European Journal of Scientific Research

ISSN 1450-216X / 1450-202X Vol. 102 No 1 May, 2013, pp.85-93

http://www.europeanjournalofscientificresearch.com

The Relationship between Strategy, Structure, and

Performance in Food Industries

Shahla Saffarzadeh
Msc, Graduated of Executive Management from University of Tehran
E-mail: saffarzadeh88@yahoo.com

Gholamreza Jandaghi
Professor, Faculty of Management, University of Tehran, Iran
E-mail: jandaghi@ut.ac.ir

Abstract

Existence of balance between competitive strategy and supply chain strategy is a

company's obligations in the current competitive world, it is proportional to gain and
maintain competitive advantage. On the other hand, there are very close ties between
structure and strategy. Given the importance of the concept of strategy, and the necessity of
considering this important issue in manufacturing industries, the aim of this study is to
examine the relationship between competitive and supply chain strategy along with
consideration of the role of the organizational structure as a variable affecting this
appropriateness in Yazd province food industries of Iran. While, it is considered the impact
of structure on performance too. Accordingly, the study is addressed based on Chase model
of competitive strategy dimensions, Ballou model of supply chain strategy dimensions,
Higginson and Alam model on performance criteria. Moreover, complexity, formalization
and centralization are considered as the dimensions of structure. Samples of the study are
executives of Yazd food companies and inferential statistics, structural equation modeling,
is used to analyze data. Data analysis shows significant causal relationship between
competitive strategy and supply chain strategy and performance is changed according to the
type of competitive strategy. The results also indicate that the performance does not change
depending on supply chain strategy. The role of organizational structure as a moderator of
the relationship between competitive and supply chain strategy and its impact on
performance is also confirmed.

Keywords: Competitive Strategy, Supply Chain Strategy, Organizational Structure,

Business Performance, Food Industry.

1. Introduction
The importance of developing and implementing a comprehensive supply chain strategy and its link to
overall business goals are realized. In fact, the intention of overall goals is that to achieve to the
priority or competing strategy. For being successful in business and remain in competitive
environment, any company needs to build fitness between these two strategies. Thus, such strategic fit
means goals alignment. Absence of strategic fit cause conflict and inhibit organization to achieve its
goals.
The Relationship between Strategy, Structure, and Performance in Food Industries 86

Furthermore, researches on the relationship between structure and strategy are confirmed the
dependency of structure to strategy. So, for achieving effective performance, that different
organizations need to be structured in order to fit their strategy. In this regard, and according to the
importance of strategic fit of firms, particularly in production companies, because of their nature, this
research attempts to explain the strategic fit between the two strategies with respect to the structure as a
moderating variable in Yazd food industry.

2. Literature Review
2.1. Competitive Strategy (Competitive Priorities)
Competitive strategy is the search for a favorable competitive position in an industry, the major area
where competition happens there. Competitive strategy aims to achieve a profitable and sustainable
position against the forces that determine industry competition (Porter, 1985). According to Porter
(1985), competitive strategy can be understood as the activities a company undertakes to gain a
sustainable competitive advantage in a particular industry (Morschett et al., 2006).
Competitive strategy implies a series of systematic and related decisions that gives a business a
competitive advantage relative to other businesses. The concept of business competitive strategy was
derived primarily from Porter’s (1985) classifications of generic strategies: cost leadership,
differentiation, and focus (Wang & Shyu, 2007).
Many times competitive priorities are also used synonymously to competitive strategy.
Competitive strategy or competitive priorities that a firm adopts have received adequate amount of
attention in literature (Soni & Kodali, 2011).
Manufacturing competitive priorities (or capabilities) may be defined as a consistent set of
goals for manufacturing (Avella et al., 2001). Although some researchers have proposed different
competitive priorities - such as innovation performance and service performance - there is strong
agreement regarding four competitive priorities for manufacturing: cost, quality, flexibility and
delivery (Chiappetta et al., 2012). Hayes and Wheelwright (1984) delineated four basic competitive
priorities: cost, quality, dependability and flexibility. Krajewski and Ritzman (1987) further identified
five operations competitive priorities: cost, high performance design, consistent quality, on-time
delivery, and product and volume flexibility (Amoako-Gyampah & Acquuah, 2008). Chase et al. have
considered following competitive priorities: cost, quality, delivery (reliability, speed), flexibility
(demand, new product), which are the base measurement of this research:
 Costs: Make the product or deliver the service cheap.
 Quality: Make a great product or deliver a great service.
 Delivery speed: Make the Product or deliver the service quickly.
 Delivery reliability: deliver it when promised.
 Demand flexibility: ability to effectively deal with dynamic market demand over the
long term.
 New product flexibility: ability to accompany to offer a wide variety of products to its
customers (Chase et al., 2006).
As it can be seen, it is emphasized on four competitive priorities of cost, quality, delivery and
flexibility in the most cases, but there is a distinction between delivery speed and delivery reliability
and also, between demand flexibility and new product flexibility, in chase et al. classification. On the
other word, the four dimensions are explained in more details. So, we consider chase et al. priorities in
our research.

