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Strategic Management Journal, Vol. 4, 153-1 73 (1983)

An Empirical Analysis of
Strategy Types
Graduate School of Management, University of California, lrvine,
CaJifornia, U.S.A.

DAN SCHENDEL
Krannert Graduate School of Management, Purdue University, West
Lafayette. Indiana, U.S.A.

Summary
Using the PIMS SPIYR data base, which pools cross-section and time-
series data, an empirical study to identlfy business strategy types was

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undertaken. Using a two-stage methodological approach combining
principal component and cluster analysis on both a consumer products
and an industrial products data base, two sets of strategy typologies

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filere identifed. Six strategy types were ident$edfor consumer products:
( 1 ) harvest, ( 2 ) builder, (3) cashout, ( 4 ) niche or specialization,
( 5 ) climber, and ( 6 ) continuity. For industrial products, four strategy
types were identijied: ( I ) low commitment, (2)growth,(3)maintenance,
and ( 4 ) niche or specialization. A discussion of the characteristics of
each strategy type is offered.

Many strategy and policy theorists have recently advocated the development of contingency
theories of business level strategy, which at the broadest level allow for the classification and
study of competitive environments and corporate strategies, and their relationship with
corporate performance. The underlying assumption for such contingency approaches to
strategy is that successful business strategies depend upon defining an appropriate relationship
between variables management controls, such as marketing, production, and investment
decisions, and those variables which are generally outside the direct control of management.
The latter, non-controllable variables have been defined as environmental variables (Ackoff,
1970; Hatten, Schendel and Cooper, 1978).
With this current interest in contingency approaches to strategic analysis the reader is
confronted with an increasing number of typologies in the business strategy, policy, and
marketing literature which detail various generic strategies, or strategy archetypes, and the
appropriate competitive conditions for implementing each strategy type. These models suggest
that there are a limited number of identifiable strategies, each of which involves a different
pattern of competitive position objectives, investment strategies, and competitive advantages
(Hofer and Schendel, 1978: 160).
A sample of commonly cited typologies of business level strategies, and their associated
characteristics, is presented in Table 1 .
The number of possible strategy types, and the characteristics of each type, vary widely from
author to author, and is to a large degree dependent on the objectives of the firm as seen by each
author. For example, Porter’s three generic strategies of ‘cost leadership, differentiation, and
focus’ were constructed in relationship to profitability performance, while Buzzell’s three
generic strategies of ‘share-increasing, maintenance, and harvesting’ are directly related to
0143-2095/83/020153-2 1$02.10 Received March 1982
8 1983 by John Wiley & Sons, Ltd. Revised June 1982
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Table 1. Typologies of business strategies

Author and strategy label

Buzzell et al. (1975)

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Characteristics of strategy type

(1) Building High investment to increase market share position

(2) Holding Investment at market norms to maintain market share
(3) Harvesting Low investment allowing market share to decrease; cost
controls to generate cashflow and profitability
Utterback and Abernathy (1975)
(1) Performance maximizing Emphasis in product and/or service performance; tech-
nology, and product R & D emphasized
(2) Sales maximizing Marketing emphasis to increase total sales and market
share of firm

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(3) Cost minimizing Emphasis placed on process technology/R &D to
decrease total cost of production
Hofer and Schendel (1978)
(1) Share increasing High investment to increase share of market
(2) Growth Maintain position in expanding markets, investment at
industry norms
(3) Profit Investment at industry norms, cost controls to ‘throw off
cash’
(4) Market concentration and asset reduction Realignment of resources to focused, smaller segments
(5) Turnaround Improve strategic posture, may require investment
(6) Liquidation Generate cash while withdrawing from market
Vesper (1979)
(1) Multiplication Expansion of market share by multiplying present market
structures

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(2) Monopolizing ‘Eliminate competition, establish barriers to entry, and
control resources
(3) Specialization Specialize in products and/or production process
(4) Liquidation Give up business and market position
Wissema et af. (1 980
(1) Explosion Improve competitive position in short term
(2) Expansion Improve competitive position in long term
(3) Continuous growth Maintain position in expanding markets, normal invest-
ment
(4) Slip Give up market share to generate cash in growing market
(5) Consolidation Give up market share to generate cash in stable market
(6) Contraction Liquidate assets and terminate market position
Porter (1980)
(1) Cost leadership Efficiency, experience curve policies, overhead control,
and other cost reductions
( 2 ) Differentiation Creating uniqueness in product and/or service
(3) Focus Focusing on specific buyer group, or market
Miles (1982)
(1) Domain defence Preservation of traditional product-market
(2) Domain offence Attacking strategies based on
(a) Product innovation
(b) Market segmentation

