Industrial Marketing Management 90 (2020) 370–379

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Industrial Marketing Management

journal homepage: www.elsevier.com/locate/indmarman

Product-market planning capability and profitability T

a,⁎ b c b
Paul Hughes , Ian R. Hodgkinson , Robert E. Morgan , Mathew Hughes ,
Chih-Hsien Lois Hughesa
a
Leicester Castle Business School, De Montfort University, Hugh Aston Building, Leicester LE1 5WH, United Kingdom
b
Loughborough University, School of Business and Economics, Loughborough, Leicestershire LE11 3TU, United Kingdom
c
Cardiff University, Business School, Cardiff CF10 3EU, United Kingdom

ARTICLE INFO ABSTRACT

Keywords: We test the profit implication of product-market planning as a dynamic capability, from a contingency theory per­
Product-market planning spective. Among a sample of high-technology industrial organizations, we find that product-market planning cap­
Dynamic capability ability is significantly and positively related to profits under marketing differentiation, but negative implications
Profits ensue for those adopting cost efficiency strategies. Pursuing hybrid strategies has no significant effect, while tech­
Marketing differentiation
nological turbulence also has no moderating effect. Additional analysis establishes the temporal effects of product-
Hybrid
market planning capability on 3-year lagged profits. These differential results are considered within a contingency
Cost efficiency
framework. Implications are identified and discussed for industrial marketing management theory and practice.

1. Introduction industrial firms, the content of business strategy manifests in the form of
intentions defined “as a firm's direction when deploying its resources and
For industrial business, product-market planning defines the stra­ capabilities in response to (or pre-empting) market cues such as com­
tegies and tactics adopted to align the firm with external and internal petitive price moves or new product introductions” (Kaleka & Morgan,
environment factors for the achievement of its strategic objectives (Lee, 2019: 1). Occurring at the product-market level, strategic intentions are
Lee, Lee, & Lim, 2013). Since strategizing is deemed a core capability framed as a focus on either cost efficiency or marketing differentiation,
for realizing competitive advantages, studying the role of product- or indeed a hybrid combination of both (Kaleka & Morgan, 2019). It is
market planning from a capability-based lens is necessary to help de­ expected that such intentions will, therefore, influence the relationship
termine industrial marketing success (Hughes et al., 2019). However, between product-market planning and performance in industrial mar­
the adoption of a capabilities perspective to examine organizational- kets. Yet, strategy as an internal contingency continues to be overlooked,
level phenomena remains sparse in the industrial marketing manage­ despite its obvious importance to product-market planning effectiveness
ment literature (Kaleka & Morgan, 2019). Under industrial market (Kaleka & Morgan, 2019; Song, Zhao, Arend, & Im, 2015).
conditions of fast-paced change, the strategic dilemma facing industrial The relationship between product-market planning capability and
businesses is how to unlock the benefits of product-market planning for profitability will also likely be affected by external contingencies
financial success? To address this question, we conceptualize product- (Slater, Olson, & Hult, 2006; Teece, 2014; Wilden, Gudergan, Nielsen, &
market planning as a dynamic capability and examine the nature of the Lings, 2013), yet evidence as to how this happens remains inconclusive
planning–profit relationship under internal (strategy type) and external (Rudd, Greenley, Beatson, & Lings, 2008). There have been numerous
(technological turbulence) contingencies. challenges to the performance effects of planning, its appropriateness
Through product-market planning, firms systematically collect in­ under conditions of high market turbulence (Atuahene-Gima & Murray,
telligence, objectively use that intelligence to formulate clear plans of 2004; Bouncken, Fredrich, & Pesch, 2016), and its role in contemporary
action and develop products in response to market intelligence (Hughes strategic management (Thomas & Ambrosini, 2015). The contention
et al., 2019; Kaleka & Morgan, 2019). The industrial marketing man­ that building only on planned strategies hinders adaptability and de­
agement literature contends that the effectiveness of this approach will viation from the plan (Sirén & Kohtamäki, 2016) has been challenged,
be influenced by firms' business strategy, i.e., what matters to organi­ however, by the framing of planning as a continual activity (Dameron,
zations and how they seek to realize this (van Fenema & Keers, 2019). In Lê, & LeBaron, 2015), which can serve to increase flexibility (Song

Corresponding author.
⁎

E-mail addresses: [email protected] (P. Hughes), [email protected] (I.R. Hodgkinson), [email protected] (R.E. Morgan),
[email protected] (M. Hughes), [email protected] (C.-H.L. Hughes).

https://doi.org/10.1016/j.indmarman.2020.08.007
Received 20 December 2019; Received in revised form 11 June 2020; Accepted 9 August 2020
0019-8501/ © 2020 Elsevier Inc. All rights reserved.
P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

