction andsatisfaction. Second, it effectively develops and maintains a workforce which is bothmotivated and satisfied (Dunne and Barnes, 2000). This consecutively contributes toexternal and strategic marketing objectives as well as to quality, productivity andefficiency (MacStravic, 1985). So, the IM initiative serves both the organisation and theindividual employee successfully (Dunne and Barnes, 2000).

    IM stresses the importance of the marketing concept internally, within the firm, byfocusing on the employee and providing a source of competitive advantage (Sasser andArbeit, 1976; Berry, 1984; Berry and Parasuraman, 1991).

    There is little empirical evidence of an attempt to construct a valid measure toelucidate the concept of IM (Lings and Greenley, 2001; Lings, 2004; Table I). The fact isthat there is extremely limited empirical research in the area to provide some evidenceof a paradigm of the philosophy, notion and implementation of IM. Therefore, this lackcould most probably be the main or high percentage factor when considering the rarepresentation of IM in organisations.

    Recent studies attempted an operationalized concept of IM mostly through theadoption of the internal market orientation (IMO) concept: [. . .] internal marketorientation is about identifying and satisfying the wants and needs of employees as aprerequisite to satisfying the wants and needs of customers [. . .] (Lings, 2004, p. 408).A stream of recent studies are based on the pioneer work of Foreman and Money (1995)with an appropriate and analogous expansion relative to the market orientationconcept (Kohli and Jaworski, 1990), mirroring and adapting it internally in the firm(Lings and Greenley, 2001, 2005; Naude et al., 2003; Lings, 2004; Gounaris, 2006).

    This paper takes a step forward as it amalgamates the two major approaches of theconcept of IM. IMO and internal customer orientation (ICO) are incorporated into oneoperationalized construct in order to measure the IM notion within a retail context inGreece.

    This paper aims to empirically investigate:. the operationalization of the IM in terms of measurement; and. its impact on business performance in a retail context.

    The contribution of this piece of research is threefold. First, it provides a new approachto IM literature and within the limited empirical attempts it combines the two majorapproaches in the subject area which till nowadays have been examined separately.Second, it provides empirical findings relative to an under-examined relationshipbetween IM and business performance, hypothesised for years, like an axiom or beingexamined in parts. Finally, the context of the paper provides insight into a sector withonly a few empirical results and at the same time in a cultural context of SouthernEurope which is differs from other more researched countries and cultures (the USA,UK, Asia and Australia). Retailing is an environment with high employee turnover.This is due on the whole to mediocre or inadequate employee conditions and

    IM impacton business



  • Author (year)Aim methodology sample Background variables

    Main findings discussion topics

    Chaston (1994) Internal customerrelations-investigatingbarriers (M)

    Modified SERVQUAL Barriers [. . .] emphasis ondepartment goals [. . .]many gaps

    Foreman andMoney (1995)

    IM: concept andmeasurement-transactioncost perspective (V)

    Instrument construction:literature review and Berryand Parasuraman (1991),Berry et al. (1991)

    Fifteen items representingthe IM concept.Components: vision,reward and development

    Boshoff andTait (1996)

    IM and enhancement of thelevel of service quality (B)

    Causal model usingreducedSERVQUALTwo of the four internalgaps (1 and 3)

    OrganisationalCommitment exert apositive influence onservice qualityperceptions [. . .] so therole of IM is to...convincing frontlineemployee to accept andsupport theorganisational values,goals and objectivesshould be beneficial toboth the organisation andcustomers as well as toemployees

    Caruana andCalleya (1998)

    IM and organisationalcommitment (B)

    IM variables (Money andForeman, 1996)

    Effect of IM is on theaffective commitment [. . .]no clear boundariesbetween IM and HumanResource practices [. . .]there is any reason fordifferent constructs?

    Quester andKelly (1999)

    IM practices (B) Definition of IM whoimplements IM (Foremanand Money, 1995)

    Focus on the IM practices Involvement of HRMIM as interdepartmentalresponsibility

    Conduit andMavondo(2001)

    ICO and IMO (V) Construct relationshipsbetween: IM process,organisational dynamics,ICO, market orientation

    Supported hypotheses:ICO and marketorientation, ICO andmanagement support,internal communicationand ICO, personnelmanagement and ICO

    Ahmed et al.(2003)

    IM mix, organisationalcompetencies and businessperformance (M)

    Construction of a battery ofitems IM mix synthesisof literature

    IM mix consists of threefactorsIM mix positive related tobusiness performanceOrganisationalcompetencies are partialmediator of businessperformance

    (continued )

    Table I.Major previousquantitative work on IM



  • a continual pressure to adapt to new competitive circumstances. Employees therefore,lack motivation in regards to promoting their companys goods and services. Until nowthe only deemed workable method applied by employers to ensure a form of staffpromotion/service stability was the offering of incentives (usually monetary).Therefore, if IM as a concept is applied, it should enhance positive interactionsbetween staff which in turn would ameliorate their relationship with the externalcustomer. All these reasons provide an attractive context for our research purposes.

    The first section of this paper discusses the notion of IM and provides an insight ofthe two major approaches in the field. The literature review provides the basis of thesynthesis of the dimensions of the proposed IM concept in terms of organizationalbehaviours. Furthermore, business performance is explained within a retail context.Plus various attempts to examine the impact of a firms behaviour when targetinginternal customers and the market on various indicators of business performance areexposed. Next, methodological issues are explained and the results of the paper arepresented. The last section of the paper provides a discussion of the findings,limitations of the paper and propositions for future research.

    Author (year)Aim methodology sample Background variables

    Main findings discussion topics

    Naude et al.(2003)

    Determinants of IMorientation level (CS/S)

    Adoption of Foreman andMoney (1995) scale

    Perceived marketorientation of localmanagers, aspects ofcommunication,socialisation andworkplace satisfactionaffect the level of IMorientation

    Lings andGreenley(2005)

    Development of amultidimensionalconstruct IMO (R)

    IMO represents theadaptation of marketorientation to the context ofemployer-employeeexchanges internally in thefirm

    Five dimensions of IMO:formal face-to-faceinformation generation,informal informationgeneration, informationdissemination, formalwritten informationgeneration,responsiveness. Positiveimpact on importantorganizational factors


    IMO measurement (H) Builds on previousconceptual basis of Lings(2004), mirroring Kohli andJaworski (1990) MARKOR

    Three factor orderconstruct: threesub-dimensions: internalmarket intelligencegeneration, disseminateintelligence, response tointelligence

    Notes: CS, case study; M, manufacturing; B, banks and financial institutions; T, telecommunications;S, services; Tch, technology firms; R, retailing; H, hotel industry; V, various Table I.

    IM impacton business



  • Internal marketing symbiosis and synthesis of internal customerorientation and internal market orientationThe lack of a recognised accepted definition of the IM concept and relevant validmeasures (Varey, 1995; Rafiq and Ahmed, 1993; Ahmed and Rafiq, 1995; Rafiq andAhmed, 2000; Lings and Greenley, 2005) has led to an increased number of attempts byacademia to investigate the concept and its measures. Even though the studiesconcerning IM have increased in number within the last 10-15 years, studies thatprovide empirical findings do not exceed ten to 12 in number (Table I). Simultaneously,it is certain that the investigation and evolution of the market orientation conceptand its measure during the 1990s and till nowadays, has influenced the researchstream in IM.

    A few major empirical attempts have been made pertaining to the measurement ofthe IM concept: Foreman and Money (1995) in a pioneering work developed aninstrument, entitled internal marketing scale. Lings and Greenley (2001) developed ascale, entitled IMO and Conduit and Mavondo (2001) focused on ICO. More recentlyBruhn (2003) focused on the relationships between internal service quality, internalcustomer satisfaction and internal customer retention, in an attempt to create aninternal services satisfaction index. Naude et al. (2003) investigated potentialdeterminants of the IM concept. To epitomize the IM concept, the IM scale of Foremanand Money (1995) was adopted by a UK-based multinational company. They examinedpotential different levels of IMO and the factors affecting these levels. The structure ofthe scale was explored by principal component analysis, which indicated a differentclassification in relation to the original scale. Ahmed et al. (2003) proposed the conceptof an IM mix that could be effectively used to influence employees, so that they aremotivated and act in a customer-oriented fashion. The dimension of the IM mix wasconsidered to be without correlation within the construct (orthogonal factors; Table I).

    After their first empirical investigation in 2001, Lings and Greenley revisited in2005 and examined and developed an IMO multidimensional construct. Theirconstruct consisted of five dimensions: informal information generation, formal face toface information generation, formal written information generation, informationdissemination and responsiveness. The authors deviated from their initial previouswork in terms of which dimensions represent the IMO construct (Lings and Greenley,2001). Their construct showed evidence of convergent, discriminant and predictivevalidity. The most recent paper is that of Gounaris (2006). The author builds on theconceptual work of Lings (2004) and from the literature, constructs an adapted andexpanded IMO scale conceptually mirroring to a degree the logic of the marketorientation concept of Kohli and Jaworski (1990). Lings and Greenley (2005) have alsofollowed that same route. The author developed a third-order factor model of IMOwhich consisted of three sub-dimensions with ten variables within the hotel industry.Again the construct showed evidence of convergent, discriminant and predictivevalidity.