Several of the typologies developed by researchers also include strategies at the corporate level, i.e. diversification. We have
screened the different strategy typologies and reported only those that relate directly to business level strategic behaviour.
The marketing literature has also suggested typologies of marketing strategy behaviour, which were not reported here. Kotler
(1965), for example, suggested nine possible market strategies, some of which have analogies in the typologies reported in the
strategic management literature. Also, typologies which attempt to classify different patterns of organizational behaviour, i.e.
Miles and Snow’s (1978) typology of defender, reactor, analyser, and prospector, have been excluded. In general these typologies
integrate the range of relationships between ‘strategy, structure, and process’ (Miles and Snow, 1978:30) rather thanconcentrating
on patterns of strategy, which is the focus of this study.
market share performance. The Hofer and Schendel typology takes into account both
profitability and market share objectives.
In general, these classifications of strategy types have been conceptual constructs derived
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An Empirical Analysis of Strategy Types 155

from appropriate dimensions taken from theory without much empirical support beyond
perhaps some grounding in case studies and anecdotal accounts of competitive activity. Although
important insights regarding strategic behaviour have been gained in this manner, the validity
of any typology is enhanced if empirical support could be provided. The assumption underlying
the generation of typologies in general is that there is a limited number of sets of observable and
recurring configurations-an assumption which can be tested through objective empirical
analysis of strategic behaviour. In this paper typologies of business strategy are derived
empirically from data by employing statistical methodologies which reduce the need for
arbitrary interpretations.

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CONTENT OF STRATEGY
Schendel and Hofer (1979) have proposed a composite definition of strategy built around four
components: (1) scope, which they define in terms of product/market matches and geographic
territories, (2) resource deployments and distinctive competences, (3) competitive advantages,
and (4)synergy. At the secondary or business level, this translates into the question, ‘How
should a business position itself among its rivals in order to achieve its goals? (Schendel and
Hofer, 1979:12).2Research regarding business level strategies has tended to operationalize the
question by examining vectors of variables that typically fall within the realm of management
responsibility; that is, controllable variables such as pricing, promotion, and research and
development (e.g. Woo and Cooper, 1981). Because they are collections of controllables
themselves, it is possible to consider business level strategy in term$ of functional area
strategies, such as marketing strategy, financial strategy, manufacturing strategy, etc. Such
strategy variables are in contrast to the non-controllable, environmental variables that are
typically used to define market structure.
Recent empirical strategy research, such as the Purdue beer studies reported by Hatten,
Schendel and Cooper (1978) and Schendel and Patton (1978), and the ongoing work of the
Strategic Planning Institute, have consistently dealt with strategy variables in isolation, or, to
allow employment of basic econometric techniques capable of modelling the relationships
between strategy and economic performance, have assumed no interaction among the strategy
variables.
Although these past studies have contributed greatly to the understanding of strategic

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behaviour, specifying strategy variables as independent forces neglects a fundamental
theoretical point; strategies represent a network of interactions among the various constituent
elements that ultimately make up a business strategy. Interrelationships in strategy sub-
components imply that intra-firm variations in one variable will be in concert with variations in

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other strategy variables. Because strategy subcomponents are often mutually determined by a
firm, this interrelationship implies that an important normative test for a firm’s strategy is

’ To a certain extent, such empirical construction of strategy typologies is similar to the grounded theory approach to theory
construction (Glaser and Strauss, 1967; Bailey, 1978), although we are also interested in verifying the hypothesized strategy types
discussed above.
The level of strategy which designates the selection of product-markets, or businesses, to compete in has been variously labelled
corporate level strategy, primary strategy, domain selection, or just plain strategy; while the level of strategy which determines the
way in which each product-market, or business, competes in the market place has been called business level strategy, secondary
strategy, domain navigation, or tactics respectively. Hofer and Schendel (1978) and Bourgeois (1980) discuss the definitional
issues.
 zy
156 Craig Galbraith and Dan Schendel

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internal consistency (Porter, 1976: 7 1). Assuming, either theoretically or empirically, for

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example, that pricing strategies and quality of product or services are not intertwined, misses a
major aspect of the strategy concept. The strategy construct, like any complex system, does not
permit independent study of its constituent elements-the nature of which exists only as a
unitas multiplex.