et al., 2015). Consequently, the role of environmental contingencies tasks, such as project delivery, these studies are invaluable in ascer­
remains contradictory (Rudd et al., 2008; Thomas & Ambrosini, 2015), taining best practices. However, according to Teece (2014: 330), ‘best
In addressing these knowledge voids, three contributions to the practices alone are generally insufficient to undergird sustainable
industrial marketing management literature are made. First, we address competitive advantage’, owing to their replicability and imitability
the enduring question of whether strategic planning matters for in­ when compared to dynamic capabilities. In contrast, product-market
dustrial businesses, as highlighted recently by Kaleka and Morgan planning as dynamic capability achieves alignment with customer
(2019). Through our conceptualization of product-market planning as needs and technological and business opportunities to create a sus­
dynamic capability, we focus on the potential performance role of this tainable advantage (Teece, 2014).
decision-making approach within a contingency framework, as called As Gumusluoglu and Acur (2016) note, the dynamic capability lit­
for by Hughes et al. (2019). Second, we draw finer insights into the erature claims that a firm's competitive advantage is informed by the way
profit returns of product-market planning capability by acknowledging the firm exploits its assets, resources and competences in a systematic
strategy as a moderator of the profit relationship, addressing the neglect way. Product-market planning enables firms to avoid misfit that occurs
of strategy type as an essential internal contingency for planning after contingent circumstances change by adopting strategies that fit new
(Rogers, Miller, & Judge, 1999; Slater et al., 2006; Su, Guo, & Sun, conditions (Hughes et al., 2019). A product-market planning capability
2017; Wolf & Floyd, 2017). In doing so, we theorize and empirically emphasizes the search for solutions, the assessment of many alternatives/
evidence necessary internal boundary conditions to the product-market scenarios, the evaluation of potential strategic options, and systematic
planning capability–profit relationship. Third, although planning is analysis of the business environment (Bailey et al., 2000). This requires
thought to be ineffective in turbulent contexts, we contribute to a more “managing, or ‘orchestrating,’ the firm's resources to address and shape
thorough understanding of the role of environmental contingencies in rapidly changing business environments” (Teece, 2014: 328). It is these
the planning–profit relationship, revealing conditions when product- features of product-market planning that are directly aligned to the
market planning capability is most valuable. This enables theory to conceptual characteristics of dynamic capabilities; enabling firms to (1)
make better predictions about the role of planning under specific cir­ sense and shape opportunities; (2) seize opportunities; and (3) redeploy
cumstances. Collectively, our contributions advance theoretical and and reconfigure (create, extend and modify) their resource base (Schilke,
empirical knowledge about planning and demonstrate how industrial 2014; Teece, 2007, 2014; Wilden et al., 2013).
businesses can unlock its performance potential. The ability to reconfigure and leverage resources in different ways is
an inherent feature of product-market planning capability con­
2. Product-market planning: A dynamic capability ceptualization. While product-market planning is rigorous, systematic
and comprises a set of procedures, this does not create a contradiction
Product-market planning reflects an ability to anticipate and respond between the construct and dynamic capabilities theory. In contrast, our
to the market environment to direct organizational resources and ac­ conceptualization represents a decision-making approach to sensing,
tions. It is constructed from collections of behaviors that are learned, seizing, and reconfiguring, which is labelled Type II processing: it is re­
patterned, repetitious (or quasi-repetitious), and based in part on tacit flective, rational, analytic, intentional, effortful, logical, changes rapidly
knowledge (Slotegraaf & Dickson, 2004). The treatment of planning ac­ and easily, and requires justification via logic, discussed in detail by
tivities as an organizational capability is not new (e.g. Morgan & Turnell, Hodgkinson and Sadler-Smith (2018). The conceptualization does not
2003; Slotegraaf & Dickson, 2004), and with the recent distinction be­ ignore the emergent aspects of adjustment of plans and reconfiguration
tween capabilities that are ordinary and those that are dynamic (Teece, of resources. Rather, it capture these elements from a Type II processing
2014), current thinking has framed planning as a dynamic capability logic consistent with Teece's dynamic capabilities framework. Indeed, the
(e.g., Hughes et al., 2019; Hughes & Hodgkinson, 2020). Rather than belief that the dynamic capabilities perspective captures ‘nonconscious
viewing dynamic capabilities and strategizing as related but separate processes’, or intuitive strategy development, in other words, is strongly
constructs that require coupling (Teece, 2014), this body of work has challenged by Hodgkinson and Sadler-Smith (2018).
positioned effective strategizing as a dynamic planning capability to
bring about competitive advantage. Product-market planning routines of 3. Hypotheses development
search, analysis, and assessment (Bailey, Johnson, & Daniels, 2000) align
with the sense, seize, and reconfigure features of dynamic capability 3.1. Product-market planning capability and profits
(Teece, 2014) and represent a deliberate process to learn and change in
line with the environment of the firm (Winter, 2003). Therefore, product- The planning approach has endured sustained criticism as a me­
market planning goes beyond administrative, operational, and govern­ chanism for improving profits, led by arguments that the role of plan­
ance-related functions deemed threshold features for competitiveness, as ning has been eroded by the ever-increasing turbulence of the modern
the capability involves ‘higher-level activities that can enable an en­ world (Whittington, Yakis-Douglas, Ahn, & Cailluet, 2016). Due to the
terprise to direct its ordinary activities toward high-payoff endeavors thoroughness associated with product-market planning, ‘there is an
(Teece, 2014); marking the conceptual distinction of product-market underlying concern of subsequent rigidity or inflexibility’ (Slotegraaf &
planning as dynamic capability. Dickson, 2004: 371) that may compromise firm profitability (Sirén &
A notable body of research investigates the process of planning from Kohtamäki, 2016). However, where demonstrable effort is applied to
the view that ‘planning as activity’ is what is important, not the actual the processes that underlie product-market planning, greater rigor, and
plan devised. This body of work is consistent with Eisenhower's ‘plans discipline in going to market is achieved. Brews and Hunt (1999) argue
are nothing, planning is everything’ historical statement. While there that persistence in planning is crucial to the realization of any perfor­
are several valuable studies that have demonstrated the significance of mance enhancements such that profitability can increase as planning
planning as an activity, the treatment of planning is typically as an strengthens (Miller & Cardinal, 1994; Song et al., 2015).
ordinary capability (Bengtsson & Lindkvist, 2017; Dvir & Lechler, 2004; Product-market planning capability requires firms to make use of
Hughes, Hodgkinson, Arshad, Hughes, & Leone, 2018; Hughes, Morgan, knowledge to develop multiple strategic options to allow effective re­
& Kouropalatis, 2008; Petit, 2012). The development of operational or sponses to customers and competitors and to make the best use of re­
functional planning techniques such as speedy strategy, rolling plan­ sources. As Slotegraaf and Dickson (2004) note, product-market plan­
ning, road-mapping, project-level planning, portfolio management, ning emphasizes the importance of anticipating changes in the firm's
blitzscaling, and pivoting episodes are evidence to this effect (e.g., environment and the need to respond to those changes. In doing so, it is
Bengtsson & Lindkvist, 2017; Dvir & Lechler, 2004; Petit, 2012). In expected that profitability will increase as the firm is better able to
examining the value of planning against the requirements of specific position market offerings effectively relative to competitors (Menon,

