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related to superior performance than others. Grant (2002) described a operations are the two key functions that create value for customers.

oper t lead to sustain-. It is widely acceptedsuch cross-functionaland long-term success

Industrial Marketing Management 43 (2014) 2531

Contents lists available at ScienceDirect

Industrial Marketitage (Ho & Tang, 2004; Nath et al., 2010), marketing and operationsfunctions have been examined separately in themanagement literature(Karmakar, 1996).

(Wind, 2005). Surprisingly, no other empirical studies have looked intothe actual linkage between marketing capability and operations capa-bility and their impacts on nancial performance. Hence, in the presentDrge, & Vickery, 2002; Hausmana, Montgomery, & Roth, 2002; Nath,Nacchiapan, & Ramanathan, 2010; O'Leary-Kelly & Flores, 2002; Songet al., 2007). Although the integrated roles of the functional capabilitieshave become more critical than ever in achieving competitive advan-

ciency and customer dissatisfaction, whereas a prable competitive advantage (Ho & Tang, 2004)among business leaders that ability to integrateexpertise is vital to both competitive advantagehierarchy of organizational capabilities, where specialized capabilitiesare integrated into broader functional capabilities such as marketingand operations capabilities. A growing number of researchers haveexplicitly emphasized the importance of integrating operations andmarketing perspectives in gaining competitive advantage (Calantone,

There is a growing body of literature arguing the important role of inte-gration ofmarketing and operations functions in improvingrmperfor-mance (Balasubramanian & Bhardwaj, 2004; Hausmana et al., 2002; Ho& Zheng, 2004; Roth & van der Velde, 1991; Wheelwright & Hayes,1985). Mismatch between the two functions lead to production inef- Corresponding author. Tel.: +44 2070594479.E-mail addresses:Wantao.Yu@uea.ac.uk (W. Yu), ram

(R. Ramanathan), P.Nath@uea.ac.uk (P. Nath).1 Tel.: +44 1582743516.2 Tel.: +44 1603597324.

0019-8501/$ see front matter 2013 Elsevier Inc. All rihttp://dx.doi.org/10.1016/j.indmarman.2013.07.014y, 1990). Song, Benedetto,istinctive set of resourcesies will be more closely

of operations capability on rm performance (Terjesena, Patelb, &Covin, 2011). Porter (1985) argued that all functional areas of businesscontribute towards delivery of products and services butmarketing andand Nason (2007) stated that each rm has a dand capabilities, and some types of capabilitUK

1. Introduction

The resource-based view (RBV) onancial performance to organizatio(Bharadwaj, 2000). Capabilities have bbundles of skills and accumulated knownate activities andmake use of their asserm attributes superiorources and capabilitiesadly dened as complexat enablerms to coordi-

Themarketing literature has always focused on creation of customerdemand andhow to provide customers a unique value proposition, suchas proposing that a rm can enhance its nancial performance by im-proving its marketing capability (Vorhies & Morgan, 2005). Operationsmanagement researchers, on the other hand, have focused on manage-ment of supply to fulll customer demand, such as examining the effectRetailOperations capabilityFinancial performanceThe impacts of marketing and operations cperformance in the UK retail sector: A reso

Wantao Yu a,, Ramakrishnan Ramanathan b,1, Prithwia Norwich Business School, University of East Anglia, 102 Middlesex Street, London E1 7EZ, UKb Department of Business Systems, University of Bedfordshire Business School, Putteridge Buryc Norwich Business School, University of East Anglia, Norwich Research Park, Norwich NR4 7T

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

Article history:Received 1 July 2012Received in revised form 24 December 2012Accepted 1 July 2013Available online 26 July 2013

Keywords:Marketing capability

Drawing upon the resource-bcapability, operations capabilthat that marketing capabilitsignicantly and positively reates the relationship betweepractical insights for practicinsuperior nancial performan.ramanathan@beds.ac.uk

ghts reserved.pabilities on nancialrce-based perspective

Nath c,2

pus, Hitchin Road, Luton LU2 8LE, UK

view(RBV)of therm, this study investigates the relationships amongmarketingndnancial performance. Using archival data of 186 retailrms in theUK,wends a signicant impact on operations capability, and that operations capability isd to retail efciency. The results also suggest that operations capability fully medi-arketing capability and nancial performance. The ndings of this study provideanagers to consider when developing functional capabilities in order to achieve

2013 Elsevier Inc. All rights reserved.

ng Managementstudy, we seek to clarify the relationships among the three constructsholistically.

