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Porter's (1980) Generic Strategies as Determinants of Strategic Group Membership and Organizational Performance Author(s): Gregory G.

Dess and Peter S. Davis Source: The Academy of Management Journal, Vol. 27, No. 3 (Sep., 1984), pp. 467-488 Published by: Academy of Management Stable URL: . Accessed: 11/08/2011 02:43
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Journal ?Academyof Management 1984,Vol. 27, No. 3, 467-488.



Generic Strategies as Determinants of


Strategic Group Membership Organizational Performance1
GREGORYG. DESS FloridaState University PETER S. DAVIS Universityof Oregon

A multimethod,multivariateanalysis of "intended" providesempiricalsupportfor thepresenceof strategies strategic groupsbaseduponPorter's(1980)genericstratin and egies. Variations intraindustry profitability growth arefound to be relatedto strategicgroup membership. Firmsidentifiedwithat least one genericstrategyoutperformed firms identifiedas "stuck in the middle." The primarypurposeof this paper is to demonstratethe viability and usefulnessof categorizingfirms within an industryinto strategicgroups on the basis of theirintendedstrategies.Theseintendedstrategiesmay be identified on the basis of Porter's (1980) generic strategies-differentiation, overalllow cost, and focus. This study consists of threedistinctbut interrelated bephases. Phase 1, the field study, examinesthe relationship tween a firm's "intendedor espoused" (Mintzberg,1978)strategy-representedby the competitivemethods(e.g., competitivepricing)considered most importantby the firm's top management team-and the presenceof orientationswithin an industry.These strategicorientationsare strategic classifiedon the basis of which of the three alternativegenericstrategies they appearto representmost closely. Phase 2 consists of a panel of experts who assess the importance of each of the identified competitive methodsfor eachgeneric The strategy. use of thispanelservesto corroborate the researchers' inferencesdrawn from the field study. Phase 3 uses the perceptionsof the chief executiveofficers to cluster firms that exhibit a
'The authors wish to express their appreciation for the thoughtful comments made by Alan Bauerschmidt, Danny Miller, and Carolyn Woo on an earlier draft of this paper, as well as the helpful suggestions of three anonymous reviewers. An earlier version of this paper was presented at the 1982 Academy of Management Meetings in New York. This research was supported, in part, by grants from the Division of Research, College of Business Administration, University of South Carolina, and the Edna Benson Foundation at the University of Washington. 467

517).1973). the significanceof whichcan best be understoodby making referenceto the whole" (Miller.1973).It is believedthat Porter's frameworkof generic strategiesand competitivedimensionsprovides a . p. 1976)recognizedthat firms within an industrydiffer along dimensionsother than size and market share. Thepresence groupsof firmswithinan industry of followingsimilarstrategies has been identifiedin the home appliance(Hunt. 3).Measures performance similarstrategicorientation to detect whether for firms comprisingeach strategicgroup are assessed significantdifferencesexist between strategicgroups within an industry.468 Journal Academyof Management September of into distinctgroups. 1981.most of the multivariate on has reliedalmostexclusively meato developthe strategic groupsconcept sures of implementedstrategy.Hatten (1979).said to represent"tightly integratedand mutuallysupportiveparts.One problemwith existingtypologieshas been that few of the propositionsregardingthe types of strategiesa firm may follow to become a leaderin its markethave been tested with data differentfrom that used to developthem (Schendel& Hofer. of whataresubstantially samestrategic the Thus. 1977. ing managersand academicians TheoreticalBackgroundand EmpiricalResearch shiftawayfrom has The fieldof strategic management showna noticeable the atomistic view of strategy-in which each firm is consideredunique in all aspects-toward a new view that supportsthe recognitionof comhavebeen referred monalitiesthat existamongfirms.Patton. Theseconfigurations to as "gestalts"(Hambrick. This methodologicallimitationmay lead to findings that lack generalizability and that are incapableof confirmationin otherresearchsettings.The dustryas a whole and considering of firms providesa frameworkfor emergingconcept of a strategicgroup recentcalls for empirical"evidencethat strategiesdiffer among answering results" firmsand that betterstrategiesmake a differencein performance (Schendel& Hofer.Miller. 1979. 1980). measurement strategyused of Unfortunately. 1979). 1979). in his discussionof strategicgroups within an industry. strategic groups a useful intermediateframe of referencebetweenviewingthe inprovide each firm separately (Porter. 1976). 1974.1983b.Porter. Such a narrowapof proachlimitsthe applicability many typologiesto a ratherselectgroup of firms within an industryand presentslittle in the way of prescriptions useful acrosssize categorieswithinan industry.the consumer goods (Porter.recognizedthat subgroupsof firms employ different mixes variables. Quantitative (Hatten& Schendel.the chemical process(Newman. 1981). have importantimplicationsfor both practicDifferencesin performance interestedin the strategicgroup concept. 1972). Similarly.Another problemis that existingtypologiestend to put businessunit strategiesinto genericcategoriesbasedon the size or marketshareof the firmand its rate of returnon investment(Hatten.andthe brewmodels of the brewingindustry ing industry(Patton. p.