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Bharadwaj, Adidam, & Edison, 1999). A product-market planning planning capabilities to counter turbulence, as firms require a strong
capability does not reflect the highly bureaucratized, top-down, clas­ planning approach to develop a strategy with a clear direction to reduce
sical approach that has dominated planning research, but rather pro­ uncertainty and deliver profits (Menon et al., 1999). Given the need for
vides a platform for achieving profits based on rigorous environmental more information under such conditions, planning may enable greater
analyses, search and evaluation, and scrutiny as ongoing, continual flexibility owing to contingency plans, faster coordination, faster
activities (Song et al., 2015). Therefore: communication, greater awareness through environmental scanning for
changes, and less internal conflict (Song et al., 2015).
H1. . Product-market planning capability has a positive effect on
Product-market planning efforts that provide managers with the
profits.
necessary information and options to maintain fit when environmental
changes occur, positions planning as being dynamic and capable of
3.2. Environmental and strategy-level interactions developing new approaches (Whittington et al., 2016). Instead of
slowing decision-making when planning serves as an ordinary cap­
A product-market planning capability develops within multiple con­ ability, firms may have the necessary real-time information to make
tingencies, and it is within this context that it is deployed for perfor­ relatively rapid changes in response to technological turbulence for
mance advantages. For example, strong dynamic capabilities enable enhanced profits. Thus:
firms to produce unique and exceptional value propositions, which re­
H2. . Product-market planning capability has a more positive effect on
quires that organizations continually adjust to changes in the business
profits when technological turbulence is higher than when it is lower.
environment (Teece, 2014). Thus, the value (Wilden et al., 2013) and
effectiveness (Schilke, 2014) of a product-market planning capability is Firm-specific differences can also influence the effectiveness of dy­
context-dependent. The role of contingencies becomes exacerbated in the namic capabilities (Schilke, 2014), and strategy can have a substantial
industrial business context because of the complexity of functional in­ bearing on planning and performance (Brews & Hunt, 1999; Rogers
terdependence, product complexity, and buyer-seller interdependence et al., 1999; Slater et al., 2006). Strategy concerns the basis by which
(Lee et al., 2013). firms will compete in chosen markets, be it through differentiation or
Concerning external contingencies, research often finds equivocal cost efficiency, or a hybrid of the two (Hughes, Martin, Morgan, &
results due, in part, to the confounding effects of the environment and Robson, 2010; Pertusa-Ortega, Molina-Azorín, & Claver-Cortés, 2009;
the tendency to consider this in aggregate form: either measuring Thornhill & White, 2007). In the industrial marketing literature,
general environmental turbulence or aggregating market, competitive, Cost efficiency refers to a coherent set of actions, systems, proce­
technological, and regulatory intensity. We focus on technological dures, and arrangements designed to reduce costs of production and
turbulence as salient to high technology industrial organizations. operation with the aim of eventually achieving lower cost of goods sold
Technological turbulence refers to the perceived speed of change and relative to competition. Marketing differentiation refers to a set of firm-
unpredictability of technology faced by firms (Atuahene-Gima & Li, controlled purposive and coherent actions mainly along market facing,
2004). Eisenhardt (1989) suggests that information and planning will value-creating components, aiming at convincing channels and custo­
be of greater importance under these circumstances, but excessive mers of the unique ness of the firm's value offering vis-à-vis those of
planning may create inertia to change and inflexibility (Slotegraaf & competitors. (Kaleka & Morgan, 2019: 109).
Dickson, 2004). The ambiguity concerning the value of planning under Organizations engaging in marketing differentiation-based compe­
external contingencies serves to highlight the (mis)treatment of the tition will require an ability to anticipate and respond to customer
product-market planning construct. Existing planning research is lar­ needs and competitor actions effectively. Differentiated firms are likely
gely influenced by the classical approach of the 1970s and 1980s, re­ to require significant amounts of information and a robust product-
flecting old-fashioned formal planning at a time when competitive en­ market planning capability to achieve desired profitability. Through
vironments had greater stability compared to modern-day marketplaces systematic and comprehensive scanning and analysis, information
(Whittington et al., 2016). Plans were usually created using quantita­ garnered becomes critical in providing evidence of customer needs,
tive analytical techniques (Thomas & Ambrosini, 2015), and the per­ exposing new technologies, or shedding light on future market or
ceived inflexibility led to the conclusion that increased environmental technological trends, which are fundamental to innovation and value
volatility makes planning more difficult (Grant, 2003). creation (Dibrell, Craig, & Neubaum, 2014). Without a product-market
Despite the planning context having changed dramatically since the planning capability to generate creative strategic ideas for renewal and
traditional perspective of planning was conceived and championed competitive advantage (Sirén & Kohtamäki, 2016), the ability of firms
(Whittington et al., 2016), the classical approach to planning has re­ to distinguish themselves as valuable to customers is reduced. This then
mained in the collective psyche. In the classical approach, senior would undermine the performance of firms pursuing marketing differ­
managers regularly adopt annual planning cycles and the formulation entiation, as ‘to succeed, strategies characterized by differentiation
of grand strategic plans regardless of the environment being faced must rely on broad scanning of the environment and creative search for
(Jarzabkowski & Kaplan, 2015; Mankins & Steele, 2006; Reeves, Love, new methods to meet customer demand’ (Lumpkin & Dess, 2006:
& Tillmanns, 2012). Planning in practice has subsequently become 1588). In sum, organizations can capitalize on the information and
habitual and driven by affordability (Martin, 2014), rather than as a strategic ideas generated through a product-market planning capability
means for real-time information collection, interpretation, and adap­ by leveraging marketing differentiation to secure higher profits.
tation (Thomas & Ambrosini, 2015). Firms that emphasize cost efficiency are likely to face a paradox.
When planning routines reflect the classical approach of planning While planning may be necessary for cost-based thinking, cost-control
that exemplifies formality, inertia can emerge as planning practices planning is very different from a product-market planning capability.
adhere to a rigid logic and culturally learned patterns of response. This The former can be considered an ordinary capability that requires some
is particularly symptomatic of the treatment of planning as an ordinary combination of skilled personnel, facilities and equipment, processes
capability, where ‘best practices’ become routinized resulting in the and routines, and the administrative coordination needed to drive down
pursuit of efficiency at the expense of responsiveness to change, the organizational cost base (Teece, 2014). In contrast, the latter more
creating rigidity in firms' planning processes (Teece, 2014). Conversely, broadly emphasizes alignment between the internal characteristics of
a dynamic product-market planning capability embeds formal decision- the firm and the environment. Product-market planning capability will,
making practices alongside flexibility in adapting to environmental thus, become increasingly redundant as the strategy becomes self-sus­
change (Thomas & Ambrosini, 2015). As Brews and Hunt (1999) con­ taining (Porter, 1980). Indeed, developing a product-market planning
tend, unstable environments may force the development of dynamic capability to respond to the market environment (Slotegraaf & Dickson,