We adopt a resource-based perspective for theory development andhypothesis framing purposes. The RBV describes how an individualrm's resources (e.g. tangible and intangible assets and organizationalcapabilities) affect its nancial performance (Barney, 1991; Wernerfelt,

26 W. Yu et al. / Industrial Marketing Management 43 (2014) 25311984). Resources that are valuable, rare, and inimitable can lead to com-petitive advantage when strategically selected and deployed (Barney,1991; Grant, 1991). Over the last few years, the RBV has been exten-sively adopted in both the marketing and operations management liter-ature (Paiva, Roth, & Fensterseifer, 2008). Using the archival nancialdata of 186 retail rms in the UK, we explore the links amongmarketingcapability, operations capability, and nancial performance.

The remainder of this paper is organized as follows. First, a briefliterature survey on concepts relevant to this study is provided, andresearch hypotheses are developed. Second, the design of this studyand the methodological procedures are described. Third, the ndingsof the study are presented and discussed, and a set of theoretical andmanagerial implications are drawn. Lastly, we concludewith a summaryof ndings and conclusions along with the main limitations and scopefor future research.

2. Theoretical background and research hypotheses

2.1. Resource-based view and capability

The RBV considers a rm as a bundle of resources and capabilities(Wernerfelt, 1984). It is an inuential framework for understandinghow competitive advantage is achieved through intra-rm resourcesand capabilities (Corbett & Claridge, 2002). In general, resources referto tangible and intangible rm assets that could be put into productiveuse (e.g. Amit & Schoemaker, 1993; Grant, 1991). Capability is denedas the ability of the rm to use its resource to affect a desired end(Amit & Schoemaker, 1993). It is like intermediate goods generatedby the rm using organizational processes to provide enhanced pro-ductivity to its resources (Amit & Schoemaker, 1993). Compared toresources, capabilities are embedded in the dynamic interaction of mul-tiple knowledge sources and are more rm-specic and less transfer-able thus leading to competitive advantage (Peng, Schroeder, & Shah,2008). Capabilities can be broadly categorized into those that reectthe ability to perform basic functional activities of the rm and thosethat guide the improvement and renewal of the existing activities(Collis, 1994). The RBV argues that rms will have different nature ofresources and varying levels of capabilities. A rm's survival dependson its ability to create new resources, build on its capabilities platform,and make the capabilities more inimitable to achieve competitive ad-vantage (Day&Wensley, 1988; Peteraf, 1993). The RBVhas beenwidelyused in the marketing literature to understand the interaction betweenmarketing and other functional capabilities and their effects on perfor-mance improvement (Dutta, Narashiman, & Surendra, 1999; Song et al.,2007; Song, Droge, Hanvanich, & Calantone, 2005). Previous studies(e.g. Dutta et al., 1999; Nath et al., 2010; Terjesena et al., 2011; Vorhies& Morgan, 2005) have found that there is a signicant relationshipbetween functional capabilities and rm performance.

In addition, theRBV suggests that heterogeneity inrmperformanceis due to ownership of resources that have differential productivity(Makadok, 2001). Dutta et al. (1999) dened a rm's capability as itsability to deploy resources (inputs) available to it to achieve the desiredobjectives (outputs). Thus, the present study uses an inputoutputframework in the form of efciency frontier function to understandthe optimal conversion of a rm's resources to its objectives (Nathet al., 2010). Day (1994) also suggested that it is not possible to enu-merate all possible capabilities, because every business develops itsown conguration of capabilities that is rooted in the realities of itscompetitivemarket, past commitments, and anticipated requirements.For the purposes of this study, wewill focus on two important organiza-tional capabilities (marketing and operations) (Day, 1994; Song et al.,2007) and investigate their effects on nancial performance.

As noted earlier, the RBV views arm as a bundle of resources and ca-pabilities, some types of functional capabilities (such as marketing andoperations) will inuence rm performance (Day, 1994; Song et al.,

2007). Drawing upon the RBV, we develop a conceptual framework(see Fig. 1) investigating that how a rm exploits its critical capabilitiesin marketing and operations to improve nancial performance.