Theunderlying of in proposition thispaperis thatvariations intraindustry profitabilityand growthmay be explainedon the basis of strategicgroup The strategicgroupsmodel also servesto explaindifferences membership. or intentions of the organization"(White& Hamermesh.1981. emphasisadded).which is viewed as implyingthat "the organizationpurin sues a purposive. competitors The first. Hambrick(1980)recognizedthat it shouldbe possibleto developmultivariatemeasuresof intendedstrategiesas well as implementedstrategies.Porter.1984 Dess and Davis 469 potentiallyvaluableresearchtool for classifyingthe strategiesof all competitors within an industry.eithera as productor a service.However." Portermaintainsthat this latterclass of firms.the reanalyzingpatternsin organizational liance upon measuresof resourceallocationsmay inhibit recognitionof the centralthreador underlying logic of a firm's strategyby failingto considerthe roleof strategic choiceas exercised key organizational members. ferently 1970). 149). Demonstration the abilityof a multivariate of measureof strategicchoice to classify firms into homogeneousgroups based on Porter's model of wouldprovidemuchneededempirical evidence.not only genericstrategies for the constructvalidityof Porter's (1980)typology but also for the notion of strategicgroups in general. 216.p. thus the firm to commandhigherthan averageprices. and thus genericstrategies represent the choiceof strategy"can be viewedas the choiceof whichstrategic group to competein" (Porter. These three threebroadtypes of strategicgroups. although compelling. Many previousmodels of strategicgroups (Hambrick. the elementof strategicchoice is inherentwithin the concept of strategy. and other "almost guaranteed low profitability"(1980. in performance sizes:evenwhenfirmsaredivided amongfirmsof equivalent . p.differentiation.requiresthat the firm createsomething.The second strategy.has relied on indirectmeasuresto show that firms follow different strategieswithin an industry(Caves. by Thenotionof strategic that choicerecognizes similar organizations operating withinthe sameenvironment difmay choose to addressthat environment based on the strategicorientationof their management(Ackoff.whetherit is described termsof a pattern of decisions.directivecourse. 1983a. by failing to develop its strategyalong at least one of these threecategories. or in terms of the goals. overallcost which the firm concentrateson a particulargroup of customers. Porterdevelopsthreepotentially for successful genericstrategies creating a defensibleposition and outperforming in a given industry. emphasizeslow cost relativeto competitors.that is recognizedindustrywide beingunique. strategiescould best be inferredby 1974)have impliedthat organizational resourceallocations. service. or product line segments. Previous evidencefor the importanceof strategicchoice for marketbehavior. 41).Firmsorientedtowardspecificstratfirmscharacterized Porteras "stuckin the midegiesshouldoutperform by dle. Indeed. 1980). geographicmarkets.althoughnot neglectingquality.1980. The third is permitting a focus strategy. plans. p.

emphasizes methods)will comprisea strategic group (Porter. Followinga reviewof Porter(1980). Phase 1: Field Study as Strategicorientationswithinan industrywereseen by the researchers teams about the competitive by represented the views of top management methodsfirmsuse in theirindustry. and that the strategycould be inferredon the basisof the emphasisor importance givenvariouscompetitive methods availableto the firm. Research Instrument. For the second phase.e. These groupswere developedfrom the responsesof the subsample firmsin whichthe chief executiveofficerwas the primary of for respondent. Porter recognizesthat the strategiesthat companiesuse to compete in an industrycan differin a widevarietyof ways.Measuresof performance firms comprisingeach strategic groupwereassessedto detectthe presenceof significantdifferencesamong the instrument was inductivelyderivedto evaluatethe variouscompetitivemethodsthat .. a panel of expertsfrom the academiccommunityprovidedrecommendations regarding content of each of Porter'sgenericstrategies.Whenthe research instrument conwas structedit was assumedthat all membersof the top management team had knowledgeof the strategyof their firm. the A groupof firmswithinan industry that followsthe sameor a similarstratsimilarcompetitive egy (i. service. 1980).These dimensions are comprisedof competitivemethods that include brand identification. technological leadership. Phase 3 of the study classifiedfirms with similarstrategicorientations into distinctgroups. Method Overview The field studywas comprisedof responsesfrom executivesof a sample of firmsthat wereusedto developthe dimensionsassociatedwiththe three genericstrategiesoffered by Porter. 1980).The use of the appropriate a panelof experts strategy in followsthe recommendations Harof research of and inferences rigan(1983)for the refinement corroboration investigator developedfrom field research. and methodsprovide leverage.470 Academy of Management Journal September of by sizeclasswithinan industry. and he proposesa number of "strategic dimensions" shouldcapture possibledifferences that the among the strategicoptions of companiesin a given industry.amongothers(Porter.Thus. the first two phasesof the study enabledthe researchers combinethe descriptive to capabilityof field research with the normativerecommendations obtained from a panel of experts.Thesecompetitive a meansfor characterizing strategies competitors of withinan industry.eachdivisionmay containmembers more than one strategicgroup. cost position. channel selection.

In orderto pretestthe researchinstrumentin a field setting. not includedin the to the and finalsample.25 percent.S.the sameinstrument was administered all respondents.wereinterviewed ascertain comprehensiveness phrasing of the questionnaireitems. The content was enhancedthrougha reviewof questionvalidityof the questionnaire naireitems used by previousstrategyresearchers (Bourgeois. Next.7 (U. Sampleand Data Analysis.First.S. reflectedby the 1978 ProducersPrice Index for to paintof 192. the organizationshad to be egies .1976). Severalcriteriawereused in the selectionof firmswithinthe paintsand alliedproductsindustry. 1975.The paredto an averagefor all manufacturing reportfurthersuggestedthat the depressedprofits were largelyattributed to a price-costsqueeze.A modificationthat helpedrefinethe final instrumentillustratesthe benefit of on-site interviews.The presenceof intensepricecompetition mentioned severalrespondents suggested was and by the inclusionof the item "competitivepricing. the CEOs of four manufacturing firms.Khandwalla. self-containedentity. IndustrialOutlook. Second. the researchers ableto consider were and stratcorporate-level business-level as synonymous(Hofer.3(1967= 100)compared the averagefor paintrawmaterials of 212.the researchers were able to modify the instrumentin orderto enhanceits ability to capturecompetitive methods that identify the strategicorientationof a firm's decision makers. the organizationhad to be an autonomous.1984 Dess and Davis 471 a might be used to characterize particulargeneric strategy.the 4-digitStandardIndustrial Classification mea(SIC)codewas chosenas an appropriate sure of the industrialenvironment. the industrywithin which it competes.The criterionfollowedRumelt's(1974)"singlebusiness" or "dominantbusiness" categorization: that is. at least 70 percent of the firm'stotal saleshad to be withina given4-digitSICindustry. the relevanceof particularcompetitivemethods for firms within the industrywas ascertained interview throughthe use of a semi-structured in withthe chiefexecutive officer(or designated executive) eachof the sample firmswithinthe industrychosen for the study-the paintsand alliedproductsindustry. to The interviewswith the executivesof the pretestand sample firms led to severalimprovements both the wordingand the compositionof the in list of competitivemethods. Department Comof merce industryreport that stated that the profit-after-taxes a percent as of salesfor the paintindustry(the site of this study)was2.Duringthe interview executive askedto identifythose the was of teamwho aremost influentialin the makmembers the top management decisionsfor the firm.25 percent. Fourth. the output of firms had to be concentratedin one line of businessto avoid confusion between methods used in competing in multiplebusinesses." The sentimentsof the exin ecutives thisregard largelyconsistent are witha U. By incorporating richness anecthe of ing of strategic dotal informationabout the firm. and methodsof competitionin that industry.This unit of analysisis supportedby Porter(1980).comindustriesof 5.1980.Third.Child. Thus. 1975).In orderto generalizeacrossthe sample. 1980).