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Also, business level strategy has typically been measured in terms of the strategic posture or
strategic emphasis a firm has with respect to its competitors. Clearly, as Uyterhoeven et al.

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(1977) note, the strategic posture a firm takes indicates how the business is choosing to
compete, affects the performance of that business, and directs or constrains the options
available to future competitive activity. Strategic posture, usually characterized byyariables of
a relative nature (i.e. firm A’s advertising relative to firm B’s advertising) represents a static or
synchronous framework-thus the time or dynamic dimension of strategy is often left
unascertained .
Strategy is dynamic and diachronic, however, as strategic decisions are made which alter
strategic posture over time. Such modifications or shifts in a firm’s strategic posture over time
need to be captured when defining strategy types.3 This combination of interactions among
elements of strategy, and the dynamic nature of strategy, leads us to define a strategy type as:
A consistent pattern or combination of managerial controllable or decision components
representing scope, resource deployments, and competitive advantages; and the direction in
which these components are shifting over time, which characterize the way businesses tend to
compete.
Note that the synergy component of strategy has been dropped from our definition. Synergy
represents economies gained from interactions and combinations of individual elements that
separately cannot contribute as greatly as when grouped. At the business level, for example,
combinations of functional area strategies, when properly designed and combined, can create
economies characteristic of business strategies. However, such synergies, often necessary for
business strategy to be successful, essentially contribute to the set of competitive advantages.
Hence, it may be somewhat redundant to include both synergy and competitive advantages as
components of the strategy construct. The same argument applies at the corporate level where
synergy between related product-markets creates economies of scope for the firm, and
economies of scope are considered a type of competitive advantage.

RESEARCH QUESTIONS
From the discussion thus far two issues attract attention, and form the basic research questions
underlying this study:
(1) Are there consistent and recurring patterns of strategic competitive activity which can
be viewed as typologies of business level strategy?
(2) Is there an association between business strategy types and measures of performance?

’ On a related theme, Miller and Friesen (1978, 1980) have empirically examined archetypes of organizational transition and
strategy formulation. Using inverse factor analysis, the authors concluded that organizational transitions and strategy
formulation ‘come in packages’, and that the number of common transition and strategy formulation types are relatively small in
number. They conclude that there are ten basic types of strategy making (1978) and nine archetypes of organizational transition
(1980). Although the Miller and Friesen studies are only tangentially related to the typologies of business level strategies discussed
in this paper, two points implied by the authors are well taken. First, methodologies employed to develop and test archetypes,
whether strategic or organizational in nature, must be capable of capturing the complex of interrelated linkages that constitutes
real strategies and organizations respectively; and second, the dynamics of any system over time should be taken into account
when developing meaningful typologies.
 zy
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An Empirical Analysis of Strategy Types
This study, therefore, attempts to discern empirically the patterns or types of strategies used
in competition, and establish a useful classification of strategy types which can be associated
with business performance. Major consideration is given to both the synchronic and
157

diachronic dimensions of strategy in developing a typology of strategies. The synchronic

nature of strategy is captured by the interrelationship between the constituent subcomponents
of strategy in any time period, while the way in which firms alter their strategic postures over
time reflects the diachronic dimension of strategy. We will also judge each strategy’s
association with business performance measures taking into account different competitive
positions.

DATA BASE AND VARIABLES

Developing typologies of strategies makes several demands upon the data source selected.
First, given the arguments presented above, it is critical that measures be obtained of both the
strategic posture firms hold with respect to competitors, and the direction in which firms are
shifting their strategic postures. The measurement of shifts in strategic posture requires that

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data be presented in a time series. Second, measurement of strategy variables needs to be at the
secondary or business level where well defined products (or services) are offered to well defined
markets, and where distinct sets of competitors are identified. Aggregated primary or
corporate level data are not appropriate for this study. Finally, to judge the impact of various
strategies upon the performance, the data must allow for the definition of competitive
structure, competitive position, and must provide indicators of business performance.