2.2. Marketing capability

Marketing capability is dened as the integrative process, in which arm uses its tangible and intangible resources to understand complexconsumer specic needs, achieve product differentiation relative tocompetition, and achieve superior brand equity (Day, 1994; Duttaet al., 1999; Song et al., 2005, 2007). Marketing capabilities includeknowledge of the competition and of customers, as well as skill insegmenting and targetingmarkets, in advertising and pricing, and in in-tegrating marketing activity (Song et al., 2007). A rm develops itsmarketing capabilities when it can combine employees' knowledgeand skills with the available resources (Vorhies & Morgan, 2005).Firms that devote efforts and resources to interacting with customerscan enhance their market sensing abilities (Narsimhan, Rajiv, & Dutta,2006). Such capabilities, once built are very difcult to imitate for com-peting rms (Day, 1994). Thus, marketing capability is considered to beone of the most important sources of competitive advantage (Nathet al., 2010). The marketing literature suggests that rms use capabilitiesto transform resources into outputs based on their marketing mixstrategies and such marketing capabilities is related to their businessperformance (Vorhies & Morgan, 2003). Song et al. (2007) arguedthat marketing capability helps a rm build and maintain long-term relationship with customers and channel members. Marketingcapability creates a strong brand image that allows rms to achievesuperior rm performance (Ortega & Villaverde, 2008). Empiricalstudies have found a signicant relationship between marketing capa-bility and nancial performance (Dutta et al., 1999; Nath et al., 2010;Song et al., 2005; Vorhies & Morgan, 2005). For instance, Nath et al.(2010) found that marketing capability has a signicant impact on busi-ness performance. Vorhies andMorgan (2005) also found thatmarketingcapability is positively and signicantly related to rm performance.Using the above arguments, the following hypothesis is proposed.

H1. Marketing capability has a positive impact on nancial performance.

2.3. Operations capability

Operations capability is dened as the integration of a complex set oftasks performed by a rm to enhance its output through the most ef-cient use of its production capabilities, technology, and owofmaterials(Dutta et al., 1999; Hayes, Wheelwright, & Clark, 1988). Superior oper-ations capability increases efciency in the delivery process, reducescost of operations and achieves competitive advantage (Day, 1994).Operations capabilities are fundamental prociencies that enable rmsto achieve production-related goals such as consistent product quality,cost reduction, volume and product exibility, and delivery dependabil-ity and speed (Boyer & Lewis, 2002; Swink & Hegarty, 1998; Terjesenaet al., 2011; White, 1996). Superior operations capabilities have beenlong recognized as a source of competitive advantages and superior per-formance outcomes (e.g. Peng et al., 2008; Terjesena et al., 2011;Vickery, Droge, & Markland, 1993). It argues that a rm can achievecompetitive advantage by handling an efcient material ow process,careful utilization of assets, and acquisition and dissemination of supe-rior process knowledge (Tan, Kannan, & Narasimhan, 2007). Amongthe operations capabilities most commonly, strongly, and positivelyassociated with competitive success are those contributing to a rm'sability to compete on the bases of time, exibility, low costs, and productquality (White, 1996). Some empirical studies have identied theimportant effect of operations capability on rm performance (Nathet al., 2010; Rosenzweig, Roth, & Dean, 2003; Terjesena et al., 2011).Using a sample of 167 UK-based high technology manufacturing rms,Terjesena et al. (2011) found that that rm performance (such as sales

growth, return on sales, and return on assets) is signicantly predicted

ns ty

tua

27W. Yu et al. / Industrial Marketing Management 43 (2014) 2531by operations capabilities that promote low operating costs and productquality. Rosenzweig et al. (2003) found that enhanced competitive capa-bilities (such as product quality, cost, process exibility, and deliveryreliability) generally improve business performance. Using archivaldata of 102 UK-based logistics companies, Nath et al. (2010) also foundthat operations capability signicantly impacts business performance(such as protability). Based on the above argument and the results ofthese empirical studies, we propose the hypothesis below.

H2. Operations capability has a positive impact onnancial performance.