    A critical number of the previous studies in the area are liberally based on thepioneering work of Foreman and Money (1995) and in some cases there is an analogousexpansion and adaptation relative to the market orientation concept (Kohli andJaworski, 1990), mirroring and adapting it internally in the firm (Lings and Greenley,2001, 2005; Naude et al., 2003; Lings, 2004; Gounaris, 2006). They incorporated thenotion that: [. . .] internal market orientation is about identifying and satisfying the



  • wants and needs of employees as a prerequisite to satisfying the wants and needs ofcustomers [. . .] (Lings, 2004, p. 408). The IMO concept has as a basis the humanresources of the firm. This suggests that the success of external marketing depends toa great degree on the fact that personnel have been firstly satisfied and have receivedrelative motivation and incentives (Sasser and Arbeit, 1976; Berry and Parasuraman,1991; Berry, 1984). This notion originates from the philosophy of the human resourcemanagement (HRM). It can be viewed as an action taken by the firm, directed at thecontact personnel. This approach recognises the effect of interaction between customerand employee (Lings and Greenley, 2001).

    Even this research group presents some similarities in the conceptualization of theIMO; however, they differentiate in their approach to the IM notion. The work of Lingsand Greenley (2001) have as a starting point that market orientation as it is provides amore appropriate conceptualization of the marketing of an organization than theclassical marketing mix. Market orientation is preferred when compared to thetraditional notion of the marketing mix, when they are considered as adapted conceptsto be applied to the internal market-IM, in the context of employer-employee exchanges(Lings, 2004; Lings and Greenley, 2001, 2005). So, the concept of IMO is the appropriateone for operationalized IM. The work of Gounaris (2006, p. 436) takes the same route:

    [. . .] (IMO) represents the synthesis of specific beliefs with specific marketing-likebehaviours [. . .] promotes the need to plan and build effective relationships betweencompanys employees and management [. . .]

    At the same time, he argues that [. . .] IM is the notion of internal market orientation[. . .] and [. . .] through IMO adoption, IM strategies become more effective [. . .](Gounaris, 2006, p. 436), creating an unclear picture of what differences there really arebetween the IM and IMO. The focus of IM is on the participation of management indecision making and empowerment.

    Nevertheless, IM can be approached also on a more comprehensive and broaderviewpoint because it reflects the totality of internal and external functionsand relationships necessary to get things done. It is certain that IM focuses on theimportant issue of trying to satisfy employees by providing a value to thefirm-employee relationship (IMO). But at the same time IM has to enhance the properenvironment of providing service quality for the next internal customer (ICO) (Dunneand Barnes, 2000). This paper crosses the boundaries between IMO and ICO andsynthesizes both concepts underlining the need that IM has to represent therequirement of treating the employee as internal customer and at the same time ofadopting the notion that everyone in the firm is internal supplier and customer in thevalue chain. Therefore, by adopting the aforementioned context of the IM, the relativebehavioural dimensions of the organizations are now discussed.

    Internal customer orientation (ICO)The concept of the ICO originates from the notion that quality is an internalprogressive function of the value-generation chain of the firm. Better internal servicequality within the internal exchanges and collaborations leads to the provision ofsuperior quality to the customer (Lings and Greenley, 2001). It is certain the totalquality management philosophy has an affect on the notion of ICO and is the logic thatall inside the firm are internal customers and suppliers (Denton, 1990; Barret, 1994;

    IM impacton business



  • Lukas and Maignan, 1996). ICO focuses on the various effects of interchanges betweenpersonnel and departments, in the value or profit chain of the firm and aims at thecreation of added value in all the steps of the chain (Lings, 2000; Rafic and Ahmed,1993). This concept, underlines the importance of first satisfying the internal customerin order to ensure the quality provided to the external customer. Therefore, theprovision of a superior quality service to the external customer is influenced directly bythe quality of the internal service. The concept of internal customer and supplier has awider intra-firm application. This possibly is within all the various business types andnot exclusively in service organisations (Gummesson, 2000). The notion thateverybody in the firm is simultaneously, a customer and supplier of services to othercolleagues or departments, is one of the dimensions of IM.

    Job and employee related information, effective internal two-way communication andfeedbackMost of the approaches attempting to describe the IM concept have revealed a commonelement: the need of gathering and analysing information relative to the internalmarket, i.e. employees (Sasser and Arbeit, 1976; Lings and Greenley, 2001, 2005; Lings,2004; Gounaris, 2006). There is a need of exploring the desires and the degree ofsatisfaction of employees as well as various factors affecting employee satisfaction andthe subject of their work (Lings, 2000; Lings and Greenley, 2001, 2005). Simultaneously,firms should also investigate the external environment. The task is to collect andanalyse information and further to create intelligence on the competitors personnel,potential employees and relative legislative job subjects. Currently firms compete forthe best-qualified potential employees, which could provide them with a competitiveadvantage (Lings, 2000, 2004; Lings and Greenley, 2001, 2005). So, the need ofinformation (internal and external) relative to employees and employment subjects is acritical dimension of the IM construct.

    Furthermore, it is crucial for an organisation to operate in a transparent way.Organisations have to be able to openly share with their members information andintelligence concerning strategy, objectives, performance and financial situation(Dessler, 1999; Pfeffer and Veiga, 1999; Bansal et al., 2001). As it has been stated, if wewant to create a climate in the organisation where everyone is for everyone, secretscannot be kept (Bansal et al., 2001). The exclusion of information within theorganisation, the various departments and the levels of hierarchy prevents personnelfrom taking effective decisions (Pfeffer, 1995, 1998). Concurrently, the provision ofinformation could operate as an effective feedback mechanism for the personnel inorder to evaluate their performance and the degree of their effective and efficientdecision-making (Robbins and Langton, 1999; Slater and Narver, 1994; Bansal et al.,2001). Consequently, effective internal communication is necessary for both theexternal and internal market (Lings, 2000). Two-way communication between middlemanagers, top management and personnel provides appropriate feedback toemployees, thus, improving their job performance (Conduit and Mavondo, 2001;Gronroos, 1990). Employees need information relative to customer needs, firmsobjectives, as their contribution may be crucial for the firm and the customer (Conduitand Mavondo, 2001). The provision of information through the procedure of formalfeedback by the firm to employees is another important dimension of the IM.



  • Internal procedures and policies, reward systems and management consideration toemployeesIM also requires the formulation of a response attitude and behaviour towardsemployee related information. This in terms of job design, rewards and other forms ofmotivation (which are of great importance to employees), training, recruitment,internal communications, top management support and other strategic activities inorder to support effectively the market orientation of the firm (Berry and Parasuraman,1991; Lings, 2004; Lings and Greenley, 2001). These targeted internal behavioursdescribe the degree of a firms attitude in job related subjects. It is widely known thatreward and wage systems determine to a certain degree the level of the improvement ofthe work of the internal customer. Reward and motivation schemes and systems arecrucial elements of employees behaviour (Lawler and Rhode, 1976; Anderson andChampers, 1985; Jaworski, 1988). Reward systems can motivate employees to adoptnew behaviours and attitudes towards the firms market orientation (Ruekert, 1992;Hauser et al., 1996). But these are not the only ones. Job improvement can be created byproviding care services for employees children or older relatives (Comm, 1989). Varey(1995) gives an emphasis on the social aspect of IM and claims that it is not restrictedonly to the financial aspect, taking the form of any wage, bonus or other monetaryincentive (Lings, 2000; Lings and Greenley, 2001). The social aspect of IM is alsopresented within the concept of managerial consideration. It refers to the degree thatmanagers exploit a work climate with psychological support, friendship, help, mutualtrust and respect (Johnston et al., 1990). As the supervisor is the first link between theemployee and the organisation, a positive behaviour with employees could generatebetter attitudes towards the firm (Katz and Khan, 1978).

    So far, it has been revealed that the blanket concept of the IM incorporatesthe following aspects:

    . ICO.

    . Collection of specific job and employee related information internal and externalto the firm, effective internal two-way communication between all levels ofmanagement, hierarchy and employees as well as the provision of formalfeedback to personnel.

    . Targeted internal procedures and policies describing the degree of the firmsresponsiveness to job related subjects, wage and reward systems andmanagement consideration of employees.

    IM is a philosophy as it provides a systematic framework underlining the importanceof creating an appropriate internal market with the appropriate products andemphasising the need of creating a value chain where the notion behind the IMexchange relationships in the firm are the ground for the successful external marketingorientation and implementation. IM is at the same time a strategy as it should leadorganizational suitable behaviours targeting internal market, customers and suppliers,exchanges and relationships, fulfilling its directions.