PIMS data base

Given the above requirements, the PIMS research data base was selected as the most
appropriate and available data source for the formation of strategy typologies. The PIMS data
base, currently maintained by the Strategic Planning Institute, represents more than 1200
separate business components. The data base is constructed by using a set of standardized
forms designed to extract detailed business level information on the characteristics of the
market environment, the nature of competition, the strategies pursued by the business relative
to its competitors, and the operating results and financial performance of each participating
business.
In particular, a data base designated SPIYR, which pools the annual data contributions of
participating firms, was selected. SPIYR combines cross-section data for 1200 businesses, and
forms a time series for the number of years each business participates in the PIMS program. A
combined cross-section time-series data base, such as SPIYR, has advantages over simple

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cross-section data in that the diachronic and dynamic nature of strategy can be explored by

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having the necessary data in a form readily manipulated along the time d i m e n ~ i o nThe .~
advantage of a combined cross-section time-series data base over simple time series is that pure
time-series data, while useful in examining time dynamic relationships, often does not provide
adequate variation in the observations needed for estimation in analytical work (Johnston,
1972:164).
Although the PIMS program has been assailed on several points (see for example, Anderson

The vast majority of research done with PIMS data bases have used data that have been averaged across a certain time
period, such as 1972-1976; or across a certain number of years, such as six years. Research using averaged data bases cannot
capture the time element of strategy.
158 zyxwv
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Craig Galbraith and Dan Schendel

and Paine, 1978) many commonly quoted criticisms seem to stem more from a misplaced and
loosely conceived bias against econometric methodologies in general rather than from directly
addressing the actual characteristics of the various PIMS data bases. There are, however, two
important characteristics of the PIMS data which must be noted:

Because the PIMS data base is constructed by pooling cross-section and time-series
data, certain specification and interpretation problems may result from its use. For
example, if the cross-section parameters shift over time, pooling may not be
appropriate for certain econometric techniques, such as regression analysis. In
addition, the structure of the disturbance term may be complex, including cross-section
error components, time-series error components, and combined error components.
Many of the variables defined in the PIMS study are multicollinear in nature; that is, a
dependency exists between two or more explanatory variables. This in itself presents
little conceptual difficulty as the definition of strategy used here rests on the
interrelationships between strategy subcomponen ts. A problem arises, however, with
the injudicious use of multicollinear variables in econometric modelling because severe

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multicollinearity may confuse the estimation procedure and mask true relationships, or
suggest false ones.

A more serious problem is apparent, though, as much of the multicollinearity in the PIMS
data base may actually be a measurement error problem created by the variable definitions
themselves. Problems of measurement can be caused by: (1) variable definitions encouraged by
theoretical considerations (such as the difference between product and process related R & D)
that, in fact, may be measuring the same phenomenon in certain situations; and (2) variables
requiring detailed information beyond the firm’s record keeping ability or the judgmental
scope of the individual completing the data form. For example, variables such as marketing
expenditures are divided into subcategories covering one aspect of that particular expenditure.
Some firms, not willing or able to produce accurate records of this detail, may distribute the
reported expenditure on an arbitrary or semi-arbitrary percentage basis. Likewise, measure-
ment error can occur in the judgmental variables where the firm is asked to rate a component of
their strategy, such as quality, relative to competitors. Again, if company records of the
judgmental ability of the representative are lacking, some of the self-selection of ‘relative’ type
questions may produce ‘fuzzy’ measurement of variables along these dimensions. The analysis
of the PIMS data for this study will specifically consider these issues.

Variables
A total of 26 managerially controlled variables representing pricing, marketing, product
development, research and development, production, plant, and cost decisions were selected or
constructed to capture the nature of strategic competition at the business level. Thirteen of the
variables describe the relative strategic posture or strategic emphasis a business has with
respect to its competitors.
Measuring managerial decision variables in terms of a business’s action relative to
competitors’ actions is consistent with recent economic and marketing research results,
particularly those from studies examining marketing mix effects on market share positions (see
Parsons and Schultz, 1976). Strategic posture measured in ‘relative to competitors’ terms has
an advantage for this research in that competitive effects are parsimoniously treated in one
variable, rather than in a series of separate variables constructed to describe each competitor’s
actions. For example, a managerial decision variable such as advertising expenditure can be
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A n Empirical Analysis of Strategy Types

specified by the ratio of a firm’s advertising to the sum of competitor advertising. From a
practical point of view, however, the exact total of competitor’s expenditures is rarely known
with any accuracy. Consequently, the ‘relative’ managerial decision variables designed in the
159