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P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

2004) becomes superfluous and may even have negative consequences Examination of a random sample of 50 non-respondents and 50 re­
(cost burden) for firms seeking cost reductions. Searching for solutions, spondents on profit data and firm size reveal no significant differences
systematic analysis, evaluating options, and meticulous assessment that between the two groups. Respondent firms have on average US$144
are central to a product-market planning capability can be time-con­ million sales turnover in the last year (standard deviation [S.D.] = US
suming and costly at the highest levels (Sirén & Kohtamäki, 2016). As a $410 million); trading for an average of 52 years (S.D. = 41); and
product-market planning capability develops, the cost burden that this competing in their current market for on average 44 years (S.D. = 36).
entails is likely to lead to negative performance outcomes under cost With the focus on planning, respondents include C-suite Executives
efficiency, as ‘firms must restrict their activities to a narrow domain and (58%), Directors (25%) or Specialist Senior Managers (17%).
place their primary emphasis on attaining production economies’ Respondents had 22 years of working experience (S.D. = 9.80) and
(Lumpkin & Dess, 2006: 1587). tenures of 11 years (S.D. = 9.04) on average, suggesting familiarity and
The consequences of hybrid strategy are uncertain. Pertusa-Ortega experience with the strategies of their firms.
et al. (2009) found evidence that hybrid strategy associates with higher
firm performance, and Spanos, Zaralis, and Lioukas (2004) report that 4.2. Measures and confirmatory factor analysis (CFA)
hybrid strategies are more profitable than pure ones. Two theoretical
assumptions are at play. First, strategic specialization may leave serious Respondents were asked to consider the current business strategy pur­
gaps or weaknesses in product offerings and ignore important customer sued by their firm when completing the survey. For product-market plan­
needs. Second, a hybrid strategy makes it harder for competitors to ning capability, measures by Bailey et al. (2000) were used as these capture
pinpoint the source of a firm's competitive advantage and the properties planning as requiring anticipation and responsiveness based on routines
of its strategies. A hybrid strategy is, therefore, more complex in its and tacit knowledge (Slotegraaf & Dickson, 2004), which are theoretical
characteristics and more resilient to competitors' actions. Thornhill and characteristics of dynamic capabilities (Teece, 2007, 2014). Technological
White (2007), however, provide competing evidence, finding that turbulence items were sourced from Jaworski and Kohli (1993) and
across manufacturing, construction, retail, and business services, pure strategy type measures were adapted from Dess and Davis (1984). Hybrid
strategies often did better than hybrid strategies. Moreover, Hughes, strategy was computed through the standard multiplication method. We
Martin, et al. (2010) found that hybrid strategy diminishes differ­ measured performance using objective net profit data rather than relying
entiation-based positional advantage (but not cost-based positional on subjective performance data common among past studies (Whittington
advantage); though these studies do not consider planning. et al., 2016). Objective ‘net profit after tax’ data was sourced from the
A product-market planning capability steers the firm to system­ FAME archival database. This data was standardized for analysis purposes.
atically develop, validate, and fine-tune conjectures about the evolution Several control variables are included: firms endowed with flexibility
of consumer preferences, business problems, and technology and act on (Krohmer, Homburg, & Workman, 2002) are less likely to suffer from in­
them by realigning assets and activities to maintain a closer fit with its ertia sometimes associated with planning capabilities; centralization
external environment (Bailey et al., 2000; Slotegraaf & Dickson, 2004; (Jaworski & Kohli, 1993) is controlled for as planning processes may foster
Teece, 2014). The power of this product-market planning capability to a climate of centralized decision-making; and, firm size, represented by the
generate profits should be positively moderated when the firm pursues natural logarithm of the number of full-time employees (Elbanna, 2012),
a hybrid strategy. A hybrid strategy is internally complex and may was used to control for economies of scale in larger firms. Measures and
augment the resilience of a product-market planning capability to their properties are presented in Table 1.
competitor actions by improving its application in fine-tuning and di­ To examine the consistency of the measurement items, all items are
recting the distribution and redistribution of firm assets and activities to subjected to CFA. As profits and firm size are single-item variables
market opportunities and threats. Accordingly: based on objective data, the error variance for these constructs are
calculated by (1 - ρ).σ2; where ρ is the composite reliability and σ is the
H3a. . Product-market planning capability has a positive effect on
standard deviation. A reliability of 0.80 is assumed for both constructs
profits when the organization pursues marketing differentiation.
and standard deviation is 1 as the scores for both constructs are stan­
H3b. . Product-market planning capability has a negative effect on dardized. The CFA model reveals acceptable fit (Table 1): χ2
profits when the organization pursues a cost efficiency strategy. (d.f.) = 587.95 (372); χ2/d.f. = 1.58; RMSEA = 0.07; CFI = 0.95;
NNFI = 0.94; IFI = 0.95; SRMR = 0.07. All t-values load significantly
H3c. . Product-market planning capability has a positive effect on
on the specified constructs indicating convergent validity.
profits when the organization pursues a hybrid strategy.
Composite reliability (CR) and average variance extracted (AVE) are
presented in Table 2. All CR and AVE values are above acceptable
4. Research method minimum thresholds (Bagozzi & Yi, 1988), implying both convergent
validity and model reliability. The square root of AVE for each construct
4.1. Data collection rest on the diagonal of the correlation matrix. These values exceed the
correlations and demonstrate discriminant validity.
A mail survey was sent to 1000 high technology industrial firms
randomly sampled from the Kompass Directory of UK businesses. Firms 4.3. Common method variance (CMV)
were sampled at the SBU level, given the focus on planning, and were
required to be operating for more than five years and employ a minimum We use objective data for the dependent variable, and others, to
of 100 full-time employees. High-technology firms tend to experience mitigate possible CMV. Still, this bias was proactively addressed in
greater environmental uncertainty and dynamism, and so we expect this questionnaire development by placing the measurement scales in
domain to provide an appropriate setting to examine product-market random order, not implying any idealized responses, minimizing
planning. Sampled firms operate in the following industrial sectors: ad­ questionnaire length, and providing detailed instructions for re­
vanced engineering; computer and electronic; telecommunications; che­ spondents. CMV is examined using a marker variable test (Lindell &
mical and oil-related; automobile, heavy industry, and advanced trans­ Whitney, 2001). Respondent knowledge represents the theoretically-
portation plant and equipment. Senior executives were targeted as key unrelated marker as this is not correlated (p > .05) to any of the
informants to provide reliable information on the variables in the survey. variables in the model. Following Lindell and Whitney's (2001) gui­
Approximately 8% of surveys were either undeliverable, policy in­ dance, a CMV-adjusted covariance matrix is calculated and is used to
hibited participation, or completed by unqualified individuals. compute a CMV-adjusted CFA in LISREL 8.80. There are no meaningful
Responses were received from 215 firms with 139 being eligible. differences between the model fit statistics for the original CFA and the

