Abstract:Prior studies involving the influence of market orientation on enhanced business performance have shown mixed results. The purpose of the 2011 study was to determine if over the five year period since the 2006 study, the market orientation of community banks in relationship to their business performance had changed. The authors theorized that this inconsistency may be caused by the investment in a market orientation having a diminishing returns when measuring enhanced business performance. To this end authors surveyed community oriented commercial banks in six states. The authors used the responses of the individual bank's CEOP as a proxy for the senior management measure of a commitment of market orientation. They used audited numbers from audited financial statements submitted by the individual banks to their governmental regulators to compute a return on assets which was used as the measure of business performance. The result of the study concluded that there was indeed a point of diminishing return on assets when investing in marketing orientation and identified such a point using a seven pint scale. The point of diminishing return was also identified for each of three components of market orientation using the same scale. It appeared that those banks who tended to control their customer orientation in the 2006 time frame, were better positioned to be successful in the stressed economic times. The participating banks corporate culture, relative to the value of a portion of its customer base that was unprofitable or marginally profitable, and the bank's willingness to move away from these customers, and their propensity to show profit level not enjoyed by their competitors, allows for their survival today.
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Given the conflicting pressures to make high quality loans to individuals and businesses in their communities, yet simultaneously build the bank's capital account, it is imperative that the selection of a CEO of a Community Bank be one that can insure high asset quality while simultaneously generating earnings with which to build the bank's capital accounts. Community Banks, not unlike other industries, tend to select personnel with banking industry experience.The authors sought to determine which of several Functional Career Paths within the banking industry offered the higher probability of success in meeting the financial goals aspired to by both the Regulators as well as the bank's shareholders and community. Community banks and savings associations in Florida, Georgia, Tennessee, North Carolina and Virginia comprised the study population. A total of 926 institutions were selected from the directories published by the various state bankers' associations. A self-administered survey instrument was utilized for the study. Interviewees were asked a matrix of open ended questions about their respective banks total assets, total capital, and profit after taxes for a three year period. These figures were obtained or derived from audited financial reports filed with each of the bank's appropriate governmental regulators. Demographic questions were also asked including "What was the functional career path of the CEO". A total of seven Functional Career Paths were listed. There were: Commercial Lending, Retail Lending, Operations, Finance/Administration, Investments, Trust, and Other. The findings of the study support the author's premise that those banks with CEOs having a Functional Career Path in either Commercial Lending or Finance/Administration generate the higher business performance as measure by after tax earnings, capital growth, and market value of the bank.
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