PIMS program generally allow participant firms to estimate strategic activity, relative to
competitors’ actions, generally on a five-point scale, with the middle category neutral.
Guidelines are provided to respondents for each category to encourage greater measurement
reliability among different firms.
The remaining set of thirteen variables reflects the diachronic nature of strategy by
measuring the changes in strategy variables between adjacent years. When possible, variables
measuring annual changes in the strategy ‘posture’ variables were employed in the sIst of
strategy ‘change’ variables. However, the set of strategy change variables also includes a ‘ew
variables having no counterparts in the first set of strategy posture variables.
Finally, to relate investment strategy to various perceptions of real and forecasted market
growth, two investment variables were constructed. The first investment variable (INVI) was
computed by subtracting the percentage of real market growth from the percentage annual
change in investment. From a simplistic point of view a value of INVl greater than zero implies

Table 2. Strategy variables

Strategy posture cariahles*

Relative price RPRICE
Relative expenditures on sales force RSALE
Relative expenditures on advertising RADV
Relative expenditures on sales promotion RPROM
Relative quality of service RSERV
Relative quality of product RPROD
Relative number of new products RNEWP
Relative breadth of product line RBDTH
Relative number of customers RCUST
Relative variety of customer types RTY PES
Relative degree of forward integration RlNTF
Relative degree of backward integration RINTB
Relative amount of direct costs RCOST

Strategy change variables

Change in relative price CH PRICE
Change in process R & D CHPRRD
Change in product R & D CHPDRD
Change in relative sales force expenditures CHSALE
Change in relative advertising expenditures CHADV
Change in relative sales promotion expenditures CHPROM
Change in relative quality of service CHSERV
Change in relative quality of product CHPROD
Change in relative number of new products CHNEWP
Change in relative direct costs CHCOST
Change in manufacturing costs CHMANU

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Change in newness of facilities CHNEWFAC
Change in total capacity utilization CHCAPU

Incestmen t car ia bles

Growth in investment less growth of market lNVl
Growth in investment less four-year market growth forecast INV2

* Strategy posture variables are usually defined relative to ‘leading’ competitors.

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Craig Galbraith and Dan Schendel

that the firm has made a strong commitment by investing at a rate faster than the market is
actually growing, while a value less than zero signals that the firm is allowing the market to
grow faster than its investment base. The second investment variable (INV2) was constructed
by subtracting a firm’s short term (four-year) market growth forecast from its change in
investment, thus measuring investment strategy relative to how fast the company perceives the
market will grow, or decline in the future. Table 2 lists the strategy and investment variables
selected for this study.
It is possible to secure SPIYR data for both consumer goods businesses and industrial
product businesses. Because there are likely to be different strategic characteristics between
these two major types of business categories, both data bases were analysed separately to
eliminate pooling problems.

DATA ANALYSIS

In forming typologies of strategy we are interested in categorizing the combinations and

interactions of strategy subcomponents and variables. While there are a number of
multivariate techniques which can be used to form such groups (factor analysis, multi-
dimensional scaling, etc.) it was decided to employ one of the class of techniques specifically
designed for this purpose, namely, a cluster analytic method.
Cluster analysis consists of a family of algorithms all designed to identify similar objects, and
classify them into various groups or clusters. Essentially, a cluster consists of variables or
objects that correlate highly with one another, and have comparatively low correlations with
variables or objects in other clusters. Clustering techniques can be employed to separate
variables into two or more natural clusters, such that, within any one cluster the points are
relatively ‘dense’ or close together, while few points are found between the clusters; or to
partition all the points in a scatter diagram into ‘homogeneous’ groups in such a way as to
minimize some measure of ‘loss’that would result from the fact that the objects within any one
group are not alike. Cluster analysis, therefore, provides an algorithm which imposes a
classification system or structure on data when detection by other techniques, such as
graphing, would be difficult if not impossible, or at the very least, more arbitrary and
subjective.
Owing to the diverse nature of clustering techniques available, no common set of
assumptions has been established to govern the whole family of cluster algorithms. Rather, the
underlying assumptions rest upon the clustering method employed and the choice of proximity
measure that is used to determine the similarity between the various entities.
Because of this, clustering algorithms are extremely sensitive to the type and quality of data
used. It is often the case that two different algorithms will yield different solutions or groupings
when applied to the same data, particularly when there exists substantial ‘noise’ in the data. To
overcome some of the normal limitations of cluster analysis, and to adjust for the
characteristics of the PIMS data discussed above, a two-stage approach was employed in
developing typologies of business level strategies.
The first stage entailed using principal component analysis to transform the original 26
strategy variables into a reduced number of strategy components. The second stage consisted
of performing a cluster analysis using the strategy components resulting from the principal
component analysis as input.
Several advantages are gained from using this two-stage approach in analysing PIMS data.
First, by using principal component analysis to transform the original data, the clustering
 An Empirical Analysis of Strategy Types