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P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

Table 1
Measurement item properties.
Constructa Measurement Item Standardized Factor Loading t-value

Product-market planning capability Our strategy is made explicit in the form of precise plans 0.77 10.61
When we formulate a strategy it is planned in detail 0.86 12.57
We have precise procedures for achieving strategic objectives 0.78 10.73
We have well-defined planning procedures to search for solutions to strategic problems 0.79 11.03
We meticulously assess many alternatives when deciding on a strategy 0.84 12.03
We evaluate potential strategic options against explicit strategic objectives 0.85 12.14
We have definite and precise strategic objectives 0.77 10.48
We make strategic decisions based on a systematic analysis of our business environment 0.73 9.83
Technological turbulence The technology in our industry is changing rapidly 0.78 10.49
Technological changes provide big opportunities in our industry 0.74 9.77
A large number of new product ideas have been made possible through technological 0.91 13.21
breakthroughs in our industry
Technological developments in our industry are rather minor (r) 0.79 10.65
b
Marketing differentiation …to provide unique products? 0.76 10.84
…to offer highly differentiated products? 0.77 10.96
…to offer a high degree of value in your products? 0.65 8.87
…to offer products/services with distinctly different features from those of competing products? 0.72 10.10
Cost efficiencyb …to invest in cost saving technology? 0.72 10.00
…to emphasize efficiency? 0.67 9.16
…to redesign products to reduce costs? 0.73 10.09
Flexibility Adapting your strategy adequately to changes in the business environment of your organization? 0.65 7.95
Adapting your strategy adequately to changes in competitors' strategies? 0.70 8.76
Adapting your strategy quickly to the changing needs of customers? 0.78 10.15
Reacting quickly to new threats? 0.82 10.78
Centralization There can be little action taken in the organization until a superior makes a decision 0.82 11.27
A person who wants to make his or her own decisions would be quickly discouraged in the 0.72 9.30
organization
Even small matters have to be referred to someone with more authority for a final decision 0.84 11.52
Any decision a person in the organization makes has to have his or her boss's approval (r) 0.82 11.15
Size Number of full-time employees –c –c
Profits Net profit after tax –c –c

a
All items anchored by 7-point agreement scales (1 = “Strongly disagree” to 7 = “Strongly agree”) with the exception of strategy (1 = “Not at all” to 7 “To a
great extent”) and flexibility (1 = “Very poor” to 7 = “Excellent”).
b
Scale anchor: To what extent is your strategy….
c
Single item variable.
r
Item reverse-coded for analysis.

CMV-adjusted CFA. Δχ2 (d.f.) = 26.65 (0); ΔRMSEA = 0.004; term are generated using Ping Jr's (1995) equations. Factor loadings are
ΔCFI = 0.02; ΔNNFI = 0.02; ΔIFI = 0.02; ΔSRMR = 0.0013; ΔModel set at 1 and the error variance of each single indicator determined through
AIC = 26.66. Overall, we conclude that CMV does not threaten the data (1 - ρ).σ2. The interaction terms are created multiplicatively and the factor
and the original CFA is used as the basis for hypothesis testing. loading, error variance, and factor variance estimates obtained previously
are used in Ping Jr's (1995) equations to generate estimates of the error
variances and factor loadings for each interaction.
5. Analysis and results Two models are specified: a restricted model and an unrestricted
model. The models differ in that the γ parameters linking the interaction
Structural equation modelling is performed using maximum likelihood terms to performance are fixed at zero and the remaining γ parameters
estimation and Ping Jr's (1995) protocol for estimating and evaluating are freely estimated in the restricted model (χ2 [d.f.] = 735.34 (460);
structural models with interaction terms. Single scores are created for la­ χ2/d.f. = 1.60; RMSEA = 0.07; CFI = 0.93; NNFI = 0.91; IFI = 0.93;
tent variables involved in interaction terms by averaging across the item SRMR = 0.06; Model AIC = 1005.34; Squared Multiple Correlations
sets. These are mean-centered to avoid multicollinearity. Estimates for the for Reduced Form = 0.28), while all γ parameters are freely estimated
factor loadings, error variances, and factor variances of each interaction

Table 2
Construct properties and correlations.
1 2 3 4 5 6 7 8 ($’000)

a
1 Product-market planning capability 0.80
2 Technological turbulence 0.20* 0.81
3 Marketing differentiation 0.32** 0.32** 0.73
4 Cost efficiency 0.22** 0.05 0.23** 0.71
5 Flexibility 0.38** 0.13 0.33** 0.24** 0.74
6 Centralization −0.17* 0.04 −0.11 0.13 −0.15 0.80
7 Size 0.20* 0.23** −0.01 0.01 −0.03 −0.06 –
8 Profits 0.23** 0.11 0.22** −0.11 0.11 −0.02 0.14 –
CR 0.93 0.88 0.82 0.75 0.83 0.88 n/a n/a
AVE 0.64 0.65 0.53 0.50 0.55 0.64 n/a n/a
Mean 4.04 4.76 4.70 4.98 4.82 3.12 1215 4921
SD 1.14 1.36 1.19 1.10 0.89 1.32 6280 31,084

a
Figures on the diagonal represent square root of AVE.