    It is certain that organizations have become internal market places as they are splitinto multiple business units or profit centres. Even concepts and managementdirections revealed by manufacturing retailers during the 1960s are the illustration ofthis organizational push (Gummesson, 2000). Stores are the business units of theretailer, which are continuously evaluated in financial terms and in their contribution

    IM impacton business



  • to the total performance of the firm. Stores of multiple retailers compete in an indirectmanner with other stores of the same chain. This provides a picture of smallmicro-markets where the relationships deployed between/and within management,employees and customers are crucial for the market results of the firm. Thus, retailingcomprises an appropriate context for IM evolution and exploitation.

    In the following paragraphs, business performance is examined within a retailcontext in an attempt to reveal its nature in the specific context. Consequently, therelationship between IM and performance under the light of different approaches,having as a starting point different management philosophies are also examined.

    Business performance in a retail context. An organization adopts specific strategiesto lead to the accomplishment of its objectives. The mean of monitoring and controllingthis process is by the measurement of performance. The most common indicators ofmeasuring the performance of an organization are financial indicators such as returnon investment (ROI), return on assets (ROA) or return on capital employed. However,the sole consideration of the financial dimensions of performance, have received astream of criticism, because they do not incorporate and represent other dimensions ofthe performance (Brignall and Ballantine, 1996).

    It is certain that financial dimensions of performance have been used to a greatdegree in empirical research (Capon et al., 1990; Dawson, 2005; Reynolds et al., 2005)and represent the economic aspect of the organizational objectives. On the other hand,researchers confront serious problems when trying to acquire measures of financialperformance (Dawson, 2005; Dess and Robinson, 1984; Reynolds et al., 2005;Venkatraman and Ramanujam, 1986). The nature of the information affects itsavailability to the public (Ailawadi et al., 1995) and forces researchers to find and adoptother alternative measurement models. One method is to adopt indirect measures offinancial indicators by, for example, asking managers to evaluate their firmsperformance in relation to their major competitors. This kind of performance data hasbeen characterised as subjective or indirect in contrast to data collected internally bythe firm and within its official files (Dess and Robinson, 1984).

    In order to obtain precision in measuring the performance of the firm, one has alsoto examine non-financial indicators influencing the overall performance of the firm.Indicators such as product or service quality, market share, customer loyalty andcustomer satisfaction could be considered as non-financial indicators (Venkatramanand Ramanujam, 1986).

    To date, it is not clear what type of indicators could be adopted for measuringperformance in financial terms in retailing (Ailawadi et al., 1995; Dawson, 2005;Reynolds et al., 2005). In the relative literature the most frequently examined financialindicators are gross margin, rates of return (Bradley and Taylor, 1992; Dobson, 2005;Reynolds et al., 2005) and sales revenue and growth (Doyle and Hooley, 1992; Dobson,2005; Greenley, 1995; Hooley et al., 1992; Reynolds et al., 2005). In addition the mostcommon non-financial indicators are: market share (Cronin and Skinner, 1984;Hooley et al., 1990; Doyle and Hooley, 1992; Deng and Dart, 1994; Liu and Davies, 1997),labor and space productivity (Cronin and Skinner, 1984; Ingene, 1982, 1984; Dobson,2005; Reynolds et al., 2005) and stock turn (Dawson and Shaw, 1989).

    Firm performance is a polymorphous subject. There is a need of providing anintegrated view of the evaluation of firm objectives through the examination of both



  • specific financial and non-financial indicators. This provision can offer a broadoperationalization of the firm performance (Venkatraman and Ramanujam, 1986).

    Internal marketing and business performance. The remark that there is littleempirical evidence on IM leads to notional and practical limitations relative tothe investigation of its relationship with business performance. Since the literatureprovides only few empirical investigations of the concept, it seems logical to bridge theresearch gap in exploring the specific relationship. Generally, the specific relationshiphas been mentioned as axiom within the bibliography.

    What the literature provides is the investigation of various relationships betweendifferent dimensions representing the IM or IMO concept with isolated dimensionsrepresenting parts of what can be characterised as performance of the firm.

    In services marketing literature, one can find a direct or indirect affect of some of theIM concept dimensions (examined in an isolated manner) on some categories ordimensions of business performance indicators, primarily: improving service quality(Pfau et al., 1991), decreasing the rate of personnel turnover (Gummesson, 1997),creating customer conscious employees (Gronroos, 1981), improving employeecommitment to the organisation (Wasmer and Brunner, 1991). Moreover, variousrelationships have been examined, for instance: employee satisfaction and customersatisfaction (Heskett et al., 1994; Nagel and Cilliers, 1990), service quality and businessperformance (Capon et al., 1990) and internal service quality and business performance(Caruana and Pitt, 1997).

    Having in mind the literature devoted to total quality management, one can findempirical evidence in the following relationships (indicative): workforce and topmanagement commitment with ROI (Adam, 1994), senior management involvementand employee compensation and recognition with financial performance (Adam et al.,1997), employee fulfilment and customer fulfilment (Anderson et al., 1995), openculture, employee empowerment and executive commitment with competitiveadvantage (Powell, 1995), long-term relationships with suppliers and use ofprocess-focused improvement tools with ROA and return on sales (Ittner andLarcker, 1997).

    HRM literature demonstrates several empirical attempts at the HRM practices leveland their relationships with some kind of business performance, for example positivelinks have been found between: the use of cooperative and innovative HRM practicesand productivity (Ichniowski et al., 1993, cited in Hiltrop, 1996), the extensiveness ofrecruiting, selection test validation, and the use of formal selection procedures and firmprofits (Terpstra and Rozel, 1993), the adoption of employee training programmes andfinancial performance (Russell et al., 1985), the use of high performance workpractices and employee turnover, productivity and short- and long-term measures ofcorporate financial performance (Huselid, 1995).

    The common denominator of all the above research approaches is the attempt ofempirical evidence of the positive affect of business behaviours in relation to theinternal customer and internal market on business performance. They provide a part ofthe puzzle as examined separated or isolated dimensions (transformed in relativevariables) of notions nearly to or part of IM concept with some kind of businessperformance indicators. Having in mind all these attempts and the restriction inempirical evidence of a more holistic approach relative to the measurement of IM

    IM impacton business



  • concept till recently, it reveals the urgent need of providing a deeper insight into thesubject area which was formulated the genesis of our attempt.

    Thus, the aim, of this paper is twofold:

    (1) an examination of an IM scale; and

    (2) an insight into the impact of IM on business performance in a retail context.

    MethodologyIn order to obtain relevant retail data, supermarket chains with nationwide coverage inGreece were selected. This choice was for the following reasons. Supermarkets are aretailing business adding value to products and offering customers an importantaspect of the retail offer; services. Branch managers were approached as they are tosome degree independent and impact on employees. It is widely known that the role ofthe manager and especially of the Branch manager in this process of the organisation iscritical, as managerial behaviour and actions have the potential to influence employeebehaviour. This, in turn, could probably affect customers perceptions of the productthey receive (Hartline and Ferell, 1996).

    Initially, 25 branch managers and marketing executives were selected for in depthinterviews, to ensure no potential problems in the wording and or translation ofspecific items of the questionnaire into Greek. Qualitative research identified theadaptation and in some cases the deletion of specific items. This is discussed in theformulation of the adopted measurements in the last section of the paper. In depthinterviews were conducted in order to specify the pool of the proposed items and thento pre-test the questionnaire. Respondents were asked to evaluate the meaning andtheir relativity of the various notions described within specific items-questions, theirwording as the majority was translation and the relevance of the questions to thespecific organizational context being investigated. Authors provided interviewees withan evaluation sheet for recommendations. In parallel, the overall comments ofrespondents were transcribed and analysed in order to identify potential sources ofboth positive and restricted subjects relative to the questionnaire (32 branch managersand marketing executives). Questionnaires were then sent to 1,288 branch managers.The final response rate was 265 (20.5 per cent), of which 252 (almost 20 per cent) weredeemed usable.

    The adopted construct measures of the IM concept are:. ICO is represented by the thus termed scale used by Conduit and Mavondo

    (2001). One question has been excluded as it was found to be similar with anotheritem within the variable of formal interaction which is presented in the nextparagraph.

    . The need of information (internal and external) relative to employees andemployment subjects, effective internal two-way communication between andwithin the hierarchy of the organisation have been operationalized by thefollowing constructs: group interaction, collegial interaction, formal interaction(have been adapted) and external environment adopted from the work of Lingsand Greenley (2001). The crucial aspect of feedback within the organization andwithin employees is represented by the homonym variable feedback derivingfrom the adaptation of the construct titled internal communication adopted byConduit and Mavondo (2001). The initial construct has four dimensions:



  • organisational perspective, feedback, organisational integration and mediaquality. Questions from the first three dimensions were used. Questions excludedfrom the questionnaire were those which had almost the same meaning asquestions included in the other dimensions of the IM (formal interaction,feedback).