2.4. Marketing and operations capability

The interdependence of manufacturing and marketing, in general,has been widely recognized for a long time (St John & Hall, 1991).Some previous studies (e.g. Dutta et al., 1999; Srinivasan, Lovejoy, &Beach, 1997) have identied the high complementarity betweenmarketing and operations capabilities. Hill (1994) stated that the linksbetween design, manufacturing, and markets are the very essence of abusiness. Customer needs to generate the product's functional specica-tion, which in turn generates the product specication (Hill, 1994). In thepredominant marketing research paradigm, the marketing functiongenerates a spectrum of product concepts as a bundle of well-denedattributes, with price included as an attribute (Srinivasan et al., 1997).However, there is little empirical research that has directly explored thelinkage between marketing capability and operations capability. Basedon a reviewof the literature, in this study,wewould argue thatmarketing

Marketing Capability

OperatioCapabili

H3

H1

Fig. 1. Concepcapability is an antecedent of operations capability. A rm's marketingcapability can strengthen its ability to develop innovative operationsprocesses.

Marketing capability spans processes that are established withinorganizations to decipher the trajectory of customer needs througheffective information acquisition, management, and use (Krasnikov &Jayachandran, 2008). It involves the processes that enable a rm tobuild sustainable relationships with customers (Day, 1994), which inturn will lead to improved operations capability such as new productdevelopment and more exible delivery. Previous studies (e.g. Duttaet al., 1999; Gatignon & Xuereb, 1997) have highlighted the importantrole of marketing in improving operations capability, for example, view-ing marketing capability as important determinants of new productdevelopment and success. Operations capability is the skills and knowl-edge that enable a rm to be efcient and exible producers orservice providers that use resources as fully as possible (Krasnikov &Jayachandran, 2008). Overall, operations capability has been viewedas focusing on efcient delivery of high quality products/services, costreduction, and exibility improvement (Tan et al., 2007). Operationscapability can draw on marketing capability to further its goals (Duttaet al., 1999). A superior marketing capability can provide high-qualityconsumer feedback to operations function. For example, operationscan use inputs and get feedback from marketing function on variouscustomer-ready prototypes, which in turn will enhance the likelihoodof the nal product being acceptable to consumerswhile being producedat as a low cost as possible (Dutta et al., 1999).

Operations capability should be developed in the context of themar-keting capability. Using a sample of 117 leading retail banks, Roth andvan der Velde (1991) showed how critical success factors are used tolink operations and marketing in service rms. They suggested thatthemarketing strategy embodies themanagement of demand, i.e., iden-tifying, understanding, and creating need satisfying products and ser-vices, and that the operations strategy concerns the management ofsupply, i.e., the production and delivery of products and services.O'Leary-Kelly and Flores (2002) also argued that the time differentialexists between marketing and operations decisions, in that marketing-based decisions are typically a source of input for the operations-baseddecisions. For example, in a typical marketingoperations planningcycle, the marketing/sales planning decisions serve as a primary inputfor the operations planning decisions which then follow (Vollmann,Berry, & Whybark, 1997). It can be argued that marketing and opera-tions must not only be structurally aligned for competitive advantage,but also that marketing plays a pivotal role in affecting operations strat-egy and capability. The rm's marketing capability (such as marketknowledge about customer needs and past experience in forecastingand responding to these needs) can proactively generate operationscapabilities in terms of quality, delivery, exibility and cost. Based on

l framework.Financial Performance

H2Control

Variablesthe above argument, we propose the following hypothesis.

H3. Marketing capability has a signicant impact on operationscapability.

3. Methodology

3.1. Data

We chose retail rms in theUK to test our conceptual framework. Allthe data required for this studywere obtained from the Financial AnalysisMade Easy (FAME) database (Bureau van Dijk Electronic Publishing,https://fame.bvdep.com/). Initially, we obtained top 500 retailers basedon their turnover in 2010. Out of that, 314 rms did not have completeinformation. So, the nal sample consisted of 186 retailers in the UKand these retail rms operated their business in both food and non-food sectors, such as supermarket retailing, home appliances, DIY andhome improvement, and fashion retailing. The results of demographiccharacteristics of these 186 rms are reported in Table 1.