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in the unrestricted model (χ2 [d.f.] = 702.09 [456]; χ2/d.f. = 1.54; capabilities frequently associate it with long-run business performance
RMSEA = 0.06; CFI = 0.93; NNFI = 0.92; IFI = 0.93; SRMR = 0.06; (e.g., Teece, 2007), we follow Schilke (2014) and collect net profit after
Model AIC = 980.09; Squared Multiple Correlations for Reduced tax data three years forward from the original time of data collection to
Form = 0.43). Moving to the unrestricted model leads to a decrease in examine this issue further. We substitute the three-year lagged profit
χ2, degrees of freedom, and Model AIC: ∆χ2 (d.f.) = 33.25 (4); ΔModel data into the original structural model: χ2 = 707.57; d.f. = 456;
AIC = 25.25. This change in χ2 is a significant improvement in fit at RMSEA = 0.06; CFI = 0.93; IFI = 0.93; NNFI = 0.91; SRMR = 0.06;
p < .01 and the lower Model AIC confirms the unrestricted model is Model AIC = 985.57. The results (Table 4) remain consistent. Product-
superior. Furthermore, the variance in profits explained by the model market planning capability has no direct effect on profits, and all
variables increases from 28% to 43% with the inclusion of the inter­ moderator relationships stay in the same direction and are statistically
action effects. The unrestricted model, inclusive of the interaction ef­ significant as per the original results. Size, however, now has a positive
fects, is therefore superior to the restricted model. We conclude that the impact on 3-year lagged profit while neither marketing differentiation
moderators contribute significantly to the model and results. nor cost efficiency has any direct effect on 3-year lagged profit. This
The results (Table 3) appear robust as 43% of the variance in firm analysis extends our original findings and provides insight into some of
profits is accounted for by the variables in the structural model with a the temporal aspects of the findings.
corresponding model power effect size (Cohen's f2) of 0.75. Hypothesis 1
is not supported: product-market planning capability does not directly
enhance profits (γ = 0.04, n.s.). Hypothesis 2, that technological tur­ 6. Discussion
bulence would positively moderate this relationship, is not supported
either (γ = −0.09, n.s.). We investigate the relationship between product-market planning
Hypothesis 3a expected a positive effect on profits when the firm capability and firm profit, within a contingency framework. The fact
pursues marketing differentiation. This effect is positive and significant that so many firms have been unsuccessful in capturing the benefits of
(γ = 0.39, p < .01), supporting H3c. Hypothesis 3b is supported as planning, and that research has been inconsistent in connecting plan­
effect of product-market planning capability on profits becomes nega­ ning to profitability (Miller & Cardinal, 1994; Rudd et al., 2008; Wolf &
tive for firms pursuing cost efficiency (γ = −0.49, p < .01). Floyd, 2017), demonstrates that our collective understanding of the
Hypothesis 3c on the moderating effect of a hybrid strategy is not boundary conditions surrounding planning and its contribution to firm
supported (γ = 0.08, n.s.). The effect sizes for the relationships show profits is inadequate. Our findings offer new insights into the role and
medium strength effect sizes for the moderating influence of marketing value of product-market planning capability to industrial businesses
differentiation (0.39) and cost efficiency strategy (−0.49). Interaction and reveal external and internal moderators of its relationship with
plots for both marketing differentiation and cost efficiency are shown in profitability. We also demonstrate from our additional analysis that the
Figs. 1 and 2, respectively. Consistent with expectations, a clear change results hold when a time lag effect is taken into consideration. That
is observed in the slope gradient as the moderators vary in strength, being said, we focus our discussion on the original model results, as
confirming the interpretation made from the SEM results: profits de­ presented in Table 3. Our study makes three contributions to industrial
rived from product-market planning capability increase with marketing marketing management theory.
differentiation but decrease from cost efficiency strategy. First, few studies embrace a capability-based view of planning (cf.
Hughes et al., 2019), despite this line of research being important to
theoretically ground this decision-making approach to competitive
5.1. Additional analysis: 3-year lagged profit advantage (Wolf & Floyd, 2017). Given the shared definitional and
conceptual similarities, we view product-market planning as a dynamic
As profits may be a function of prior and not current planning capability addressing calls for the adoption of a capabilities perspective
(Falshaw, Glaister, & Tatoglu, 2006) and research into dynamic to examine organizational-level phenomena in industrial contexts

Table 3
Results.
Variables Dependent Variable

Net Profit After Tax

Standardized path estimatea t-valueb Effect size

Controls
Flexibility 0.10 (−0.13, 0.33) 0.87 0.10
Centralization 0.12 (−0.07, 0.31) 1.20 0.12
Size 0.18 (−0.05, 0.41) 1.50 0.18

Direct Effects
Product-market planning capability 0.04 (−0.19, 0.28) 0.38 0.05
Marketing differentiation 0.32 (0.08, 0.55) 2.67** 0.32
Cost efficiency −0.26 (−0.47, −0.06) −2.58** −0.26
Hybrid strategy 0.05 (−0.05, 0.15) 1.00 0.05
Technological turbulence −0.16 (−0.39, 0.08) −1.30 −0.16

Interaction Effects
Product-market planning capability × marketing differentiation 0.39 (0.13, 0.65) 2.98** 0.39
Product-market planning capability × cost efficiency −0.49 (−0.43, −0.16) −4.28** −0.49
Product-market planning capability × hybrid strategy 0.08 (−0.01, 0.03) 0.57 0.08
Product-market planning capability × technological turbulence −0.09 (−0.20, 0.09) −0.78 −0.10

Squared Multiple Correlations for Reduced Form 0.43

Cohen's f2 effect size 0.75

a
Figures in parentheses represent 95% confidence interval values for unstandardized path estimates.
b
Critical t-values (one-tailed): ** p = .01, critical t-value = 2.326; * p = .05, critical t-value = 1.645.

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P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

Fig. 1. Interaction plot of the moderating effect of marketing differentiation.