15of the21 competitive than or equal to ? . These loadingsmay be considered to be a conservativecriterion.472 Journal Academyof Management September to relativelyhomogeneousin size. The principalfactorsolutionobtainedafterthe varimax rotationfor the 21 competitive methodsis shownin Table1.50 on at least one factor. The factors displayedin Table 1 are rank orderedfrom left to rightaccordingto the proportionof total variancethey explained. Although five significantfactors(i. emerging. Factor analysis of the questionnairedata on competitivemethods was usedto developthe competitive dimensions associatedwitheachof Porter's Factoranalysishas the abilityto producedescriptive sumgenericstrategies. eigenvalues 1) emergedfrom the factoranal> the ysis.There is no true marketleader. The other two factorswere droppedin the interest of parsimony.additionally. This criterionpermittedthe researchers controlfor any potentiallyconfoundingeffects imposedby widevariations in organizational resourcesand scope of operations." A total of 78 of 99 possiblerespondents(79 percent)from the 22 sample firms completedthe questionnaire.e..Finally. identification is confirmed Porter (1980). (5) global.Woodward's (1965) classificationof manufacturing processeswas used to classify the sample as organizations using a batch technology. only the threefactorsexplaining greatestamountof total variance are shown in Table 1.Fifth. brand identification) to their firm's overallstrategy. customerservice.e. 22 percent).These individualswere asked to indicatethe importance of the 21 competitivemethods (e. mature. the organizationshad to be locatedwithina limitedgeographicareain orderto facilitatethe performanceof the on-site interviews.. Resultsof Phase 1. methodsexhibited factorloadingsgreater Overall. the organizationshad to be similarin the technology theyemployed. Basedon an analysisof forcesthat drivecompetition. In the field study.The factorsare named to reflect the three genericstrategiesthey were interpreted the by writersas representing. Thesecharacteristics identify the paints and allied an that by productsas highlyfragmented. The final industry-specific was questionnaire mailed to each CEO for distribution the previouslyidentifiedtop management to team members..A 5-point scale was used with values rangingfrom "1 = Not at all important"to "5 = Extremelyimportant.Kim and Mueller (1978) suggest . and thereare a largenumberof smalland medium-sized companies.Porter(1980)clasof sifies industriesas representative one of five genericindustrialenvironor ments:(1) fragmented. 22 fully participated. mariesof datamatrices.(4) declining. (2) (3) The paints and allied productsindustryhas a 4-firm concentrationratio of less than 40 percent(i.Of these.many of them privately-held. 1976)indicatedthat they should be excluded.a screetest (Cattell. 28 nondiversified firms in the paints manufacturing and alliedproductsindustry(SIC 2851) wereinitiallycontacted.whichaid in detectingthe presenceof meaningful patternsamong a set of variables.g.

Operating efficiency V4.01627 .70853 .34034 .23042 .05309 . -.19858 .51302 .37294 .83112 .23515 .03943 -.11203 .04930 .78639 .80309 .22651 .00628 .26180 . Forecasting marketgrowth V21.7 - - -.34630 .03000 -. Competitive pricing V8.61536 . Innovation manufacturing in processes Eigenvalue Percentof commonvariance Percentof total variance .00243 .44429 .69076 . Productqualitycontrol V5. Minimizing of outsidefinancing use V15.06118 .05131 .10626 .01129 .04730 .29412 .25327 .30128 .64495 . techniquesand methods V12.48492 . Maintainhigh inventorylevels V7.29166 . Developing/refining existingproducts V10.16526 . Controlof channelsof distribution V13.61841 . Productsin high pricemarketsegments V18. Broadrangeof products V9.26645 .05293 .51166 .00087 .00026 . Brandidentification in Innovation marketing V11.00070 .17321 .08507 .37920 2.3 .15352 .58847 .07925 .01255 .82943 . New productdevelopment V2.73879 .01997 -.00223 . Servingspecialgeographic markets to V16.02357 .20290 .04117 .60 32.00679 .61579 . Customer service V3.09077 . Experienced/trained personnel V6. Advertising V19.00280 .07100 .26319 .50326 .01615 . .61069 .16097 .08650 .74 10.19764 .Table 1 CompetitiveMethods: Factor Structureand Commun Factor One Differentiation Squared Factor Factor Loadings Loadings a a1) ( (a2) Competitive Methods Factor Two Low Cost Squared Factor Factor Loadings Loadings (a2 (a22) L V1.00842 .55085 .50201 .24855 .08241 . Reputation withinindustry V20.12707 .02591 .02949 . Capability manufacture specialtyproducts V17.00040 -.85953 .19739 6.2416 20. Procurement raw materials of V14.02731 .03906 .68795 .7871 62.37867 .