2.2. Supply Chain Strategy

Several, similar concepts of supply chain strategy are found in the literature. According to Chopra and
Meindl (2001), a supply chain strategy determines what should be of special benefit in operations,
distribution, and service. Harrison and Van Hoeck (2002) understand supply chain strategy as guiding
87 Shahla Saffarzadeh and Gholamreza Jandaghi

principles for the communication of objectives, plans, and policies across all levels of the supply chain
(Chopra & Meindl, 2010). A supply chain strategy determines the nature of procurement of raw
materials, transportation of materials to and from the company , manufacture of product or operation to
provide the service , and distribution of the product to the customer , along with any follow-up service
and a specification of whether these processes will be performed in-house or out-sourced (Kumar &
Prashant, 2011).
Supply chain strategy can be defined as a process of planning and designing of end to end
supply chain to maximize the potential to meet customer demand at the lowest possible cost. The
effectiveness and efficiency of supply chain depend upon the type of strategy, an organization selects
for implementation. Sometimes an organization might have multiple supply chain strategies. However
a good supply chain strategy can broadly be defined as one that aligns with an organization’s business
strategy (Anderson, 2001). Table (1) shows the dimensions of supply chain strategy from views of
some authors.

Table 1: Supply chain strategy dimensions

S.no. Author Dimensions of supply chain strategy

1 Chase et al. (2003)
2 Russell and Taylor (2003)
3 Ballou (2004)
4 Mahadevan (2007)
5 Heizer and Render (2007)
Responsiveness and efficiency
Efficiency and flexibility
Cost reduction, capital reduction and service improvement
Responsiveness and efficiency
Supplier negotiation, partnership (long-term), vertical integration, Keiretsu,
virtual supply chain

According to Table (1), it is evident that responsiveness and efficiency are dominant SCSs, But
the dimensions given by Ballou (2004) added ‘‘capital reduction’’ as separate dimension, defined as a
strategy directed towards minimizing the level of investment in the logistics system. Maximization of
return on logistics assets is the motivation for this strategy. While other two dimensions i.e. ‘‘cost
reduction’’ is about minimizing the variable costs associated with movement and storage, and ‘‘service
improvement’’ is about responding to customer needs (Soni & Kodali, 2011).

2.3. Organizational Performance

Organizational performance is based on the self-assessment of profitability and sales growth toward
Close competitors and the level of innovation in the organization (Li et al., 2006). Organizational
performance refers to how well an organization achieves its market-oriented goals as well as its
financial goals (Hill & Cuthbertson, 2011). There is general agreement among researchers that
measuring performance is difficult. According to several authors, for example, Kaplan and Norton
(1992) and Nilsson and Kald (2002), the use of both financial and non-financial indicators creates a
more accurate performance measurement system. Examples of non-financial indicators widely used are
market share, overall competitiveness, productivity and growth in market share (Bergeron et al., 2004).
Management research has defined performance from a variety of perspectives. It includes
indicators such as return on sales, return on capital, and profit per share, as well as non-financial
indicators such as market share or new product development (Menguc et al., 2007). Organizational
scholars, who suggest a dual metric approach to organizational performance, consider effectiveness in
terms of market share growth, sales growth, or new product growth and efficiency in terms of return on
assets (ROA), return on sales (ROS), or return on investments (ROI) (Beal & Yasai_Ardekani, 2000).
A number of prior studies have measured organizational performance using both financial and
market criteria, including return on investment (ROI), market share, profit margin on sales, the growth
of ROI, the growth of sales, the growth of market share, and overall competitive position (Hill &
Cuthbertson, 2011). The complexity and multidimensionality of performance are perhaps the major
factors contributing to the debate. Despite such debate, there is general agreement among organization
The Relationship between Strategy, Structure, and Performance in Food Industries 88