    . According to the literature review, organisations have to depend upon theirinternal market in addition to the external customer and market. Procedures andpolicies targeted internally to the internal customer are crucial for the creation ofa balanced and integrated management of the firm. In order to represent theresponsiveness of the firm towards its internal market, five out of nine itemsrepresenting the initial responsiveness variable of the MARKOR scale (Kohli andJaworski, 1993) have been adapted in terms of meaning and wording to representresponsiveness to internal market and the context of the retail organization. Thescale has been titled as internal procedures and policies. Moreover, the scale ofJaworski and Kohli (1993) named in its initial form reward system orientation,was adapted, in order to capture the concept of reward systems and motivationincentives. The initial scale consisted of six questions. Two were excluded fromthe questionnaire since they had been developed for a different research andbusiness context (business market). One question relative to the compensationsystem with a direct link to the level of customer satisfaction has been expandedin order to capture all the hierarchical levels within a typical retailfirm-employees, branch managers and top management. The final measure ofthe variable titled reward systems contains five items. The concept of managerialconsideration has been measured adopting the constructs of wage flexibility andjob flexibility from the work Lings and Greenley (2001).

    Totally the IM construct incorporates ten variables and 46 items:

    (1) ICO;

    (2) group interaction;

    (3) collegial interaction;

    (4) formal interaction;

    (5) external environment;

    (6) feedback;

    (7) internal procedures and policies;

    (8) reward systems;

    (9) wage flexibility; and

    (10) job flexibility.

    All the items were measured using a seven-point Likert scale ranging from1 I strongly disagree to 7 I strongly agree.

    Business performance was measured by asking respondents to determine theirbusiness performance in comparison to their major competitor for the last three yearsin the following indicators, i.e. subjective and indirect measures (Dess and Robinson,1984; Conant et al., 1993; Liu and Davies, 1997; Narver and Slater, 1990; van Egeren andOConnor, 1998): financial indicators total sales, growth rate of sales (Doyle and

    IM impacton business



  • Hooley, 1992; Hooley et al., 1992; Greenley, 1995; Slater and Narver, 1994) gross margin(Ingene, 1984; ORiordan, 1993) and non-financial indicators market share (Buzzellet al., 1975; Cronin and Skinner, 1984; Deng and Dart, 1994; Hooley et al., 1990; Liu andDavies, 1997), space productivity (Cronin and Skinner, 1984; Goodman, 1985; Ingene,1982, 1984) and stock age (Daswon and Shaw, 1989). We incorporated another twoindicators, i.e. human or employee productivity and return on sales, which wereeventually excluded as interviewees claimed difficulties in providing a preciseevaluation. The adoption of both financial and non-financial indicators is a betterapproach when measuring the overall performance of the firm (Venkatraman andRamanujam, 1986). All the performance items were measured using a seven-pointLikert scale ranging from 1 much worse to 7 much better.

    Purifying the measurementsWe advocate that the operationalization of IM in terms of a measurement isrepresented by a ten factor-latent variable model where all the factors are correlated.Confirmatory factor analysis (CFA) employing structural equation modelling analysisusing AMOS 5.0 was used to investigate the IM scale. Three CFA models wereestimated and later compared to each other, in order to find the best-proposed modelfitting the specific data:

    Model 1. Covariation among items is best explained by the ten factors which areallowed to correlate.

    Model 2. Covariation among items is presented by three factors with each factorrepresents a specific component of an artificial IM scale entitling them as;intelligence generation for the internal market, dissemination of theintelligence and responsel.

    Model 3. Items are incorporated into a single factor model, i.e. a one-dimensionalmodel in which all the items load into one factor illustrating IM.

    Since the nature of the study is exploratory, all three models have been revised(post-hoc analysis) (MacCallum, 1986) in terms of excluding all indicators-items and/orlatent variables in which computed loadings showed non-statistical significance. Forexample, Model 1 has been left with five latent variables and 11 indicators relative tothe initial Model 1 with ten variables and 46 indicators-items. A generation modelstrategy was used (Joreskog and Sorbom, 1993). Table II shows the statistics of all thethree competing models.

    Excluding the non-significant indicators and latent variables, the three competingmodels at the last stage of post hoc analysis have a different number of indicators, aswell as, the differences between the nature of the indicators. The examination ofdifferences in x 2 (Dx 2) as happens with nested models, cannot be applied (Bentler andChou, 1987; Bollen, 1989; Hair et al., 1998). The examination of all the availablestatistics in Table II reveals that the Model 1 (Figure 1) with the five correlated factorsand the eleven indicators-items fits the specific data set only slightly better than theother two models.

    The respective reliabilities for all three proposed models were examined as wasdiscriminant validity in order to select the most appropriate model. It is crucial toexamine the reliability of the proposed models and especially composite reliabilities



  • Models 1 2 3

    Number of factors 5 3 1x 2 87.334 102.337 87.444Degrees of freedom 34 41 27GFI/AGFI/PGFI 0.944/0.891/0.486 0.935/0.896/0.581 0.925/0.875/0.555NFI 0.932 0.89 0.89CFI 0.957 0.93 0.92PNFI-PCFI 0.576-0.592 0.664-0.693 0.667-0.690RMSEA 0.079 0.077 0.094

    Table II.Statistics of IM models

    Figure 1.IM the construct

    (Model 1)






    Reward systems


















    0.68IMAREL_2imrel_2 0.83












    IM impacton business



  • and variance extracted values (Hair et al., 1998). The composite reliabilities and thevalues of variance extracted are shown in Table III and findings reveal that Model 1 issuperior to the other models in terms of reliability. These estimates indicate that tryingto force the items measuring IM onto fewer factors leads to a significant deteriorationof the model fit relative to the five-factor model. Therefore, Model 1 can be proposed asthe model which fits data better than the other two models.

    It is known that evidence of discriminant validity is provided by a low to moderatecorrelation among measures when are designed to measure conceptually different butrelated constructs: a value of f coefficient significantly less than one, offers supportfor discriminant validity among the constructs (Anderson and Gerbing, 1988). Theinter-factor correlations (f) are shown in Table IV. Another test of discriminantvalidity proposed by Fornell and Larcker (1981) was adopted: a construct is empiricallydistinct if the average variance explained by that constructs items is greater than theconstructs shared variance with every other construct, i.e. the square of the inter-factorcorrelations (f 2) between any two constructs. Model 1 shows evidence of discriminantvalidity.

    SEM analysis indeed indicates that the construct of IM consists of five latentvariables which are allowed to correlate and eleven items (Table V): formal interaction,reward systems, feedback, internal procedures and policies and ICO. Formal

    Model 1 (five factors) Formal interaction Feedback Reward systems Internal procedures ICOComposite reliability 0.82 0.87 0.84 0.73 0.66Variance extracted 0.69 0.77 0.72 0.50 0.50Model 2 (three factors) Generation Dissemination ResponseComposite reliability 0.82 0.51 0.96Variance extracted 0.69 0.34 0.80Model 3 (one factor) IMComposite reliability 0.85Variance extracted 0.40

    Notes: Construct reliability (S standardized loading)2/(S standardized loading)2 Sej; varianceextracted (S standardized loading 2)/(S standardized loading)2 SejSource: Fornell and Larcker (1981)

    Table III.IM models: compositereliability and varianceextracted

    Model 1 (five factors) Formal interaction Feedback Reward systems Internal procedures ICO

    Formal Interaction 1Reward systems 0.672 1Internal procedures 0.479 0.455 1Feedback 0.592 0.505 0.494 1ICO 0.457 0.651 0.493 0.716 1Inter-factor correlations (f)AVEFormal interaction 0.705 0.590 0.730 0.595Reward systems 0.452 0.605 0.745 0.610Internal procedures 0.229 0.207 0.630 0.495Feedback 0.350 0.255 0.244 0.635ICO 0.209 0.424 0.243 0.513Square inter-factor correlations (f 2)

    Table IV.IM Model 1: inter-factorcorrelations (f) squareof inter-factorcorrelations (f 2) andaverage varianceextracted (AVE)



  • interaction represents the need of gathering and analysing information relative toemployees. Super market chains explore employee attitudes when considering rewardsystems and compensation. At the same time, they are concerned about employeesparticipation in decisions and actions regarding the branch (Table AI). The rewardsystem seems to concern only the top and middle management (head office branchmanagers). There is no evidence of rewarding the first line even though it is focusingon customer satisfaction. In contrast retailers respond to changes in labour issues andto employees complaints (internal procedures and policies). Employees receivefeedback from branch managers on their job performance and they know how theirperformance is being appraised (feedback). Moreover, one could find the diffusion ofthe notion that everybody within the firm is an internal customer and supplier and theaim is to provide a quality service to other colleagues, branches or departments (ICO)(Table AI). All these aspects represent the concept of IM within the super marketchains indicating an exploratory route.

    The CFA procedure was also employed for the construct of business performance.Two different models were compared Model 1, covariation among items is bestexplained by two factors which are allowed to correlate, financial performance andnon-financial performance (Figure 2) and Model 2, covariation among items is bestexplained by one single factor, business performance. Statistics strongly indicated thatModel 1 fits better than Model 2 to the specific data (Table VI). Model 1 providesevidence of convergent and discriminant validity as well as composite reliability(Tables VII and VIII).