3.2. Data envelopment analysis (DEA)

The RBV proposes that a rm uses its resources (inputs) to generatebusiness performance (outputs) through functional capabilities(process transformation) (Nath et al., 2010). Thus, in this study, weevaluated operations and marketing capabilities and retail efciencyusing Data Envelopment Analysis (DEA) (Cooper, Seiford, & Tone, 2007;Ramanathan, 2003). DEA is a mathematical programming techniquecommonly used for estimating the efciencies with which differentdecision-making units (DMUs) (schools, hospitals, retailers, etc.) areable to convert their resources (usually called inputs in the DEA litera-ture) to good performance (usually called outputs). To calculate ef-ciency scores employing DEA, two different assumptions can be made,

by the rm from the sales frontier, the better is its marketing capabilityolder retailers may possess more fully developed functional capabilities(Terjesena et al., 2011). Older rmswill bemore likely to overcome per-formance threatening liabilities. The effects of services and functionalcapabilities on improved retail efciency are different among retailers(e.g. grocery retailers vs. clothing and footwear retailers).

4. Results

To test the hypothesized links in our conceptual framework, struc-tural equation modeling (SEM) was used in this study. The results ofstructural model using AMOS 20 are reported in Table 3. The overallts of the structural model are good, with the CFI, IFI, and TLI wellabove the recommended threshold of 0.90 (Hu & Bentler, 1999), theRMSEA less than 0.10 (Kline, 1998), and the SRMR less than 0.08(Hu & Bentler, 1999). While rm age ( = 0.070, n.s.) does notaffect retail efciency, retail characteristic ( = 0.115, p b 0.10)has a positive impact on retail efciency. As shown in Table 3, theresults indicate that marketing capability has a signicant positiveimpact on operations capability, which lends support for H3. Similarly,the structural model shows that operations capability is signicantlyand positively related to nancial performance. Hence, H2 is fully sup-ported. However, marketing capability has no signicant direct effect

Outputs Return on assets Actual value (%) 10.420 8.670

28 W. Yu et al. / Industrial Marketing Management 43 (2014) 2531(Nath et al., 2010). We used input-oriented CRS DEA model (Cooperet al., 2007) to measure the efciency of such transformation for theretailers. The DEA efciency score measures marketing capability ofeach retailer.

Drawing upon the RBV, we also employed the inputoutput frame-work to measure operations capability of a rm.We used cost of opera-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

Table 1Prole of 186 retail rms.

Number of rms Percent (%)

Retail sectorFood 38 20.4Non-food 148 79.6

Firm age (year)120 88 47.32150 54 29.051100 37 19.9More than 100 7 3.8i.e. constant return to scale (CRS) and variable returns to scale (VRS).The VRS efciency score measures pure technical efciency, i.e. a mea-sure of efciency without scale efciency. On the other hand, the CRSefciency score represents technical efciency which measures inef-ciencies due to the input/output conguration and the size of opera-tions (Cooper et al., 2007). Scale efciency can be computed by theratio of CRS efciency to VRS efciency. Hence, scale efciency of aDMU operating in its most productive scale size is one.

3.3. Measures

We measured functional capabilities of rms in terms of their ef-ciency in transforming marketing and operations resources (functionspecic inputs) to marketing and operations objectives (functionspecic outputs). The measures used in this study for marketing capa-bility, operations capability, and nancial performance are reported inTable 2 and described in more detail below.

Marketing capability is an integrative process, in which a rm usesits resources to achieve its market related needs of business (Vorhies& Morgan, 2005). Thus, we used the inputoutput framework to mea-sure marketing capability and archival nancial data is the best way todo it. Following thework of Nath et al. (2010), we used sales as the out-put measure. Using sales as an output for marketing activity is also sup-ported in the marketing literature (Kotabe, Srinivasan, & Aulakh, 2002;Slotegraff, Moorman, & Inman, 2003).We used three inputs asmeasuresof marketing resources: stock of marketing expenditure, intangible re-source, and relationship expenditure. In the inputoutput classication,marketing capability of a rmmeasures how close it is to the sales fron-tier given in a set of resources. Thus the closer is the sales value realizedmeasure operations resources: cost of capital and cost of labor. The retailindustry is highly labor intensive. Operations capability is the closenessof the rm to the cost frontier. Similarly, we used input-oriented CRSDEAmodel (Cooper et al., 2007) tomeasure the efciency of such trans-formation for retail rms. The DEA efciency scoremeasures operationscapability of each rm.