(Kaleka & Morgan, 2019). Adopting a dynamic capability lens and using examining external and internal moderation effects on the product-
objective profit data to determine the impacts of external and internal market planning–profit relationship.
moderators differentiates our study and enables stronger conclusions to Second, a significant stream of literature argues that planning is an
be drawn regarding the real-world value of a product-market planning ‘irrelevance’ in dynamic markets and should be superseded by emergent
capability for high-technology firms—something that is lacking in both strategy-making processes (Bouncken et al., 2016; Mintzberg, 1994).
the industrial marketing literature (e.g. Hughes et al., 2019) and cur­ While there is merit in this view, it is not wholly possible to agree with
rent planning research (Wolf & Floyd, 2017). Our finding that a pro­ that conclusion here. Rather than analyze how planning should be de­
duct-market planning capability does not directly enhance profitability signed to fit conditions in the organization's external environment, as
is typical of the mixed-effects observed in recent planning research addressed in extant planning research (Wolf & Floyd, 2017), we examine
(e.g., Sirén & Kohtamäki, 2016; Song et al., 2015). Rather than viewing how product-market planning as a dynamic capability might influence
planning as either ‘good’ or ‘bad’, as is commonly the case (Miller & profits under technological turbulence. Menon et al. (1999) note that
Cardinal, 1994), the non-significant finding for the direct path between executives stress the importance of developing multiple strategic options
planning and profitability illustrates that to understand the value of and contingency plans for responding to market environment changes
product-market planning in industrial sectors, one must position this and delivering superior performance. Yet, they find no subsequent sta­
dynamic capability within context (Wilden et al., 2013). In other words, tistical evidence to support their contention, and neither do we. Thus,
industrial businesses must not expect improved profitability from de­ while it is intuitive to believe a product-market planning capability
veloping a product-market planning capability alone since the effects would be beneficial in such circumstances, we cannot ignore the fact that
are dependent upon contingencies. This emphasizes the importance of the study findings do not support such intuition.

Fig. 2. Interaction plot of the moderating effect of Cost efficiency.

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P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

Table 4 that unlocks the ability to generate greater and greater returns (Teece,
3-year lagged profits results. 2013).
Variables Dependent Variable As an initial examination of this proposal, we respecified the SEM
model to examine a three-way interaction effect between planning ×
Net Profit After Tax flexibility × technological turbulence and the dependent variable of
net profit after tax. The model fit statistics were as follows: (χ2
Standardized path t-valueb Effect size
estimatea
[d.f.] = 348.50 [212]; χ2/d.f. = 1.64; RMSEA = 0.07; CFI = 0.96;
NNFI = 0.95; IFI = 0.96; SRMR = 0.06; Model AIC = 476.51; Squared
Controls Multiple Correlations for Reduced Form = 0.12). The three-way in­
Flexibility 0.09 (−0.14, 0.31) 0.75 0.09 teraction effect is significant and positive in its effect on profits
centralization 0.13 (−0.06, 0.32) 1.39 0.14
(γ = 0.13, p < .05). We note though that the effect weakens in the
Size 0.20 (−0.02, 0.43) 1.75* 0.20
additional tests for 3-year lagged profits (γ = 0.14, p < .10) implying
Direct Effects
faster profitability returns form the interactions between dynamic
Product-market planning capability 0.08 (−0.15, 0.31) 0.66 0.08
Marketing differentiation 0.08 (−0.15, 0.31) 0.68 0.08 capabilities in turbulent conditions. We can only conclude from this
Cost efficiency −0.16 (−0.36, −1.62 −0.16 that urgent investigation is needed in this research stream to unpack the
0.03) interaction effects between dynamic capabilities and how these may
Hybrid strategy 0.04 (−0.06, 0.13) 0.81 0.04 drive firm performance across different contexts.
Technological turbulence 0.03 (−0.20, 0.26) 0.24 0.03
Third, research on the planning–performance relationship has long-
Interaction Effects ignored the significance of strategy as an important internal con­
Product-market planning capability 0.33 (0.05, 0.36) 2.59** 0.33
tingency (cf. Kaleka & Morgan, 2019). Wolf and Floyd (2017) note from
× marketing differentiation
Product-market planning capability −0.21 (−0.43, −1.88* −0.21 extant planning research that there seems to be value for organizations
× cost efficiency −0.01) regardless of their strategic orientation. However, Rogers et al. (1999)
Product-market planning capability −0.14 (−0.03, −0.97 −0.14 stress there is reason to suspect that failure to control for different
× hybrid strategy 0.01)
business strategies has led to mis-specified and misleading models of
Product-market planning capability −0.01 (−0.15, −0.07 −0.01
× technological turbulence 0.14)
planning, resulting in conflicting and confusing results. The assertion
that strategy is an important internal contingency on the product-
Squared Multiple Correlations for 0.26
Reduced Form
market planning–profit relationship appears to hold here, with strategic
Cohen's f2 effect size 0.35 intention explaining both positive and negative effects of product-
market planning capability for firm profitability.
a
Figures in parentheses represent 95% confidence interval values for un­ As expected, based on dynamic capability theory, for differentiators a
standardized path estimates. product-market planning capability challenges the value of existing re­
b
Critical t-values (one-tailed): ** p = .01, critical t-value = 2.326; * sources and the status quo by sensing changing customer needs, seizing
p = .05, critical t-value = 1.645.
these opportunities by empowering change and reconfiguring plans and
resource deployment for innovation (Teece, 2014). Indeed, Kaleka and
It was somewhat surprising to see no effects identified in relation to Morgan (2019) note the ability to systematically generate market in­
the technological turbulence moderating effect as it would be expected telligence and develop stronger value propositions, necessary for mar­
to be positive significant as per theory around dynamic capabilities keting differentiation, is likely to generate greater market responsiveness
(e.g., Schilke, 2014; Wilden et al., 2013). Indeed, our motivation to and performance in turn. These features of product-market planning
examine lagged effects was strengthened as a result, yet, we once again capability enable differentiators to sustain their value offerings over time
found no effect even when accounting for a lag in profit returns. for profitability, as demonstrated in the significant positive moderation
Technological turbulence refers to the perceived speed of change and effect on both short-term and long-term profitability. While a product-
unpredictability of technology faced by firms (Atuahene-Gima & Li, market planning capability is shown to have demonstrable benefits for the
2004) and the planning literature itself is ambiguous in its clarity on a profitability of differentiators, it may create performance difficulties for
dynamic planning capability's effects under differing levels of turbu­ firms pursuing cost efficiency. This highlights limitations to the perfor­
lence. We speculated that planning, or a dynamic planning capability, mance contributions of a product-market planning capability under cer­
may enable greater flexibility owing to contingency plans, faster co­ tain strategy types, which again underscores why internal contingencies
ordination, faster communication, greater awareness through environ­ matter for the product-market planning–profit relationship.
mental scanning for changes, and less internal conflict (Song et al., On the other hand, developing a product-market planning capability
2015). This would be intuitive when viewing through the lens of dy­ appears inconsistent with the goals of cost efficiency. Firms focusing on
namic capability theory, but we are given to wonder if dynamic cap­ cost control will experience significantly worse profit performance from
ability theory needs expanding upon here, or at least some alternative a product-market planning capability as the necessary focus on pro­
works be considered. We concluded while hypothesizing that being a duction economies and best practices that are central to cost‑leaders'
dynamic capability would enable adaptations and reconfigurations performance are stifled (Lumpkin & Dess, 2006). In such instances, an
when conditions are turbulent so that profits are raised. However, it ordinary cost-control capability may provide a stronger basis for per­
may be that while a dynamic planning capability enables sensing and formance advantages rather than a product-market planning capability.
seizing, the reconfiguration may come from an alternate dynamic cap­ For instance, by providing focus on best practices to control cost and
ability, such as an adaptability capability or flexibility capability, and achieve technical efficiency in and across business functions (Teece,
not just a planning capability. Indeed, such a premise is in line with 2014). Such activities or practices are fundamentally aligned to the
Luo's (2000) characterization of dynamic capabilities in firm expansion conceptual and theoretical features of cost efficiency that emphasize
in technologically turbulent situations. Furthermore, it is apparent from experience curves, tight cost and overhead control, and cost mini­
the works of Helfat et al. (2009) and Teece (2013) among others that mization in areas like research and development, service, and adver­
dynamic capabilities, rather than dynamic capability, are ultimately the tising (Porter, 1980). Therefore, a product-market planning capability
key to economic rent. Indeed, Teece (2013) indicates that some dy­ is not appropriate for the achievement of sustainable performance ad­
namic capabilities enable firms to shape the environment and not just vantages under this internal contingency.
adapt to it (so-called entrepreneurial fitness).It could be the case then Finally, we found no evidence that hybrid strategy is an internal
that it is a combination of dynamic capabilities, and not just a singular, contingency acting on the relationship between product-market