    FindingsThe median respondent branch manager has the following profile: male (63.10per cent), 11-15 years of total work experience (58.8 per cent), 4-6 years in the positionof branch manager (59.9 per cent) and possessing only a lyceum (high school) degree(50.8 per cent; Table IX).

    After the methodological procedure indicating the adoption of the best modelsregarding the specific data, the relationship between IM and business performance wasexamined (Figure 3 and Table X). It was revealed that IM has a positive significant

    Indicator Latent variable Estimatesa SE Critical ratio Loadingsb

    FORMAL_IN_1 Formal_INT 1 * 0.797FORMAL_IN_2 Formal_INT 1.015 0.087 11.632 0.871REWARD_1 Reward systems 1 0.887REWARD_2 Reward systems 0.846 0.067 12.551 0.819INTEPROCED_1 INT_procedures 1 0.483INTEPROCED_2 INT_procedures 1.407 0.212 6.64 0.740INTEPROCED_4 INT_procedures 1.724 0.248 6.948 0.843FEEDBACK_1 Feedback 1 0.877FEEDBACK_2 Feedback 1.149 0.081 14.237 0.883IMAREL_2 ICO 1 0.826IMAREL_5 ICO 0.702 0.095 7.369 0.565Notes: aUnstandardized values; bstandardized values; *p , 0.001

    Table V.IM Model 1: maximumlikehood estimates and

    standardized values

    IM impacton business



  • effect on business performance, both financial and non-financial. Hence, retailerswishing to improve their performance indicators in financial and non-financial termshave to focus on the human aspect of their firm and especially to:

    . explore in a formal way the attitudes and needs of their employees;

    . reward everyone in the firm in relation to customer satisfaction and providedservice;

    Figure 2.Retail businessperformance theconstruct (Model 1)


    0.81PER_MARKET SHAREer_ms

    0.72PER_GROSS MARGINer_gm









    Model 1 2

    Number of factors 2 1x 2 19.450 * 113.053Degrees of freedom 8 9NFI 0.983 0.901CFI 0.990 0.908PNFI/PCFI 0.524/0.528 0.541/0.545RMSEA 0.076 0.215

    Note: *Non-significant at p , 0.013

    Table VI.Statistics of businessperformance models

    Indicator Latent Variable Estimatesa SE Critical Ratio Loadingsb

    SALES F_PERFORMANCE 1 0.851SALES_GROWTH F_PERFORMANCE 1.011 * 0.054 18.791 0.906GROSS MARGIN F_PERFORMANCE 1.04 * 0.063 16.516 0.847MARKET SHARE NF_PERFORMANCE 1 0.9SPACE PROD NF_PERFORMANCE 0.949 * 0.048 19.648 0.888STOCK NF_PERFORMANCE 0.843 * 0.058 14.611 0.757Notes: aUnstandardized values; bstandardized values; *p , 0.001

    Table VII.Business performanceModel 1: maximumlikehood estimates andstandardized values



  • . provide feedback concerning assessment methods, employees effectiveness,corporate and store objectives;

    . care about employees needs, complaints and job related inquiries; and

    . attempt to disseminate the concept within the firm, with personnel acting asinternal suppliers to their colleagues.

    Except for the apparent implications for retailers, it is certain that this importantempirical evidence provides an amelioration of our knowledge and fills a gap in thescarce literature devoted to IM.

    Financial performance Non-financial performance

    f ValuesFinancial performance 1Non-financial performance 0.833 1AVEValues of f2

    Financial performance 0.74Non-financial performance 0.69Composite reliability 0.88 0.72Variance extracted 0.90 0.75

    Table VIII.Business performance

    Model 1: inter-factorcorrelations square ofinter-factor correlations

    (f 2) and averagevariances composite


    Frequency %

    GenderMale 159 63.10Female 93 36.90Position experienceUp to 3 years 77 30.564-6 106 42.067-10 59 23.4110 10 3.97EducationCompulsory 59 23.4Lyceum 128 50.8Vocational 35 13.9University 28 11.2Postgraduate 1 0.4Other 1 0.4Total work experienceUp to 5 years 7 2.786-10 67 26.5911-15 120 47.6216-20 47 18.6521 11 4.36Note: N 252

    Table IX.Branch managers:


    IM impacton business



  • Discussion and conclusionsThis paper aimed to examine a construct of the IM concept and its impact on businessperformance within a retail context. The contribution of this piece of research isthreefold. First, it provided a new approach to IM literature and within the limitedempirical attempts as it combines the two major approaches in the subject area, whichtill nowadays have been examined separately. The paper examined and validateda synthesis of the IM dimensions, incorporating both the concepts of IMO and ICO.Further it indicated that the construct of IM, within the retail industry, consists of fivedimensions: formal interaction, reward systems, feedback, internal procedures andICO. The formulation of the construct with five dimensions has to be further discussed.First, it is apparent to underline the lack of participation of the variables that have beenused by Lings and Greenley (2001): external environment, collegial interaction, groupinteraction, wage flexibility and job flexibility. One possible explanation is that thecontext of this paper (Greece) is dissimilar from the milieu of the paper of Lings andGreenley (2001) (e.g. UK), and affects to a certain degree the dimensions of the proposedconstruct. The type of retailing (supermarket chains) also could be a reason per se ofdifferentiation relative to whether the variables would be applicable in a retailingsetting in UK. The paper of Lings and Greenley (2001) was conducted withinthe various types of retailing and not specifically in grocery or supermarket chains.

    Figure 3.IM and retail businessperformance






    0.49REWARDe-2 0.70












    Estimatesa SECriticalRatio Loadingsb


    PERFORMANCE IM 1.385 * 0.171 8.109 0.717ICO IM 1.000 0.646INT_PROC IM 1.474 0.189 7.789 0.602REWARD IM 1.194 0.135 8.825 0.702FORMAL IM 1.227 0.147 8.324 0.687FEEDBACK IM 1.164 0.132 8.838 0.678PERFOR PERFORMANCE 1.000 0.896F_PERFOR PERFORMANCE 0.818 0.065 12.495 0.842PERFOR IM 0.643F_PERFOR IM 0.604Notes: aUnstandardized values; bstandardized values and direct effects; *p , 0.001

    Table X.IM and businessperformance:unstandardized,standardized regressionweights and indirecteffects



  • Also it is difficult to make a straight comparison as there are no more details of theproportion of the specific type of retailing in their sample. In addition, it is withoutdoubt not surprising that a part of the indicators and latent variables have beennon-significant and excluded. In the previous aforementioned studies the initial pool ofitems was 60 arriving at 20 after purifying the scales (Lings and Greenley, 2001).Moreover, the existing style of management needs to be taken into account whenanalysing IM and organizational behaviours. Some of the core behaviours designed tobe implemented within a participated organizational context could not be found withina centralised control-based management (Ahmed and Rafiq, 2002).

    Moreover, during the procedure of personal interviews it was revealed that retailersdo not employ a particular widely-implemented management policy concerning joband wage flexibility policies (wage flexibility and job flexibility). Almost half of thebranch managers have indicated that they have limited and sometimes noresponsibility in determining the level of remuneration of their staff in order toadapt to local conditions. Further, it seems that some of the retail firms permitemployees to have some flexibility concerning their hours of work. This means thatthey can choose to work during the morning or noon shifts. However, they have topre-determine shifts in order for Branch Managers to efficiently distribute staff amongthe six days and operating hours of the store.

    Group interaction and collegial interaction are not supported by the SEM analysis tobe two of the dimensions of the IM construct. This finding is very important, as itindicates that both top management and store management do not fully exploit theconcept of the internal market. Supermarket chains in Greece seem to seek instinctivelythe best route to IM. Their attempts to implement an internal orientation, probablypresents the first phase of adopting the concept. The head office remainspredominantly the main source of deciding and implementing whatever strategicand most of the tactical directions and policies regardless of the marketing concept,i.e. internal or external to the firm.

    There is no evidence of disseminating authority on decision making, but rather asituation of a responsibility holding culture. The role of the branch manager has beendetermined as mostly focusing on practical subjects on a day-to-day store routine.Additionally, information on local or general employment conditions and firmscompeting for the same employees are not found to be significant (externalenvironment). This finding supports the above thought of the embryonic stage in theadoption of the IM concept, within the specific retail sector in Greece.

    On the other hand, SEM analysis indeed determines five dimensions of the IMconstruct. One can easily observe that all the dimensions of the integrated construct arerelevant to a centralised management model. All the items represent firm behaviours,in which most of the tactics are designed, implemented and directed by the topmanagement. Retailers (supermarket chains) in Greece seem to adopt, one way oranother, a concept of IM as they:

    . explore in a formal way the attitudes and needs of their employees;

    . reward the various management levels in the firm in relation to customersatisfaction and provided service;

    . provide feedback concerning assessment methods and employees effectiveness;

    IM impacton business



  • . are concerned about employees needs, complaints and job related inquiries, andfinally; and

    . attempt to disseminate the concept within the firm, by means of personnel actingas internal suppliers to their colleagues.