scholars that objective measures of performance are preferable to those based on manager’s
perceptions (Yi-Nan & Zhao-Fang, 2009).
In most cases, the financial metrics are used to measure performance, but since the financial
measures are not sufficient for assessing lonely, and also, in the current competitive environment,
competition is between the supply chain strategies of the companies till companies them selves
(Venkatraman, 1989) so, the present study is going to use the supply chain performance metrics as an
criteria to measure the overall performance.
Higginson and Alam (1997) performed a study of SCM practices in manufacturing firms of
Canada. They used the following performance measures to study performance of supply chains:
 Perceived customer satisfaction (PCS): It refers to the degree to which customers are
satisfied with product, services etc.
 Quality of out-going products (QOD): It refers to quality of the outgoing products offered
by the company.
 Total revenue (TR): It is the revenue realized by the company on yearly basis.
 Net after tax income (NATI): The tax deduction from the profit earned.
 Average inventory levels (AVL): It is a generalized term including average number of
finished goods, semi-finished goods and spares stored per unit time.
 Overall competitive position (OCP): It is how a company perceives itself in comparison to
its competitors.
 Average production costs (AVC): It the production cost averaged over complete range of
products of the respondent’s company (Soni & Kodali, 2011).

2.4. Organizational Structure

Organizational structure is the formal decision-making framework by which job tasks are divided and
coordinated (Gotschalk, 2008). The organizational structure is defined as the formal allocation of work
roles and administrative mechanism to control and integrate work activities (Ghani et al., 2002; Liao et
al., 2011).
In the field of strategy, discussions of the relationship between organizational structure and
strategy usually indicate that structure follows strategy, or that structure is dependent on strategy.
Moreover, similarly, some theoretical research points out that organizational structure can influence the
strategic decision-making process (strategy formulation), and that this influence can be stronger in
large organizations (Claver-Cortes et al., 2011).
Drucker (1988) has stated that Organizational structure is an indispensable means and the
wrong structure will seriously impair business performance and may even destroy it (Ghani et al.,
2002).
In different studies, different aspects of organizational structure are considered. Lee & Grover
(2000) focuses on the four most important aspects of structure which include centralization,
formalization, complexity, and integration (Liao et al., 2011). Other commonly cited structural
dimensions include specialization, standardization, formalization, hierarchical levels, and span of
control (Morton & Hu, 2008).
According to Oser et al (2007), internal organizational structure can be examined as six
interrelated dimensions of management and organizational characteristics, including (1) Centralization
of Power, (2) Complexity, (3) Formalization, (4) Interconnectedness, (5) Organizational Resources,
and (6) Organizational Size (Oser et al., 2007).
According to Robbins (1990), structure is defined as a component of organizations consists of
three elements of complexity, formalization and centralization.
Complexity: shows the rate of separation. Further more, it refers to the rate of specialization,
division of labor, the number of levels in the organization hierarchy and also, the rate of unites
geographical distribution.
89 Shahla Saffarzadeh and Gholamreza Jandaghi

Formalization: the extent that an organization relies on rules, regulations and procedures for
orienting employees’ behavior.
Centralization: it refers to the place where decisions made there (Robbins, 1990). Since, these
three aspects are used in many different researches; we use them as the dimensions of structure in this
study too.