Instabilityof the factor loadingsbecauseof samplingerror may resultfrom the use of a relativelysmall ratio of subjects(n = 78) to measures(n = 21). halo. 562). etc. Anderson." (Einhorn.Table 2 indicates ..The data wereanalyzedto determine whetherexpertswould uniquelyorganize the competitivemethodsfor each strategy.Furthermore.7 approachesbut does not exceedthe desirablebut conservative ratio of four or five to one advocatedby some authors(Hair. V13. p. ResultsofPhase2.474 Journal Academyof Management September factorloadingsof . of resources. 1974.the samplesize of this study is not considereda significantlimitationin interpreting the results. because"expert judgeswill not show well-knownbiasesas leniency.Theysugif gest thatthis test is appropriate the samplecontainsat least 51 morecases than the numberof variablesunderconsideration. Phase 2: Panel Study A panel of expertswas used to developnormativerecommendations regardingthe appropriatecontent of each of Porter's (1980) three generic selectedon the basis strategies. Two of the competitive highly on more than one factor. 423). and V20)loaded (1978.Tatham. This ratio of 3.1979).The and panelwas used to evaluatePorter's(1980)conceptsregarding genericstrategies becauseof the common core of knowledgethey possessedrelevant to the area of for each of Porter'sthreegenericstrategies.availability firms-inherent in field research.& Grablowsky.Nunnallysuggests that "it is doubtfulthat loadingsof a smallersize be taken seriously.Similarly. A commonmethodologicalweaknessthat mightthreatenthe reliability and validityof the factor analyticresultsis the possibleinstabilityof the factor loadings.Furthermore.Eachquestionnaireconsistedof the same21 competitivemethodsand associated5-point scalesused in the field research. becausethey represent than ten percentof the varianceof the factor" less methods(i.The panelconsistedof sevenacademicians of theirexperience expertisein the field of strategicmanagement.e.p.30 as a cutoff for significance. The statistics developed were used to evaluatewhich competitivemethods the expertsconsidered most importantfor each of Porter's genericstrategies. it is reasonableto expectthat the variablesbeing measured actually represent explanatory concepts when combined into global constructs. Thedescriptive statistics(means.standard deviations) for the panel's responsesare shown in Table 2.The panelmemberswereaskedto indicate the importanceof each competitivemethodfor each genericstrategy. giventhe exploratorynatureof the researchquestionas well as constraints-time.The samplesize does exceed that suggestedby Lawleyand Maxwell(1971) for the maximumlikelihoodsolutionmethodof confirmatory factoranalysis.Each panel memberwas asked to reviewPorter's and chapteron "Generic Competitive Strategies" thencompletethreequestionnaires. indicatingthat they may be germaneto more than one generic strategy.

41 .71 3.57 3.43 4.69 .07 . Minimizing of outsidefinancing use V15.71 3.00 . 2.86 1.13 1.49 .53 .49 .53 1. The least importantcompetitive methods were those items whose factor loadingswere between +.57 3.57 2.49 .00 .57 2. Broadrangeof products V9.38 .43 2.71 2. 4.27 .1984 Dess and Davis 475 Table 2 Panel Technique:DescriptiveStatistics Methods Competitive V1.21 .49 .57 2.71 4.86 3.30 (Kim& Mueller. competitivemethodsthat exhibitedeithertheir highestor lowest loadings .The analysisclarified the relationships methodsand the genericstrategies betweenthe competitive of and aided in the interpretation the factor analysisdevelopedfrom the field study.76 1.69 . Developing/refining existingproducts V10.04 .00 4. Forecasting marketgrowth V21.86 1.38 .43 2.79 .50.43 3.71 4.14 4.79 . Maintainhigh inventorylevels V7.57 4.29 1. Reputation V20. Controlof channelsof distribution of V13. ings Table3 is presented the basisof Porter'sthreegeneric on Under strategies.86 5.79 .14 3.57 4.00 3.14 3.49 1.38 . Capability manufacture specialty products V17.71 5.49 .76 1. 1978). Innovationin marketing techniques and methods V12. Innovationin manufacturing processes Meanitem value Meanstandarddeviation Differentiation Strategy Mean S.D.00 4.69 . 3.25 .74 thatthe panelof expertsidentifiedsomecompetitive methodsas eithermost or least importantfor each of the genericstrategies.14 2.69 1.14 1.38 1.30 and -.71 3. Productsin high price marketsegments V18.72 .86 4.29 2. Brandidentification V11. For interpretive purposes.71 3.21 Focus Strategy Mean S.86 3.the competitivemethodsidentifiedby the managers and the panel of expertsare arrayedas most and least important.53 . each genericstrategy. Advertising withinindustry V19.49 . Competitive pricing V8.00 .07 1.07 OverallLow Cost Strategy Mean S.71 1.86 2.49 .50 2.29 2.00 5.49 1.29 2.53 .25 1.29 3.53 .93 1.76 1.29 2.D.57 3.71 4.29 2.Thesefindin are summarized Table 3. New productdevelopment V2. Productqualitycontrol V5. Procurement raw materials V14.98 1.53 .00 4.49 1.82 1.07 1. of of Comparison the Results Phase1 andPhase2 An important in the dataanalysisfor Phase 1 involveda comparison step between:(1) the principalfactor solutionwith varimaxrotationfor the 21 methodsusedin the fieldstudyand (2) the opinionsof the panel competitive as to the appropriate contentof each of the genericstrategies. Experienced/trained personnel V6.11 .53 1.00 .86 4.55 . Operating efficiency V4.14 4.D. 1978.95 .14 2.98 .53 .00 3.76 .69 1.38 .86 3.29 4. Customerservice V3.00 .79 .60 .For the fieldstudy.90 .57 4.57 3.29 1.00 3.49 .57 1.07 . Servingspecialgeographic markets to V16.29 3.57 1.49 .the mostimportant methodswerethoseitemswhose competitive factor loadings were greaterthan .57 4.29 4.00 3.38 .Nunnally.00 1.

Products in high price market segments Capability to manufacture specialty products (least important) Maintain high inventory levels V3. V6. Brand identification V1. respectively. Procurement of raw materials V18. Operating efficiency V4. V17. V21. Broad range of products Innovation in marketing techniques and V15. Innovation in marketing techniques and V10. Customer service V7. V16. Experienced/trained personnel V9. Competitive pricing V12. Reputation within industry V20. Competitive pricing V8. Maintain high inventory levels Procurement of raw materials V7. Product quality control VS. Managers (most important) Customer service VI. V15. V13. Minimizing use of outside financing Overall Low Cost Experts V3. Procurement of raw materials V14. V8. New product development V 1. Capability to manufacture specialty products Serving special geographic markets V17. Innovation in manufacturing processes (least important) Customer service standarddeviationfrom the aggregate mean. Innovation in marketing techniques and methods V12. Innovation in manufacturing processes V2. V16. Operating efficiency Broad range of products V6. Advertising Serving special geographic markets Capability to manufacture specialty products Products in high price market segments Focus Experts V2. Broad range of products V13. Procurement of raw materials V14. Minimizing use of outside financing V21. V13. New product development Brand identification V16. Developing/refining existing products V13. Control of channels of distribution Minimizing use of outside financing V13. Serving special geographic markets methods V18. Procurement of raw materials V19. Brand identification methods V11. Control of channels of distribution V18. V14. Table 3 Content of GenericStrategies:Summaryof Findings Differentiation Experts Managers (most important) V10.476 Academy of Management Journal September on the two factorsthat wereexcludedfrom analysiswerenot incorporated into Table3. V10. For the panel. . Advertising V20. Advertising V13. VI1. V15. Operating efficiency Competitive pricing Procurement of raw materials Innovation in manufacturing processes Managers important) V3. Forecasting market growth (least important) V2. V7. Forecasting market growth V21. the most importantand least importantcompetitivemethods consisted of those items whose mean value was greater than or less than.