    It is a clear picture of a centralised formalised organisation where every attempt isdirected by the upper levels of hierarchy to the lower levels without reverse routing.Super market chains in Greece do a lot in the right direction. Adopting andimplementing an IM concept, provides a set of benefits which could lead to acompetitive advantage if fully exploited by:

    . Balancing the external and internal product by providing an adapted jobproduct which meets and satisfies the needs of employees by motivational andreward systems with a marketing perspective focusing on the external customerand their satisfaction.

    . Supporting decisions made by employees by providing adequate feedback inorder to implement and adopt a market orientation culture and behaviour.

    . Developing a quality and marketing culture, a shared system of beliefs internallywhich leads to a customer process orientation for both the internal and externalrelationships.

    The feeling is that factors like example organisational and structural problems,demographics and synthesis of the employees and the ratio of turnover, restrict theexploitation of the concept to the present limits.

    The second contribution is the provision of empirical findings relative to anunder-examined relationship between IM and business performance beinghypothesised for certain for years, like an axiom or being examined in parts. Thestrength of the hypothesised relationship indicates that IM is an important driver forbusiness performance, financial and non-financial. Findings provide credence to pastliterature that has assumed this relationship as axiom, and hence, this papercontributes to the academic literature in this area. From a managerial perspective, thiscould encourage retailers to cooperate with their personnel in order to create andmaintain long-term relationships. With this approach retailers could build an effectivevalue chain targeted at both internal and external recipients (employees and customers;Gummesson, 2000).

    Simultaneously in one way or another we have to abandon the practice of one wayinternal communication activities to promote business objectives concerning theexternal market and customers (Ballantyne, 1997). Following the same logic, the IM,philosophy and functional activities, cannot include the marketing department ormarketing people exclusively. Top management with human resources and marketinghave to play the crucial roles by actively participating in the strategic formulation andtactical implementation of the IM concept within the firm (Ballantyne, 2000).

    Finally, the context of the paper provides insight of a sector with only few empiricalresults and simultaneously in a cultural context of Southern Europe which differs fromother more researchable countries and cultures (the USA, UK, Asia and Australia).

    It is certain that single key informant, post-hoc analysis, the single context of thepaper and probably the sample size (concerning the initial measurement model) areconsiderations when examining research limitations. Nevertheless, there is a need of



  • further validation of the IM scale as the behavioural aspect of the IM conceptimplemented in the firm. Its applicability in different retail and service settings is beingconsidered inevitable. The nice of the specific type of retailing probably createsrestrictions in generalization of the scale even provides a more analytical insight of therelationships being examined Ahmed et al. (2003) call for investigation of the conceptin specific service sectors. There is also an urgent need of confirmation and a crossvalidation of the IM scale or similar measurements in more contexts and cultures.Context seems to affect the synthesis of the IM construct and probably thedifferentiation in the stage of implementing or adopting specific behaviours by the firms.It is crucial to investigate in a more systematic manner the possibility of casual orderingwithin the dimensions of IM by trying to reveal any sequence to the applicability of firmbehaviours. For example, the organisation collects information relative to the employeesand legislate subjects and then reacts with the appropriate policies.

    IM is holistic in nature (Ahmed and Rafiq, 2003). It is very difficult to be graspedignoring the organization and the employees or persons providing a meaning to it.IM has to enhance integration and co-ordination in being a functional base of externalorganizational marketing effectiveness. The route to its deeper understanding is not sofar away but there is a need of a more wide spread investigation.


    Adam, E.E. Jr (1994), Alternative quality improvement practices and organizationperformance, Journal of Operations Management, Vol. 12 No. 1, pp. 27-44.

    Adam, E.E. Jr, Corbett, L.M., Flores, B.E., Harrison, N.J., Lee, T.S., Rho, B., Ribera, J., Samson, D.and Westbrook, R. (1997), An international study of quality improvement approach andfirm performance, International Journal of Operations & Production Management, Vol. 17No. 9, pp. 842-73.

    Ahmed, P.K. and Rafiq, M. (1995), The role of internal marketing in the implementation ofmarketing strategies, Journal of Marketing Practice: Applied Marketing Science, Vol. 1No. 4, pp. 32-51.

    Ahmed, P.K. and Rafiq, M. (2002), Internal Marketing: Tools and Concepts for Customer-focusedManagement, Butterworth-Heinemann, Oxford.

    Ahmed, P.K. and Rafiq, M. (2003), Internal marketing issues and challenges, European Journalof Marketing, Vol. 37 No. 9, pp. 1177-86, (commentary).

    Ahmed, P.K., Rafiq, M. and Saad, N. (2003), Internal marketing and the mediating role oforganisational competencies, European Journal of Marketing, Vol. 37 No. 9, pp. 1221-41.

    Ailawadi, K.L., Borin, N. and Faris, P.W. (1995), Market power and performance: a cross-industryanalysis of manufacturers and retailers, Journal of Retailing, Vol. 71 No. 3, pp. 211-49.

    Anderson, J.C. and Gerbing, D.W. (1988), Some methods for respecifying measurement modelsto obtain unidimensional construct measures, Journal of Marketing Research, Vol. 19,pp. 453-60.

    Anderson, J.C., Rungtusanatham, M., Schroeder, R.G. and Devaraja, S. (1995), A path analyticmodel of a theory of quality management underlying the deming management method:preliminary empirical findings, Decision Sciences, Vol. 26 No. 5, pp. 637-58.

    Anderson, P. and Chambers, T. (1985), A reward/measurement model of organisational buyingbehaviour, Journal of Marketing, Vol. 49, pp. 7-23.

    Ballantyne, D. (1997), Internal networks for internal marketing, Journal of MarketingManagement, Vol. 13, pp. 343-66.

    IM impacton business



  • Ballantyne, D. (2000), The strengths and the weaknesses of internal marketing, in Varey, J.V.and Lewis, R.B. (Eds), Internal Marketing: Directions for Management, Routledge, London,pp. 43-60.

    Ballantyne, D. (2003), A relationship-mediated theory of internal marketing, European Journalof Marketing, Vol. 37 No. 9, pp. 1242-60.

    Bansal, H.S., Mendelson, M.B. and Sharma, B. (2001), The impact of internal marketing activitieson external marketing outcomes, Journal of Quality Management, Vol. 6 No. 1, pp. 61-76.

    Barnes, J.G. (1989), The role of internal marketing: if the staff wont buy it, why should thecustomer?, Irish Marketing Review, Vol. 4 No. 2, pp. 11-21.

    Barrett, C. (1994), Co-workers are customers too, Sales &MarketingManagement, July, pp. 31-2.

    Bentler, P.M. and Chou, C.P. (1987), Practical issues in structural modelling, SociologicalMethods & Research, Vol. 16, pp. 78-117.

    Berry, L., Conant, J.S. and Parasuraman, A. (1991), A framework for conducting a servicesmarketing audit, Journal of the Academy of Marketing Science, Vol. 19, pp. 255-68.

    Berry, L.L. (1981), The employee as a customer, Journal of Retail Banking, Vol. 3, pp. 33-44.

    Berry, L.L. (1984), Services marketing is different, in Lovelock, C.H. (Ed.), Services Marketing,Prentice-Hall, New York, NY.

    Berry, L.L. and Parasuraman, A. (1991), Marketing Services, Competing Through Quality,The Free Press, New York, NY.

    Berry, L.L., Hensel, J.S. and Burke, M.C. (1976), Improving retailer capability for effectiveconsumerism response, Journal of Retailing, Vol. 52 No. 3, pp. 3-14.

    Bollen, K.A. (1989), Structural Equations with Latent Variables, Wiley, New York, NY.

    Boshoff, C. and Tait, M. (1996), Quality perceptions in the financial services sector: the potentialimpact of internal marketing, International Journal of Service Industry Management,Vol. 7 No. 5, pp. 5-31.

    Bradley, K. and Taylor, S. (1992), Business Performance in the Retail Sector: The Experience ofthe John Lewis Partnership, Clarendon Press, Oxford.

    Brignal, T.J. and Ballantine, J. (1996), Performance measurement in service businessesrevisited, International Journal of Service Industry Management, Vol. 7 No. 1, pp. 6-31.

    Bruhn, M. (2003), Internal service barometers: conceptualization and empirical results of a pilotstudy in Switzerland, European Journal of Marketing, Vol. 37 No. 9, pp. 1187-204.

    Buzzell, R.D., Gale, B.T. and Sultan, R.G. (1975), Market share a key to profitability, HarvardBusiness Review, January-February, pp. 97-106.

    Cahill, D.J. (1995), The managerial implications of the learning organization: a new tool forinternal marketing, Journal of Services Marketing, Vol. 9 No. 4, pp. 43-51.

    Cahill, D.J. (1996), Internal Marketing: Your Companys Next Stage of Growth, The HaworthPress, New York, NY.

    Capon, N., Farley, J.U. and Hoeing, S. (1990), Determinants of financial performance: a metaanalysis, Management Science, Vol. 36, pp. 1143-60.