3. Research Framework
The main aim of this research is to explain the relationship between competitive and supply chain
strategies, by considering the effect of structure on this relationship in food industries. For this,
Secondary objectives were: 1. To identify the relationship between competitive and supply chain
strategies, 2. To identify the relationship between competitive strategy and performance, 3. To identify
the relationship between supply chain strategy and performance, 4. To study the effect of structure on
the relationship between competitive strategy and supply chain strategy, and, 5. To study the effect of
structure on performance.
Figure 1: Conceptual model of the research

Competitive strategy

Organizational
Performance
Structure

Supply chain
strategy

So, based on these aims, the hypotheses are as follows:

1. There is a significant relationship between competitive strategy and supply chain
strategy.
2. There is a significant relationship between competitive strategy and business
performance.
3. There is a significant relationship between supply chain strategy and business
performance.
4. The organizational structure will moderate the relationship between competitive strategy
and supply chain strategy.

4. Methodology
This study is an applied research that uses descriptive-correlative approach to analyze data. The
population of this research is food industry executives in Yazd province. For gathering data, it is used
62- item questionnaire, in which 32 questions were related to the dimensions of competitive strategy,
16 questions were related to the dimensions of supply chain strategy, and 14 questions were related to
the dimensions of structure. For dimensions of performance, it was used a questionnaire to ranking
performance criteria by respondents.
The Relationship between Strategy, Structure, and Performance in Food Industries 90

To determine the validity, questionnaires was given to a number of management professionals

and confirmed. The reliability of the questionnaire was confirmed by Cronbachs alpha by using Smart
Pls software (see table 2).

Table 2: The Cronbachs alpha and composite reliability

(Alpha>0.7) (CR>0.7)
Competitive strategy 0.89 0.91
Supply chain strategy 0.81 0.85
Business performance 0.71 0.76
Organizational structure 0.73 0.77

5. The Results of Hypotheses Testing

To examine the relationship between competitive and supply chain strategy, the moderate role of
structure on this relationship, and also, its impact on the performance, it is used structural equation
modeling by smart pls. To estimate the overall fit of model, it can be used the following formula:

GOF = communality × R 2
If the GOF value is greater than 60.3, it can be said that the general model is meaningful and
acceptable. In the research model, this value is calculated as follows:
GOF = √ (0.43 × 0.54)
Since the GOF value is equal to 0.48, it can be concluded that the model is acceptable.
Figure (2) shows the path coefficients of the research model in standard mode. In standard
mode, numerical comparison of coefficients is possible.

Figure 2: Path coefficients in standard mode

91 Shahla Saffarzadeh and Gholamreza Jandaghi

Figure (3) shows the significance of paths in the path analysis model. In this mode, in
Confidence level of %95, it can be decided on meaningful path based on t-values. If the t-value is
greater than 1.96, then the path is meaningful.

Figure 3: Model in significant mode

Based on overall fit of the model and coefficients in both modes, the existence of casual
relationship between competitive and supply chain strategy can be confirmed. Furthermore, the casual
relationship between structure and performance, and the mediator role of structure can be confirmed
too (see table 3).

Table 3: Results of structural equation model

hypothesis Path coefficient t-value result

H1 0.171 2.119 accept
H2 0.595 18.681 accept
H3 - 0. 228 3.018 reject
H4 0.417 3.295 accept

6. Conclusion
In the today business world, In order to achieve high levels of performance, companies must balance
their competitive and supply chain strategies, and their structure. The fitness of a company's
competitive and supply chain strategy cause to achieve competitive advantage and consequently
enhance and improve its performance.
In this regard, the study sought to examine the relationship between competitive and supply
chain strategies, and their impact on performance, with regarding structure as a mediator variable.
The Relationship between Strategy, Structure, and Performance in Food Industries 92

Accordingly, results of data analysis show that there is a causal relationship between competitive and
supply chain strategies, while the mediator role of structure and the impact of competitive strategy and
structure on performance are confirmed too. So, it can be said that what is required to achieve high-
level performance in Yazd food industries is that to considerate competitive strategy and its appropriate
structure. Both of these variables will affect the type of supply chain strategy and performance. In other
words, Companies should raise the function of their supply chain strategy by paying attention to their
competitive strategy and structure which is taken. By this way, they can promote their performance
too.
Therefore, it is recommended that Companies emphasize on competitive strategy as one of the
most influential variables in order to choose the appropriate supply chain strategy and improve
performance. It is worth noting that the present investigation was conducted in the food industry and
therefore, it is recommended that In order to investigate the claims, the research can be taken in other
industries as well.

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