routine is performed in a metric space with orthogonal dimensions, a space whose properties,
intuitively at least, make the use of the distance analogies in cluster analysis conceptually
sounder than in many other cluster algorithms. Second, by selecting a reduced number
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of principal components, the analyst can concentrate on the more important strategy
relationships between variables, and essentially eliminate much of the noise and measurement
problems inherent in the PIMS sample data, yet recognize and take advantage of the
interrelationships found in the raw data. Third, because the amount of computer time required
for most clustering algorithms increases dramatically with an increase in the number of
variables, using a reduced number of principal components as input to the cluster analysis
routine provides a parsimonious solution (Everitt, 1974).

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The disadvantage of this approach, of course, is that some of the original information m-ay
be lost by forming principal components. The advantages listed above, and any additional

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insights gained regarding strategy relationships from the manner in which the principal
components are formed, appear to far outweigh any information loss. This two-step approach
of using principal components as input into cluster analysis has been employed successfully in
a number of marketing studies (i.e. Midgley, 1981; Bass, Pessemier and Tigert, 1969; Green,
Frank and Robinson, 1967) and in social cartography (Lewis, 1974) in which the objective was
to develop useful taxonomies from a large number of ‘fuzzy’ type variables.

Principal component analysis

The statistical package for the social sciences (SPSS), version 8, was used to estimate principal
components during the first stage of this research. Because different variables in the PIMS data
base are typically measured in non-compatible units, all variables were standardized prior to
the analysis; the analysis and interpretation were then carried out in terms of standard scores.
Input to the SPSS principal component program consisted of the correlation matrix of
standard scores calculated from the SPIYR data base through the AQD collection of statistical
program^.^ The resulting components provide input for the second stage of the research,
cluster analysis.

Cluster analysis
The A Q D cluster analysis program, CLUSTR, was utilized in the second stage of the analysis.
CLUSTR provides three broad classes of measurements to assess the ‘closeness’ of one object
to another : distance measures, correlation measures, and similarity measures. For this study
the Euclidean distance measure was selected. As a clustering technique, the agglomerative
hierarchical clustering method was used. In agglomerative hierarchical clustering each point is
considered to be a cluster in itself. The cluster process proceeds by a series of stages, in which
two clusters are merged into one, following some decision rule, until finally all points have
been merged into a single cluster. The researcher is then obligated to determine any meaningful
sets of clustersat each successive stage in the merger process by inspection of the dendogram
displaying the contents at each stage.
The minimum squared error rule, which selects the two clusters to be merged at each stage in
such a way as to minimize the mean squared distance between the individual point and the

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centroid of the cluster to which it will be assigned, was selected as the most appropriate
method to determine the existence of strategy types. As Schlaifer (1974) points out, the
minimum squared error rule is a good method for formation of homogeneous groups.

Research on the PIMS data bases are usually limited to the statistical packages available on the AQD system (see Schlaifer,
1974). However, since we can derive correlation matrices from the AQD system, it is possible to employ ‘external’ statistical
packages (i.e. SPSS) with methodologies that only require correlation matrices as input.
162 zyxwvut
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Craig Galbraith and Dan Schendel

Construction of strategy components

STRATEGY COMPONENTS

In line with the discussion of the previous section, principal component analysis was performed
on the standardized strategy posture and strategy change variables. Separate principal
component analyses were performed on the set of posture strategy variables, and on the set of
strategy change variables for both the consumer and industrial products data. Because of their
individual significance, the relative and change pricing variables, and the two investment
measures, were retained in their original form.