    Caruana, A. and Calleya, P. (1998), The effect of internal marketing on organisationalcommitment among retail bank managers, International Journal of Bank Marketing,Vol. 16 No. 3, pp. 108-16.

    Caruana, A. and Pitt, L. (1997), INTQUAL an internal measure of service quality and the linkbetween service quality and business performance, European Journal of Marketing,Vol. 31 Nos 7/8, pp. 604-17.



  • Chaston, I. (1994), Internal customer management and service gaps within the UK manufacturingsector, International Journal of Operations and Production, Vol. 14 No. 9, pp. 45-56.

    Collins, B. and Payne, A. (1991), Internal marketing: a new perspective for HRM, EuropeanManagement Journal, Vol. 9 No. 3, pp. 261-70.

    Comm, C.L. (1989), The internal marketing of demand insensitive services can lead to betterexternal marketing, Journal of Professional Services Marketing, Vol. 5 No. 1, pp. 41-6.

    Conant, J.S., Smart, D.T. and Solano-Mendez, R. (1993), Generic retailing types, distinctivemarketing competencies and competitive advantage, Journal of Retailing, Vol. 69,pp. 254-80.

    Conduit, J. and Mavondo, F.T. (2001), How critical is internal customer orientation to marketorientation?, Journal of Business Research, Vol. 51 No. 1, pp. 11-24.

    Cronin, J.J. and Skinner, S.J. (1984), Marketing outcomes, financial conditions and retail profitperformance, Journal of Retailing, Vol. 60 No. 4, pp. 9-22.

    Dawson, J. (2005), Output considerations in retail productivity, International Review of Retail,Distribution & Consumer Research, Vol. 14 No. 3, pp. 337-49.

    Dawson, J.A. and Shaw, S.A. (1989), Horizontal competition in retailing and the structure ofmanufacturer-retailer relationships, in Pellegrini, L. and Reddy, S.K. (Eds), Retail andMarketing Channels: Economic and Marketing Perspectives on Producer-DistributorRelationships, Routledge, London, pp. 49-72.

    Deng, S. and Dart, J. (1994), Measuring market orientation: a multi-factor, multi-item approach,Journal of Marketing Management, Vol. 10 No. 8, pp. 725-42.

    Denton, D.K. (1990), Customer focused management, HR Magazine, pp. 62-7.

    Dess, G.G. and Robinson, R.B. (1984), Measuring organisational performance in the absence ofobjectives measures: the case of privately-held firms and conglomerate business unit,Strategic Management Journal, Vol. 5, pp. 265-73.

    Dessler, G. (1999), How to earn your employees commitment, Academy of ManagementExecutive, Vol. 13, pp. 58-67.

    Dobson, W.P. (2005), Retail performance indicators in the nation of shopkeepers, InternationalReview of Retail, Distribution and Consumer Research, Vol. 14 No. 3, pp. 319-27.

    Doyle, P. and Hooley, G.J. (1992), Strategic orientation and corporate performance,International Journal of Research in Marketing, Vol. 9, pp. 59-73.

    Dunne, A.P. and Barnes, G.J. (2000), Internal marketing a relationship and value-creationview, in Varey, J.V. and Lewis, R.B. (Eds), Internal Marketing: Directions forManagement, Routledge, London.

    Flipo, J.-P. (1986), Service firms: interdependence of external and internal marketing strategies,European Journal of Marketing, Vol. 20 No. 8, pp. 5-14.

    Foreman, S. and Money, A. (1995), Internal marketing-concepts measurement and application,Journal of Marketing Management, Vol. 11, pp. 755-68.

    Fornell, C. and Larcker, D.F. (1981), Evaluating structural equation models with unobservablevariables and measurement error, Journal of Marketing Research, Vol. 18, pp. 39-50.

    George, W. (1990), Internal marketing and organizational behaviour: a partnership indeveloping customer-conscious employees at every level, Journal of Business Research,Vol. 10, pp. 63-70.

    Goodman, C.S. (1985), Comment: on output measures of retail performance, Journal of Retailing,Vol. 61, pp. 77-82.

    IM impacton business



  • Gounaris, S. (2006), Internal-market orientation and its measurement, Journal of BusinessResearch, Vol. 59, pp. 432-48.

    Greenley, G.E. (1995), Market orientation and company performance: empirical evidence fromUK companies, British Journal of Management, Vol. 6, pp. 1-13.

    Gronroos, C. (1981), Internal marketing-an integral part of marketing theory, in Donnelly, J.H.and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago,IL, pp. 236-8.

    Gronroos, C. (1990), Service Management and Marketing-Managing the Moments of Truth inService Competition, Lexington Books, Lexington, MA.

    Gronroos, C. (1994), From marketing mix to relationship marketing: towards a paradigm shift inmarketing, Management Decision, Vol. 32 No. 2, pp. 4-20.

    Gummesson, E. (1997), Relationship marketing as a paradigm shift: some conclusions from the30R approach, Management Decision, Vol. 35 Nos 3/4, pp. 267-73.

    Gummesson, E. (2000), Internal marketing in the light of relationship marketing and networkorganizations, in Varey, J.V. and Lewis, R.B. (Eds), Internal Marketing: Directions forManagement, Routledge, London, pp. 27-42.

    Hair, J.F., Anderson, E.R., Tatham, L.R. and Black, C.W. (1998), Multivariate Data Analysis,5th ed., Prentice-Hall, Englewood Cliffs, NJ.

    Hartline, M.D. and Ferell, O.C. (1996), The management of customer contact service employees:an empirical investigation, Journal of Marketing, Vol. 60, pp. 52-70.

    Hauser, J., Simester, D. and Wernerfelt, B. (1996), Internal customers and internal suppliers,Journal of Marketing Research, Vol. 33 No. 3, pp. 268-80.

    Heskett, J., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schlesinger, L.A. (1994), Putting theprofit-chain to work, Harvard Business Review, pp. 164-74.

    Hiltrop, J.-M. (1996), The impact of human resource management on organisationalperformance: theory and research, European Management Journal, Vol. 14 No. 6,pp. 628-37.

    Hooley, G., Lynch, J.E. and Jobber, D. (1992), Generic marketing strategies, InternationalJournal of Research in Marketing, Vol. 9 No. 1, pp. 75-89.

    Hooley, G., Lynch, J.E. and Shepherd, J. (1990), The marketing concept: putting the theory intopractice, European Journal of Marketing, Vol. 24 No. 9, pp. 7-24.

    Huselid, M. (1995), The impact of human resource management practices on turnover,productivity, and corporate financial performance, Academy of Management Journal,Vol. 38 No. 3, pp. 635-72.

    Ichniowski, C., Shaw, K. and Prennushi, G. (1993), The effects of human resource managementpractices on productivity, working paper, Columbia University, New York, NY,in Hiltrop, J.-M. (1996), The impact of human resource management on organisationalperformance: theory and research, European Management Journal, Vol. 14 No. 6,pp. 628-37.

    Ingene, C.A. (1982), Labor productivity in retailing, Journal of Marketing, Vol. 46, pp. 75-90.

    Ingene, C.A. (1984), Productivity and functional shifting in spatial retailing: private and socialperspectives, Journal of Retailing, Vol. 60 No. 3, pp. 15-36.

    Ittner, C.D. and Larcker, D. (1997), The performance effects of process management techniques,Management Science, Vol. 43 No. 4, pp. 522-34.

    Jaworski, B.J. (1988), Toward a theory of marketing control: environmental context, controltypes, and consequences, Journal of Marketing, Vol. 52, pp. 23-39.



  • Jaworski, B.J. and Kohli, A.K. (1993), Market orientation: antecedents and consequences,Journal of Marketing, Vol. 57, pp. 53-70.

    Johnston, M.W., Parasuraman, A., Futtrell, C.M. and Black, W.C. (1990), A longitudinalassessment of the impact of selected organisational influences on salespeoplesorganisational commitment during early employment, Journal of Marketing Research,Vol. 27, pp. 333-44.

    Joreskog, K.G. and Sorbom, D. (1993), LISREL 8: Structural Equation Modeling the SIMPLISCommand Language, Erlbaum, Hillsdale, NJ.

    Katz, D. and Khan, R.L. (1978), The Social Psychology of Organizations, Wiley, New York, NY.

    Kohli, A.K. and Jaworski, B.J. (1990), Market orientation: the construct, research propositions,and managerial implications, Journal of Marketing, Vol. 54 No. 2, pp. 1-18.

    Kohli, A.K. and Jaworski, B.J. (1993), MARKOR: a measure of market orientation, Journal ofMarketing Research, Vol. 30 No. 4, pp. 467-78.

    Lawler, E. and Rhode, J. (1976), Information and Control in Organisations, Goodyear Publishing,Pacific Palisades, CA.

    Lings, N.I. (2000), Developing the domain of internal market orientation and its consequencesfor market orientation and performance, Aston Business School Research Papers, AstonBusiness School, Birmingham.

    Lings, N.I. (2004), Internal market orientation: construct and consequences, Journal of BusinessResearch, Vol. 57 No. 4, pp. 405-13.