As mentioned earlier, the present study employed DEA (Cooper et al.,2007; Ramanathan, 2003) as a tool tomeasure inputoutput transforma-tion. Tomeasure retail efciency,we used two inputs in this study, name-ly, total assets and number of employees (Nath et al., 2010; Yu &Ramanathan, 2008, 2009) (seeTable2).Wechose twooutputmeasuresreturn on assets and return on capital employed which directly reecthow well a retail rm is able to convert its inputs to generate supe-rior protability (Nath et al., 2010). We used input-oriented CRSDEA model (Cooper et al., 2007) to measure the efciency of suchtransformation.

We used two control variables: rm age and retail characteristic(food and non-food sectors). Firm age is the number of years sincerm formation. Firm agewas controlled in the current analyses because

Return on capitalemployed

Actual value (%) 22.178 23.193

a Value in thousands of GBP.Table 2Variables and measures.

Variables Measures Mean S.D.

Marketing capabilityInputs Stock of marketing

expenditureSales, general andadministrativeexpensesa

252,949.924 542,514.742

Intangible resources Intangible assetsa 148,428.790 507,814.239Relationshipexpenditure

Cost ofreceivablesa

40,005.833 323,783.405

Outputs Sales Turnovera 1,785,724.010 6,053,155.520

Operations capabilityInputs Cost of capital Tangible assetsa 530,337.650 2,243,635.097

Cost of labor Remunerationa 211,613.623 661,550.476Outputs Cost of operations Cost of salesa 1,430,041.548 5,476,373.163

Financial performance (retail efciency)Inputs Assets Total assetsa 1,158,246.193 4,096,310.017

Number of employees Actual value 12,358.919 39,018.653on nancial performance. As such, H1 is rejected.

This nding suggests that operations capability is amediator of the rela-tionship between marketing capability and nancial performance.

29W. Yu et al. / Industrial Marketing Management 43 (2014) 2531Although the value of marketing and operations capability has beenrecognized (e.g. Nath et al., 2010; Song et al., 2005; Terjesena et al.,2011; Vorhies & Morgan, 2005), few empirical studies have lookedinto the actual link between the two functional capabilities and theirimpacts on nancial performance. Our structural path analysis suggeststhat marketing capability helps retail rms enhance their operationscapability, which in turn leads to improved nancial performance. Re-tailers with better resource-performance transformation ability havesuperior market knowledge and create better value for their customers.This corroborates with market orientation literature (Jaworski & Kohli,1993; Narver & Slater, 1990). A retailer's marketing capability dependson its ability to understand customer needs and build long-term rela-To identify the particular extent to which operations capabilitymediates the effect of marketing capability on nancial performance,we conducted the Sobel test (Sobel, 1982) to directly examine the sig-nicance of the mediation effects using the interactive tool providedby Preacher and Leonardelli (2003). As an additional test for mediation,Mackinnon, Lockwood, Hoffman, West, and Sheets (2002) suggestedthat the Sobel test is superior in terms of power and intuitive appeal.The Sobel test lends additional support for the mediated relationshipshypothesized through a change in signicance of the indirect effect.The result of the Sobel test provides support for the fully mediatingeffect of operations capability (t = 4.725, p b 0.001) on the relation-ship between marketing capability and nancial performance.

5. Discussions and implications

5.1. Discussions

Our structural model strongly supports Hypotheses 2 and 3. There-fore, marketing capability has a signicant impact on operations capa-bility, and that operations capability is signicantly and positivelyassociated with nancial performance. However, there is no signicantdirect relationship between marketing capability and retail efciency.

Table 3Results of hypotheses 13 tests using SEM.