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P. Hughes, et al. Industrial Marketing Management 90 (2020) 370–379

capability and firm profit. Product-market planning capability suggest with profitability, this is not theoretically robust as it provides a very
significant time investments in systematically and thoroughly engaging blunt way of looking at the rigidity issue, especially as rigidity can
in scanning the business environment continually. This would appear to manifest itself in different ways (e.g., in strategy, structure or organi­
be commensurate with the internal complexity of a hybrid strategy and zation), for different reasons (e.g., resource unavailability), or at dif­
intuitively may increase the resilience of both the product-market ferent times (e.g., crisis versus stable times). Indeed, the works of Covin
planning capability and the hybrid strategy to affect profits. Hybrid et al. (1997), Hughes, Hughes, and Morgan (2010), and Schwarz
strategies may confuse strategic positioning in ways that compromise (2012), among others, would certainly lead to such a conclusion. This
the firm's ability to generate profits. The internal complexities of hybrid presents an exciting opportunity for focused research in this area.
strategies suggest that a wider array of simultaneous contingencies may
be at play. 8. Conclusion

7. Limitations and future research Planning is the most dominant and widely used strategy tool in
business (Wolf & Floyd, 2017). A product-market planning capability is
Our study has limitations. First, by employing a cross-sectional de­ defined as ‘the ability to anticipate and respond to the market en­
sign, it is not possible to fully observe the effects of product-market vironment in order to direct a firm's resources and actions in ways that
planning capability on profits across time, despite our additional ana­ align the firm with the environment’ (Slotegraaf & Dickson, 2004: 373).
lysis using 3-year lagged profitability. Second, while key informants are Conceptualized as a dynamic capability that enables ‘the enterprise and
well-qualified to provide data, adopting a multiple informant approach its top management to develop conjectures about the evolution of
is desirable from a robustness perspective and to overcome potential for consumer preferences, business problems, and technology; validate and
method bias. As an attempt to compensate for this we relied upon ob­ fine-tune them; and then act on them by realigning assets and activities
jective data for the dependent variable and some control variables. to enable continuous innovation and change’ (Teece, 2014: 332), the
Third, the sample is of high technology industrial firms in the UK. study sought to address how industrial businesses can unlock the ben­
Competitive and environmental differences between industries and efits of product-market planning for financial success? In doing so, we
countries suggest caution in generalizing the results to markedly dif­ address a call from the industrial marketing and management literature
ferent populations. to focus on the potential performance role of this decision-making ap­
Four essential avenues for future research arise. First, a product- proach within a contingency framework (Hughes et al., 2019).
market planning capability may have diminishing performance benefits Examining the product-planning capability–profit relationship, we
at high levels of the capability over time, due to competency traps that circumscribe the internal (strategy) and external (technological turbu­
can arise from strong capabilities (e.g., Hughes et al., 2019). A long­ lence) boundary conditions acting as contingencies on profit effects. In
itudinal study of product-market planning capability can better un­ response to the enduring question of whether planning matters for in­
derstand the dynamism at play and threats to that dynamism. Second, dustrial businesses (e.g., Kaleka & Morgan, 2019), we find that for high-
research suggests that managerial reactions to environmental inputs technology industrial organizations, product-market planning cap­
might be influenced by managers' mindset. For instance, Ringberg, ability is significantly and positively related to profits under marketing
Reihlen, and Rydén (2019) emphasize how different managerial differentiation; negative implications ensue for those adopting cost ef­
mindsets and cognitive frameworks lead to divergent sensemaking and ficiency strategies; while hybrid strategy has no significant moderating
strategic orientation. While these matters are beyond the scope our effect and neither does technological turbulence. While planning stu­
paper, we suggest they provide further indication as to why a dynamic dies have reduced significantly in frequency since the early 1990s, it is
planning capability is necessary. The interplay between cognition, misleading to interpret this as the end of planning (Wolf & Floyd,
mindset, and decision-making approach is an interesting future re­ 2017). The findings of the study remedy the dispassionate view of
search avenue. For example, future research can (a) explore how planning that has prematurely dismissed its value to senior managers of
managers' mindsets might mediate managers' dynamic reactions to contemporary industrial organizations.
environmental inputs during dynamic planning processes; (b) develop a
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