Although therehas been some empiricalresearchto refute the requirement a high relativemarketsharein orderto obtain a low for cost position (Hall. brand Porter(1980)notesthatone of the principal economiccauses identification).Factor two suggestsa predominantly productionorientation(e.e. Performance gorize reflecting data wereprovidedfor 15 of these firms and wereused to analyzedifferencesin performance amongthe clusters. it should be noted that one of the competitive methodswith a high loading on this factor was V13 (i. 36)..g.1981b). V13) of the competitive methodsidentifiedby the panel as least importantappearedwith a high loading on factor one... tified by the panel as most importantto an overalllow cost strategy.Three of the four competitivemethods identifiedby the panel for this generic in led are strategy contained factorone. Chief executives' perceptions theirorganizations' of are strategies morecloselyaligned to externalmeasuresof strategythan are the perceptionsof other executives(Hambrick.1962). interpretive supportis indicated.Such an orientationlends supportto the identificationof facof tor two as representative Porter'soveralllow cost strategy. ratherthan a "designated The chief executive executive.none of the competitive methodsregarded the panelas leastimportant this to by with high loadings on factor two.Three of the four methodsseenby the panelas leastimportant a focus strategy in competitive in factor threewith theirlowest factorloadings. CEOs'responses the wereusedto catefirmsinto clusters similarintendedstrategies.g.This is interpretation supportedfurther:only one (i..Portercona tendsthat "achieving low overallcost positionoftenrequires highrelative a suchas favorable marketshareor otheradvantages.those appeared methods(e.e."was the primary respondent. operating efficiency). p. Many of the competitivemethods loading highly on factorone appear be indicative a marketing of to orientation (e.As with factor one. Phase 3: StrategicGroup Membership and Organizational Performance Phase 3 uses the responsesfrom the 19 firms whose CEO.1984 Dess and Davis 477 methodsidenThe resultssuggestthat factorone consistsof competitive tified by the expertsas most importantto a differentiation strategy. However. strategyappeared Moresimilarity on betweenthe paneland managers whatdoes appeared not ratherthan what does constitutea focus strategy. Thiscloseassociation the researchers of to interpretfactor one as representative a differentiation strategy. is most importantin strategyformulation(Chandler. V16-specialty products-and V17-high priced competitive marketsegments)exhibitinghigh loadings on factor three do suggestan emphasison specificmarketsegmentsand imply concentrationon a particularniche. 1980)..g.Therefore. procurement of rawmaterials). accessto rawmaterials" (1980.Thisreductionin the samplesize . particularly it is based on image. factortwo containsthreeof the fourcompetitive methodsidenSimilarly. industriesis high productdifferenfor the existenceof highlyfragmented if tiation.

value .8 percentto 37.a Bartlett'sBoxF-test on the within-cell variances used was to test for homogeneityamong variances..a four clustersolution also was examined. Initiallya three clustersolution was chosen in order to facilitatecomparison with Porter's typology of three generic strategies. Using Parsons'(1956)classificationof organizations type of goal or by function.consistentwith the "economic primacy"of the the factor score coefficient for competitivemethod j (= 1. However. the researchers obtained"total firm sales" figuresfor the period 1976 to 1980to determine"sales growth" and "averageafter tax returnon total assets" from 1976to 1980to determine profitability. 3). The clustersconsistedof subsetsof CEOsthat weremore similaror closer to each other in orientationthan they were to CEOs outside the cluster.7 percent.which maximizesbetweenand minimizeswithinclustervariances. the organizationsin this study would be classified as oriented toward economic production. the three clustersolution did not adequatelydistinguishamong the clusters. profitability. Scheffe's posteriori .Therefore.and averageaftertax returnon total assetsrangedfrom 1 percentto 42 percent for the sample.the derivedgoals of the financial community(e.i2 + ? ?.growth)should be consideredof primary in of importance the assessment organizational performance. 1975). To determinewhere the significant differenceslie. 2..was obtained. The factor scores generatedfor each of the CEOs were used as input to a K meansclustering algorithm(Dixon.The clustersthat resultedconsistedof CEOswho were most similar in respect to the factors (genericstrategies)that had emergedfrom Phase 1 of this study. is regrettable not uncommon the studyof privately-held but in 1979). The overallsignificanceof the clustersolutions obtainedwas tested by means of a one-way analysisof variance-based on the assumptionthat the scoresin eachof the variousgroupshave approximately same varithe ance. Consequently.+ ajizj.becausethe variousgroupsdo not containthe same numberof subjects. calculated Theresearchers individual factorscoresfor eachCEOon each to of the threefactorscorresponding Porter's(1980)threegenericstrategies in accordancewith the following formula: A= alizl + a2. where:aj. and zj is the CEO's standardized on competitivemethodj.However.478 Journal Academyof Management September firms(Porter. An F-valuewas calculated usinga one-wayanalysisof varianceto decide whether thereweresignificant differences amongthe strategic groups(clusters)on the basis of theirmean valuesfor the two performance measures. 21) on factor i (i= 1.The CEOswereswitched from one clusterto anotheruntil the optimalclusterconfiguration...g.Annual salesgrowth ratesfor the five-yearperiodrangedfrom . with the exploratory Consistent natureof this research.