Structural paths Standardizedcoefcient

t-Value Hypothesis test

Marketing capability operationscapability

0.634 11.155 H3: Supported

Operations capability nancialperformance

0.432 5.211 H2: Supported

Marketing capability nancialperformance

0.081 0.962 H1: Not supported

Model t statistics: 2/df (4.848/2) = 2.424; RMSEA = 0.088; CFI = 0.981;IFI = 0.982; TLI = 0.905; SRMR = 0.035

p b 0.001.tionships. Using its unique and inimitable marketing capability, theretailer can devote its marketing resources more effectively to creatingsuperior customer value. To survive in an increasingly dynamic andcompetitive marketplace, better marketing capability leads to competi-tive advantage for retailers and help them strengthen operations capa-bility (such as providing higher quality products and services at lowerprices). Our nding of the positive effect of operations capability on im-proved business performance (retail efciency) is consistent with thepredictions of the RBV (Amit & Schoemaker, 1993; Grant, 1991) andprevious studies (e.g. Nath et al., 2010; Terjesena et al., 2011). The empir-ical ndings support the conceptual arguments from some researchers(e.g. Roth & van der Velde, 1991; Wheelwright & Hayes, 1985) who em-phasized that the functional integration of operations andmarketing hasa signicant impact on business performance. Hence, retail rms shouldconsider integrating their functional departments (such as operationsand marketing functions) in order to obtain nancial benets from thedevelopment of functional capabilities.

Our structural path analysis indicates that there is no signicantdirect path between marketing capability and nancial performance,which provides stronger evidence of fully mediating effects of opera-tions capability. The Sobel test results further conrm the signicanceof paths between marketing capability and operations capability andbetween operations capability and performance, thus casting opera-tions capability as a mediator. This provides support for the argumentthat those rms that develop an effective operations capability areable to obtain superior nancial performance compared to those whodo not develop an effective operations capability (Terjesena et al.,2011; Vickery et al., 1993). Our ndings suggest that retailers operatingin an increasingly competitivemarket should place greater emphasis onthe development of operations capability because it is operationscapability that directly affects retail efciency. Superior operationscapabilities are reected in efcient and reliable delivery processes,cost reductions and control, increased volume and mix exibility,and exceptional conformance quality (Boyer & Lewis, 2002; Swink& Hegarty, 1998; White, 1996), and lead to competitive advantageand the corresponding nancial rewards. However, marketing capabil-ity should not be ignored because it strengthens operations capabilityand has an important effect on retail efciency, but the inuence isarticulated through and modied by operations capability.

5.2. Theoretical implications

This study lls a gap in the existing literature since there is limitedwork that integrates functional capabilities (operations andmarketing)to examine their roles in improving rm performance. Our study con-tributes to the literature on marketing and operations in several ways.Drawing upon the RBV theory, we develop a framework to investigatethe relationship between operations capability andmarketing capabilityand their impacts on nancial performance. As noted earlier, the empir-ical ndings of this study support the conceptual arguments from somescholars (e.g. Grant, 2002) who suggested that specialized capabilitiesare integrated into broader functional capabilities such as operationsand marketing capabilities. Although the impact of marketing and/oroperations capability on a rm's nancial performance has been studied(e.g. Nath et al., 2010; Song et al., 2005; Terjesena et al., 2011), our studyis unique that it explores the link between marketing capability andoperations capability and reveals the mediating role of operations capa-bility on the marketing capabilitynancial performance relationship.Hence this study empirically examines the relationships among thethree constructs holistically.

5.3. Managerial implications

The managerial implications of this study are twofold. First,according to the RBV, it is important for rms to invest in and exploittheir functional capabilities (such as marketing and operations) inorder to achieve competitive advantages and superiorrmperformance.Thus, retail managers are encouraged to improve their marketing andoperations capabilities, such as deploying resources to improve theirmarketing communication strategies and providing innovative newproducts and services. Second, it is important for managers to under-stand the relationship between operations and marketing capabilities.Our results suggest that there is no signicant direct relationship be-tween marketing capability and nancial performance, indicating a fullmediating role of operations capability. We believe that this can giveretail managers a new way to understand the relationships betweenfunctional capabilities and their impacts on operational efciency. Suc-cessful integration of functional capabilities is the key to success. Firmsshould emphasize on the development and maintenance of operationscapability in order to gain superior nancial performance. Careful de-

ployment of resources on operations improvement such as capacity

30 W. Yu et al. / Industrial Marketing Management 43 (2014) 2531planning and control, just-in-time (JIT) inventory systems and totalquality improvement (TQM) is essential to build operations capability.However, as an antecedent of operations capability, marketing capa-bility should not be ignored. Firms should also deploy their resourceson marketing activities such as advertisement, trade promotion andcustomer relationship management to build marketing capability.