    Lings, N.I. and Greenley, G.E. (2001), The development and validation of a measure of internalmarket orientation, Aston Business School Research Papers, Aston Business School,Birmingham.

    Lings, N.I. and Greenley, G.E. (2005), Measuring internal market orientation, Journal of ServiceResearch, Vol. 7 No. 3, pp. 290-305.

    Liu, H. and Davies, G. (1997), Market orientation in UK multiple retail companies: nature andpattern, International Journal of Service Industry Management, Vol. 8 No. 2, pp. 170-87.

    Lukas, B.A. and Maignan, I. (1996), Striving for quality: the key role of internal and externalcustomers, Journal of Market Focused Management, Vol. 1, pp. 175-97.

    MacCallum, R.C. (1986), Specification searches in covariance structure modeling, PsychologicalBulletin, Vol. 100, pp. 107-20.

    MacStravic, R.S. (1985), Internal marketing for hospitals, Health Marketing Quarterly, Vol. 3,pp. 47-54.

    Money, A.H. and Foreman, S. (1996), The measurement of internal marketing: a confirmatorycase study, Journal of Marketing Management, Vol. 11 No. 8, pp. 755-66.

    Nagel, P. and Cilliers, W. (1990), Customer satisfaction: a comprehensive approach,International Journal of Physical Distribution and Logistics, Vol. 20 No. 6, pp. 2-46.

    Narver, J.D. and Slater, S.F. (1990), The effect of a market orientation on business profitability,Journal of Marketing, Vol. 5, October, pp. 20-35.

    Naude, P., Desai, J. and Murphy, J. (2003), Identifying the determinants of internal marketingorientation, European Journal of Marketing, Vol. 37 No. 9, pp. 1205-20.

    ORiordan, D. (1993), Retail gross margin: some international comparisons, InternationalJournal of Retail & Distribution Management, Vol. 21 No. 4, pp. 33-40.

    Pfau, B., Detzel, D. and Geller, A. (1991), Satisfy your internal customers, Journal of BusinessStrategy, Vol. 12 No. 6, pp. 9-13.

    IM impacton business



  • Pfeffer, J. (1995), Producing sustainable competitive advantage through the effectivemanagement of people, Academy of Management Executive, Vol. 9, pp. 55-72.

    Pfeffer, J. (1998), Seven practices of successful organizations, California Management Review,Vol. 40, pp. 96-124.

    Pfeffer, J. and Veiga, J.F. (1999), Putting people first for organizational success, Academy ofManagement Executive, Vol. 13, pp. 37-48.

    Piercy, N. (1995), Customer satisfaction and the internal market: marketing our customers to ouremployees, Journal of Marketing Practice and Applied Marketing Science, Vol. 1 No. 1,pp. 22-44.

    Piercy, N. and Morgan, N. (1990), Internal marketing: making marketing happen, MarketingIntelligence & Planning, Vol. 8 No. 1, pp. 4-6.

    Piercy, N. and Morgan, N. (1991), Internal marketing the missing half of the marketingprogramme, Long Range Planning, Vol. 24 No. 2, pp. 82-93.

    Pitt, L.F. and Foreman, S.K. (1999), Internal marketing role in organisations: a transaction costperspective, Journal of Business Research, Vol. 44 No. 1, pp. 25-36.

    Powell, T.C. (1995), Total quality management as competitive advantage: a review andempirical study, Strategic Management Journal, Vol. 16 No. 1, pp. 15-37.

    Quester, P.G. and Kelly, A. (1999), Internal marketing practices in the Australian financialsector: an exploratory study, Journal of Applied Management Studies, Vol. 8 No. 2,pp. 217-29.

    Rafiq, M. and Ahmed, P. (1993), The scope of internal marketing: defining the boundarybetween marketing and human resource management, Journal of MarketingManagement, Vol. 9, pp. 219-32.

    Rafiq, M. and Ahmed, P. (2000), Advances in the internal marketing concept: definition,synthesis and extension, Journal of Services Marketing, Vol. 14 No. 6, pp. 449-62.

    Reynolds, J., Howard, E., Dragun, D., Rosewell, B. and Ormerod, P. (2005), Assessing theproductivity of the UK retail sector, International Review of Retail, Distribution andConsumer Research, Vol. 14 No. 3, pp. 337-49.

    Richardson, B.A. and Robinson, G.C. (1986), The impact of internal marketing on customerservice in a retail bank, International Journal of Bank Marketing, Vol. 4 No. 5, pp. 3-30.

    Robbins, S.P. and Langton, N. (1999), Organizational Behavior: Concepts, Controversies,Applications, Prentice-Hall, Scarborough.

    Ruekert, R.W. (1992), Developing a market orientation: an organizational strategy perspective,International Journal of Research in Marketing, Vol. 9, pp. 225-45.

    Russell, J., Terborg, J. and Powers, M. (1985), Organizational performances and organizationlevel training and support, Personnel Psychology, Vol. 38, pp. 849-63.

    Sasser, W.E. and Arbeit, S.P. (1976), Selling jobs in the service sector, Business Horizons, Vol. 19No. 3, pp. 61-5.

    Sergeant, A. and Asif, A. (1998), The strategic application of internal marketing-aninvestigation of UK banking, International Journal of Bank Marketing, Vol. 16 No. 2,pp. 66-79.

    Slater, S.F. and Narver, J.C. (1994), Does competitive environment moderate the marketorientation-performance relationship?, Journal of Marketing, Vol. 58, pp. 46-55.

    Terpstra, D. and Rozel, E. (1993), The relationship of staffing practices to organizational levelmeasures of performance, Personnel Psychology, Vol. 46, pp. 27-48.



  • van Egeren, M. and OConor, S. (1998), Drivers of market orientation and performance in servicefirms, Journal of Service Marketing, Vol. 12 No. 1, pp. 39-58.

    Varey, J.V. and Lewis, R.B. (1999), A broadened conception of internal marketing, EuropeanJournal of Marketing, Vol. 33 Nos 9/10, pp. 926-44.

    Varey, R.J. (1995), Internal marketing: a review and some interdisciplinary research challenges,International Journal of Service Industry Management, Vol. 6 No. 1, pp. 40-63.

    Venkatraman, N. and Ramanujam, V. (1986), Measurement of business performance in strategyresearch: a comparison of approaches, Academy of Management Review, Vol. 11,pp. 801-14.

    Wasmer, D.J. and Brunner, G.C. (1991), Using organisational culture to design internalmarketing strategies, Journal of Services Marketing, Vol. 5 No. 1, pp. 35-46.

    Further reading

    Gronroos, C. (1984), A service quality model and its market implications, European Journal ofMarketing, Vol. 18 No. 4, pp. 36-44.

    Varey, J.V. and Lewis, R.B. (Eds) (2000), Internal Marketing: Directions for Management,Routledge, London.


    Internal marketing Mean SD

    Formal interactionFORMAL_IN_1 we survey our staff at least once a year to get information about theirattitudes towards reward systems and compensationb 4.54 1.51FORMAL_IN_2 we survey our staff at least once a year to get information about theirparticipation in the decisions and actions of the branchb 5.19 1.4Reward systemsREWARD_1 top management is rewarded for achieving customer satisfactionc 5.15 1.43REWARD_2 branch managers are rewarded for achieving customer satisfactionc 5.47 1.31Internal procedures and policiesINTEPROCED_1 it takes us forever to decide how to respond to changes in labourissuesa,c 4.3 1.58INTEPROCED_2 for one reason or another we tend to ignore changes in ouremployees needsa,c 4.87 1.45INTEPROCED_4 employees complaints fall on deaf ears most of the timesa,c 4.83 1.56FeedbackFEEDBACK_1 employees received feedback from their superiors on their jobperformanced 5.58 1.28FEEDBACK_2 employees are made aware of how their performance is beingappraisedd 5.56 1.46ICOIMAREL_2 we constantly seek to increase the value of services we provide to theother departments or branchesd 5.33 1.34IMAREL_5 we charge departments the true value of services we provided 4.52 1.37

    Notes: The questionnaire is available upon request; areverse orderSources: bLings and Greenley (2001); cKohli and Jaworski (1993); dConduit and Mavondo (2001)

    Table AI.Model 1: IM construct

    IM impacton business



  • About the authorsGeorge G. Panigyrakis is a Professor of Marketing in the Department of BusinessAdministration of the Athens University of Economics and Business, in Greece. He receivedhis PhD in Marketing Management from the University College of Wales, UK. His researchin the areas of brand management, international-export marketing, marketing communicationsand services marketing has appeared in a number of books and various journals.George G. Panigyrakis is the corresponding author and can be contacted at:

    Prokopis K. Theodoridis is lecturer in Marketing in the department of BusinessAdministration of Food and Agricultural Enterprises of the University of Ioannina. He holdsan MSc in Marketing (University of Stirling, UK) and was awarded a PhD from the AthensUniversity of Economics and Business. His primary research interests include the areas of retailand services marketing, internal marketing and consumer behaviour.



    To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details:


View more >