388 .724. p=.3266) -.2356 (.Clusternumbertwo displayednegativescoresfor all .6162 2.001 P-value = . and it was the only clusterthat displayeda positivescore for the differentiationstrategy.507 CStandarddeviations are in parentheses. Cormier.9503 Within groups .001)andthe focus strategy (p < .1808 (.044 Focus 4.055 .2751 2.197 . F-ratio 9.308 .388).5225 (.The profilesof the three fromthe clusteranalysisandthe performance strategic groupsthatemerged resultsare presentedin Table 4. the inabilityof the low cost dimensionto accountfor significantdifferencesamong the three clusters wasunanticipated provided rationale developing fourcluster and for the the solution.917 Bartlett's Box F-test Coordinate Centroids Overall Low Cost Focus Differentiation .3723 (.6616 . (p The researchers anticipated eachof Porter'sthreegenericstrategies had that would be requiredto distinguishclearlythe different strategicemphases that existedamongthe clustersof firms.This test to also offers the advantagesof applicability groupsof unequalsizes and is relativelyinsensitiveto departures from normalityand homogeneityof variances(Hays.0750 Performance Annual Return on Sales Growtha Total Assetsb . The one-wayanalysisof varianceprocedure indicatedthat the threeclusters of firms were significantlydifferent from each other on the basis of theiremphasison the differentiation (p strategy < . Resultsof Phase3: The ThreeClusterSolution. contrasttest was usedto compareall possiblepairsof performance Among the variousmultiplecomparisontests.4516) .3083 2.5247) -1. p . Mean Scores Cluster 1 (n= 12) 2 (n=4) 3 (n=3) Grand Means B.2437 (.3484) .f. The firstclusterhad its highestcentroidscoreon the differentiation strategy.074 .& Bounds.001)but not on the basisof the overalllow cost strategy = .0351 (. 1974). Table 4 of Cluster AnalysisResultsandPerformance Summary Relationships: The Three ClusterSolution A.7499) . Mean Squares Differentiation Between groups 2.6462) .5057 (.1984 Dess and Davis 479 means. Thus. p = .5977) -1.3692 .16 d.5063 (.001 aAnalysis of variance results for the three clusters: F= 5.022 bAnalysis of variance results for the three clusters: F=.118 .8034) -.0470 Overall Low Cost .883 .1441 .568 .086.531. Scheffe's is consideredto test be the most conservative (Huck.16 1.16 15. 1963).4000 (.084 .4332)c -.

averagedonly 8 percent annual sales growth. Table 5 shows . for the other performancemeasure. None of the other differencesis significant. and the overall low cost dimension(p<.the patternof scores was not conclusive(i. 1980.003). Theone-wayanalysis variance of indicated the fourclusters that procedure of firms weresignificantlydifferentfrom each other on the basis of their dimension(p < . the differentiation strategy 19. Clusterone. in combination..this cluster to be comprisedof firms that are "stuck in the middle" (Porter. group.480 Journal Academyof Management September three of the genericstrategies.and clustertwo. focus) remainedintact from the three clustersolution to the four cluster solution. stuck in the middle) and three (i..averaged the focus group. The profilesof the four strategic groupsthat emergedfrom the clusteranalysisand theirlinks with organizationperformanceare presentedin Table 5. Table4 indicatesthat the threestrategic groups were not significantlydifferent from one anotherwith regardto profitabilityas measuredby returnof assets (p = . However. averaged percentannualsalesgrowth.Clusternumberthreeappearsto consist of a groupof firmsemphasizinga focus strategy. The next step in the analysiswas to compareperformanceamong the threeclustersof strategicgroups.002).e.507). may p. 41).001). the focus dimension emphasison the differentiation (p<. The Scheffe test for significantdifferencesamong the groups on the performance measure"sales growth" shows that the mean value for the focus strategygroup is significantlygreaterthan the mean value for the stuck in the middle group. 31 stuck in the middle.This lack of a positive score on any of the this that firmscomprising grouphavefailed indicates threegenericstrategies to developtheirstrategyin at least one of Porter's(1980)threedirections. This does not imply that firms that are stuck in the middle do not emphasizecertaincompetitivemethods that are key componentsof one or more genericstrategies. The four cluster solution resultedin the splittingof clusternumberone in Table4 into two separateand uniqueclusterslabeled one and four in Table 5.the patternof centroidscoresthat emergedfrom Taken to the clusteranalysisled the researchers identify clusterone as representative of a strategicgroup of firms orientedprimarilytoward a differentiation strategy..e.annual sales growth. This findingis consistentwithPorter's contention firmsthatadopta generic that strategy (1980) shouldoutperformthose stuckin the middle. the composite strategythat emerges may lack internalconsistency.however. Table 4 indicatesthat was strategicgroupmembership significant(p = .001).e.clusterthree.Therefore. Clusternumberthreeexhibitedthe highestpositivescoreof any clusterfor and the focus dimension negativescoresfor the othertwo genericstrategies. the relativelyhigh scoreson the alternative genericstrategiesindicatedthe withinthis cluster of emphasison morethanone genericstrategy possibility of firms).Clusternumbertwo evidencesan apparentlack of commitment any of Porter'sgenericstrategies. Resultsof Phase3: Four ClusterSolution. The composition of clustersnumberedtwo (i.However.7percent annualsalesgrowth.