6. Conclusion

Drawing upon the RBV, we have developed a framework that exam-ines the relationships among marketing capability, operations capabili-ty, and nancial performance. Our structural model has suggested thatmarketing capability has a signicant positive effect on operations capa-bility, and that operations capability is signicantly and positively relatedto nancial performance. More specically, operations capability fullymediates the relationship between marketing capability and nancialperformance. The ndings of this study also provide practical insightsfor practicing managers to consider when developing functional capabil-ities in order to achieve superior nancial performance. More specically,this study provides managerial guidelines for managers to decide how todevote their efforts and resources to developing different functional capa-bilities (such as marketing capability and operations capability), andwhich functional capabilities directly inuences nancial performance.

This studyhas some limitations. According to the resourcecapabilityperformance framework suggested by the RBV, we tested the hypothesesusing archival data. However, such secondary data donot provide insightsinto the actual transformation process on howdifferent rms have assim-ilated these constructs into their business process. Survey-based researchor research that combines survey data and archival datamay generate in-depth understanding of the process. Thus, future researchmay collect pri-mary data using questionnaires and also conrm the results obtained inthis study. In addition, functional capabilities in this studywere character-ized by two principal capabilities of marketing and operations. However,according to the RBV, each organization has a distinctive set of resourcesand capabilities (Day, 1990; Song et al., 2007). Future study may identifymore relevant functional capabilities (such as IT capability, market-linking capability, supply chain capability, or nancial capability) andexamine their important roles in improving rm performance. Finally,some literature (e.g. Dutta et al., 1999) suggests that interactions amongfunctional capabilities are critical drivers of competitive advantage. Futureresearch may extend our research model by examining the potentialinteractions among different functional capabilities (such as marketing,operations, and nancial capabilities). Such interaction effects may betested using a multiple regression analysis or a lead-lag analysis.

Acknowledgment

The authors would like to thank the anonymous reviewers for theirvaluable comments.We also thankMr. AndrewWinton for proofreadingan earlier version of this paper and for offering helpful suggestions.

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Dr.Wantao Yu is working as a Lecturer in Operations Management at Norwich BusinessSchool, University of East Anglia. His research interests include operations and supplychain management, environmental sustainability, and retail operations and logistics. Hisworkhas been published in journals such as International Journal of Operations& ProductionManagement, IMA Journal of Management Mathematics, and International Journal of Retail &Distribution Management.

Dr. Ramakrishnan Ramanathan is the Director of Business and Management ResearchInstitute, University of Bedfordshire, Luton, UK. His research interests include operationsmanagement, supply chains and environmental sustainability. His research articles haveappeared in many prestigious internationally refereed journals including Omega, TourismEconomics, International Journal of Production Economics, Supply Chain Management, Inter-national Journal of Operations & Production Management, European Journal of OperationalResearch, Transport Policy, and Transportation Research.

Dr. Prithwiraj Nath is a Senior Lecturer inMarketing at the University of East Anglia, U.K.His research area includes services marketing, marketingoperations interface, marketingperformancemeasurement, impact of marketing on the rm nancials, marketing perfor-mance measurement and benchmarking, marketing decision models, and e-logistics. Hisresearch has appeared in several top-rated Marketing and Operations journals such asIndustrial Marketing Management, Journal of Services Marketing, International Journal of BankMarketing, European Journal of Marketing and Journal of the Operational Research Society.

31W. Yu et al. / Industrial Marketing Management 43 (2014) 2531

The impacts of marketing and operations capabilities on financial performance in the UK retail sector: A resource-based perspective1. Introduction2. Theoretical background and research hypotheses2.1. Resource-based view and capability2.2. Marketing capability2.3. Operations capability2.4. Marketing and operations capability

3. Methodology3.1. Data3.2. Data envelopment analysis (DEA)3.3. Measures

4. Results5. Discussions and implications5.1. Discussions5.2. Theoretical implications5.3. Managerial implications

6. ConclusionAcknowledgmentReferences