24.001 Focus 3.2372 3. It is importantto note that clusteranalysis.1444) .2736 3.9185) -.does not explicitlyprovidea clearlyacceptableor unacso ceptablesolution. the primary orientation the fourthclusteris a differenfor tiation strategy.201 .308 .threeclusterswere one The anticipated. It merelyprovidesa structure that relationships may it is importantto make explicitthe criteriathat guidedthe emerge. though the three cluster solution was anticipated to parallelPorter'sthreegenericstrategies. In the presentcase.1984 Dess and Davis 481 Table 5 of Cluster Resultsand Performance Analysis Relationships: Summary The Four Cluster Solution A.4195) .044 .3771) -.055 .2687 (.unlikemost parametric statisticaltechniques. selectionof an appropriatesolution.170 .4023) .5225 (.thus.5951 (.7914) .Thus.2685 -. appearance of the stuckin the middlegroupas a clusterin the initialthreeclustersolution suggested that the thirdgenericstrategy-overall low cost-which had not appeared a significant as determinant groupstructure of may havebeen pooled into one or more of the other groups.2887 (.0309 .1441 (. . Mean Scores Cluster 1 (n = 4) 2 (n=4) 3 (n= 3) 4 (n=8) GrandMeans B.638 of aAnalysis varianceresultsfor the four clusters:F= 3.8757) Overall Differentiation Low Cost 2. four clustersolutionaffords the an interpretation that is more consistentwith Porter's framework.15 10.89.001 Bartlett's Box F-test= .5063 (.009 . Mean Squares Betweengroups Withingroups d.3268 -.425 . for eachof Porter'sthreegeneric strategies. p= .15 6.6902) -1.4445) .Initially.15 11.0470 (.041 of bAnalysis varianceresultsfor the four clusters:F= 3.0119 .f.0750 (.6226 -1.0351 (. subjective The criterion of involvedan identification how manyclusterstheorywouldlead one to expect. p= .255 . The most importantobjective criterionwas the appearanceof a significantF-value for the overall low cost factor when the numberof clusterswas increasedfrom three to four.089 1.5417 .3723 (.3176) .2356 (.1808 (.Also.5531) . F-ratio P-value CoordinateCentroids Overall Focus Differentiation Low Cost .5254)C Performance Annual Returnon Sales Growtha TotalAssetsb . both subjective and objectivecriterialed to the selectionof the four clustersolutionas the moreappropriate.069 cStandard deviationsare in parentheses.567. that althoughclusterone displayspositivecentroidscores for each of the threegenericstrategies.003 2.the emphasison overalllow cost strategyis clearly dominant.3161 3.084 .715 . p= .

e. (p <.041). The highest averageannual returnon total assets (25. paintingcontractors) wereconsidered be to key distribution highly important. the CEO of one of the firms in the differentiation clusterassertedthat his firm's successlay more in differentiating the firmthanthe product.and clusterthree-focus-with 4. The CEO of one of the firmsin the focus clusteremphasized importanceof successfullycomthe niche.05). These remarksare clearlyconsistentwith Porter's generic strategies..5 percent)was achievedby clusterone with its emphasison overalllow cost.9 percent. Favorablerelationswith peting withina particular product-market channels(i.05).069).He contended his firm'sreputation "superior that for serviceand quick reactionto customerneeds" enabledit to enjoy a high profit marginby charginga premiumfor his product. and cluster two-stuck in the middle-with 8 percent. four-differentiation-with 17 percent. Perhapsthe relativelylow performance of his firm may be attributedto the lack of a well articulatedand consistentstrategybecauseof a lack of continuity(mentioned the CEO) by in the compositionof the top management team.Production in incentivesand extensivereinvestment modernfacilitiesand equipment werementioned veryimportant.4 percent. The next step in the analysiswas to compareperformanceamong the four clustersor strategicgroups. briefdiscussion of a typicalfirm from each of the four clustersin Table 5 will convey this convergence.Cluster cluster growth. CEOof a firmin the overalllow cost clusterstressed The in the primacyof high productivity manufacturing operations. Table5 indicatesthat differencesamong the four strategicgroupsregarding returnon total assets approachedstatistical significance(p = .482 Journal Academyof Management September is Thevalidityof thesefindings interpretations enhanced the strong and by betweenthe compositionof the clustersand anecdotalinforrelationship A the mationobtained fromthe CEOsduring on-siteinterviews. followed by clusterfour-differentiationwith 8. The Scheffe procedureindicated that the differencesbetweenclusterone and clusterfour were significant For the other performance measure-sales growth-the overallF-ratio indicatedthat the groups were significantlydifferent from one another three-focus-was the leaderwith31 percent annualsales (p = . This representsa noticeableimprovement over the resultsof the three clustersolution.clustertwo-stuck in the middle-with 5.Uncertainties as regarding product-market the scope seemedto characterize responsesof one of the CEOswhose firm was in the stuck in the middle cluster.Lastly.followedby clusterone-overall low cost-with 20 percent.The Scheffeprocedure indicated thatthe difference betweenclustertwo and clusterthreewith regardto sales growthwas significant (p <.4 percent. Discussion Phase 1 of this study analyzedthe competitivemethods consideredto be most importantby the top managementof firms competingwithin a .

the managers and the panelalso identified itemsof lesserimportance eachgeneric for strategy.1955)may characterize focus strategies.such an approach. The patternof competitivemethodsthat emergedfrom the field study closely resembledthat obtainedin Phase 2 from the panel of expertsand In providesadditionalsupportfor the authors'interpretations.the normative recommendations the panel of for the third of Porter's genericstrategies-focus-did not clearly coincide with the third orientationof the managers. The inabilityto identifyclearlythe thirdmanagerial orientation reflecas tive of a focus strategymay be due. An importantimplicationis that equifinality(von Bertalanffy.Threesets of internally petitivemethods were identifiedthat conformedto Porter's (1980) three genericstrategies.1980).chooseto utilize eithera common appealacross all the varioussegmentswithin which the productcompetesor the firm may tailordifferentappealsfor specificcustomer groups.1980. .Hambrick. The four cluster solutionservedto disaggregate largercluster(n = 12)previouslyidentithe fied as differentiationinto two separateclusters.Two of the clusin tersthatemerged thethreecluster solutiondidappear represent to Porter's differentationand focus strategies. for example.Each clusterreflecteda unique strategicorientation-differentiation (n = 8) and overalllow cost (n = 4)-as well as differentlevels of organizationalperformance. led the researchers investigatethe possibilitythat aggregationof dissimilar to firmsmay have occurredwithinthe threeclustersolution. The clusteranalysisused in Phase 3 was based on the assumptionthat clustersof firms could be identifiedthat would correspondto a model of strategic groupsbasedon Porter'sthreegenericstrategies.with its emphasison "intended"strategies.the apparentemphasison more than one genericstrategy.the overalllow cost dimension did not appearas significantin determining compositionof orgathe nizationalstrategies. proposedthat when a firm deals in a marketcomposedof differentsegments. at least in part.Further.that is.The ability of questionnairedata to identify different "intended"strategiesin industrialsettingshas been supportedby others (Bourgeois.reflectedin the clustercentroidscoresof clusterone.has rarelybeen used to examinethe to presenceof strategicgroupsand their relationships organizational performance. for anygivenproduct. However.1984 Dess and Davis 483 consistentcomsinglehighlyfragmented industry. Under such a broaderview of a focus strategyit may not be possibleto prescribe singleset of competitivemethodsapplicablefor a all the potentialstrategycombinationswithinthis single genericstrategy.However. thereis a broadrangeof differentbut consistentsets of competitive methodsavailableto firmsemployinternally ing a focus may. This convergence orientationsare indicative impliesthat these managerial of the two genericstrategies that Porter(1980)identifiedas differentiation and overalllow cost. However. addition to identifyingcompetitivemethodsof high importance. Hofer (1982). to what some regard as a limitationof the focus strategyas currently outlinedby Porter.

Oster. . In summary.The problemsmay be firms because of the lack compoundedin the presenceof privately-held of publiclyavailableinformationby whichto judge the strategiesand performanceof other firms..Also. a largenumberof firmsin the samplewereidentifiedas pursuinga differentiationstrategy.Additionally. p.March& Simon. 1963. also comments that "low cost maybe achievable withouthighshare"(1980.the scarcityof resourcesand the high riskattendantwith strategic changemay help to explainwhy organizations continueto pursuemarginally profitablestrategies. The persistenceof strategiesover time may resultfrom decisionmakingprocesses as well as industry characteristics. On the basis of its centroid scores. This grouphad the highestperformance the returnon on assets criterionand the second highestperformanceon sales growth.the findingsthat the overalllow cost clusterhad the highestaveragereturnon total assets Andersupportpriorresearch Woo and Cooper(1981)and Hamermesh. emerged (1980)caution againstthe commitmentto multiplegenericstrategies. it may be importantfor competitorsto identify with a genericstrategythat does not placethemin directcompetitionwith a large numberof firms evidencinga similarstrategicorientation.Also.and this may have inhibitedthe ability of firms in this To havesignificance the allocationof resources.highperformance may generateslack resourcesthat can be used to enable firms to expand theirpresentscopeof Cyertand March(1963)suggest. constraints posed by budgetlimitationsmayrequire thata firmlimitits emphasis only one marketsegment. Cyert& March. p.For example.1971. becomesstuckin the middle). 1977.Oster asserts: In the case of small organizations. this cluster was identified as primarily orientedtoward an overall low cost strategy. a largeextentthe viabilityof inferences To drawnfroma cross-sectional of measurement organizational relies strategies on the conceptof strategicmomentum(Miller& Friesen. However. It is difficultyof movement that at that makesgroupstructures potentiallyimportant(1981. to The presentcross-sectional research designinhibitsthe abilityto do more thaninfercausalrelationships. strategy for a mustnecessarily involve somecommitment it is irreversable. 1958). 377). However. this group also withthe highestcentroid GivenPorter's scoreon the focus strategy. and Harris(1978)that rejectsthe notion that high marketshareis a for of Porter requirement the successful implementation a low cost strategy.Harrigan. 44).1982.the research findingsare generallyconsistentwith Porter's contentionthat commitmentto at least one of the threegenericstrategies will resultin higherperformance than if the firm fails to developa generic strategy(i.1984 Dess and Davis 484 An importantfindingof the study is the apparentlack of singularityin that the orientation characterizes highestperformance strategic group-cluster numberone.the exhibitedby the membersof this clustermay appearinhighperformance consistent. the presenceof intrabarriers mobility(Caves& Porter.However. viewof organizations conservative The as andresistant changeis promulgated the Carnegie to by group(Carter.e. 1980). to industry 1982)may requiresuch an investmentof scarceresourcesas to make strategic change or exit costly if not prohibitive. by son. leastfor a time.

whichindicatedthat privately-held salesgrowthas a decisioncriterionat the possibleexpenseof profitability. because all of the sample firms were privately-held.the parsimonyof the instrumentmay have excludedimportantcompetitive methodsused by a firm.1981a. An observeddiscrepancy betweenintentions realizedstrategy and mayarise from the inabilityof the firm to translateits intendedstrategiesinto actions becauseof unpredictable environmental change.1984 Dess and Davis 485 as strategicgroup to realizeas high a level of performance those in other less populatedgroups. the strategyrealizedby an organizationmay be differentfrom that intendedby the decisionmakers(Hambrick.However. 1979)in the formulationof their firm's strategy. Second. administered the executiveswas used to deterto Third. natureof the studyand resourceconstraints inherent giventhe exploratory in field research.or in combination.1978).Mintzberg. the group of firms identifiedwith a focus strategymay illustratea potentialfor trade-offsbetweengrowthand profitability.However.Thus. the instrumentmay not fully capturethe richnessor complexityof a firm's intendedstrategy. Thus. the relativelysmall sampleof firms and executivesincludedin the field studymay lead to some instabilityin the factorloadingsobtained from the factoranalysis(Kim& Mueller. The findings in this respect are consistentwith the recent empiricalfindings of Trostel and Nichols firmsmay choose to emphasize (1982). . effort.Porterposits that the emphasison cost controland serviceorientationmay be of greaterstrategicimportancefor firmscompetingwithina fragmented industrythan an emergentindustry. Lastly.thesefactorsmay resultin an emergentstrategy that is observedto be different from the intendedstrategy. the generalizability of the studyis limitedbecausethe firmsused in the study representonly one of Porter's (1980) five genericindustrialenvironments. and cooperation extended the manby of the samplefirms as well as the researchers' assurancesregarding agers confidentialityand sharingof the resultsof the study enhancedthe reliability of the informationprovided.1978. Limitationsof the Study Limitationsof this study should be noted.Alternatively. executivesmay haveoverintellectualized whattheyactuallydid or attempted do (Dunon to can. unrealistic expectations (Mintzberg. Fifth. First. example. Singly.this limitationis not considereda majorbarrierin interpretingthe results.1978). 1979)to whichthe subjectresponded.Nunnally.the instrument mine "intended"firmstrategies may have servedto enactthe environand ment (Weick.a lack of appropriate or implementational capabilities. 1978).the authorsbelievethat the time.The relativeimportanceof the competitivemethodsmay varyacrossas well as withininFor dustryenvironments.The focus groupwas the highestperforming groupon salesgrowth but had the lowest level of returnon assets.secondary sourcesfor confirmationof reporteddata wereunavailable. Fourth.

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