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For the consumer goods sample, the principal components analysis resulted in five

Table 3. Component loadings for strategy variables for consumer goods

Strategy posture cariables (significant ralues only)

Variable Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

Product quality (RPROD) 0.80

Sales force (RSALE) 0.73
Advertising (RADV) 0.72
Promotion (RPROM) 0.80
Service quality (RSERV) 0.74
New products (RNEWP) 0.98
Product breadth (RBDTH) 0.70 0.29
Forward integration (RINTF) 0.75
Backward integration (RINTB) 0.64
Breadth customer type (RTYPE) 0.82
Breadth customer number (RNUM) 0.75
Direct costs (RCOST) -0.29 - 0.49

Descriptive title of Breadth Promotion Quality Integration New

strategy component posture posture posture posture product
(PBRDTH) (PPROM) (PQUAL) (PINT) posture
(PNEWP)

Percentage of total variance explained by factors: 70.5

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Strategy change cariables (significant calues only)

Variable Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6

Product quality (CHPROD) 0.76

Sales force (CHSALE) 0.60
Advertising (CHADV) 0.77
Promotion (CH PROM) 0.78
Service quality (CHSERV) 0.79
New products (CHNEWP) 0.87
Plant utilization (CHCAPU) 0.74
Product R & D (CHPDRD) 0.80
Process R & D (CHPRRD) 0.80
Manufacturing costs (CHMANU) 0.70
Plant newness (CHNEWN) 0.32 -0.68 0.29
Direct costs (CHCOST) 0.69

Descriptive title of Promotion R&D Quality Cost Plant New

strategy component direction direction direction direction direction product
(DPROM) (DR&D) (DQUAL) (DCOST) (DPLANT) direction
(DNEWP)

Percentage of total variance explained by factors: 70.7

 A n Empirical Analysis of Strategy Types zy
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components, hereafter called strategy posture components, formed out of the 13 strategy
posture variables, and six components, labelled directional strategy components, constructed
from the 13 strategy change variables (see Table 3). Similar analysis of the industrial products
category resulted in five strategy posture components from the set of posture variables, and
four directional strategy components from the change variables (see Table 4). As expected,
variables with similar characteristics tended to load on the same strategy component. In
general, the components account for slightly more than 70 per cent of the total variation in the
data.
Each component was thus labelled according to the characteristics of the variables that
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dominated that particular component. Fortunately, it is possible to impart a strategic or
economic interpretation to each of the components formed in the factor analysis as there were

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few logical inconsistencies in the way the strategy variables loaded on to the componenk
Table 4. Component loidings for strategy variables for industrial products

Strategy posture rariables (significant ralues only)

Variable Factor 1 Factor 2 Factor 3 Factor 4 Factor 5
~

Product quality (RPROD) 0.82

Sales force (RSALE) 0.76
Advertising (RADV) 0.83
Promotion (RPROM) 0.82
Service quality (RSERV) 0.76
New products (RNEWP) -0.62
Product breadth (RBDTH) 0.78
Forward integration (RINTF) 0.71
Backward integration (RINTB) 0.49 - 0.45
Breadth customer type (RTYPE) 0.85
Breadth customer number (RNUM) 0.81
Direct costs (RCOST) 0.88

Descriptive title of Breadth Promotion Quality Integration cost

strategy component posture posture posture posture posture
(PBRDTH) (PPROM) (PQUAL) (PINT) (PCOST)

Percentage of total variance explained by factors: 73.8

Strategy change ruriables (significant zdues only)

Variable Factor 1 Factor 2 Factor 3 Factor 4

Product quality (CHPROD) 0.70

Sales force (CHSALE) 0.65
Advertising (CHADV) 0.79
Promotion (CHPROM) 0.79
Service quality (CHSERV) 0.69
New products (CHNEWP) 0.45 0.29
Plant utilisation (CHCAPU) - 0.49
Product R & D (CHPDRD) 0.70
Process R & D (CH PRRD) 0.65
Manufacturing costs (CHMANU) 0.71
Plant newness (CHNEWN) 0.68
Direct costs (CHCOST) 0.48

Descriptive title of Promotion Manufacturing Quality Cost

strategy component direction direction direction direction
(DPROM) (DM N FG) (DQUAL) (DCOST)

Percentage of total variance explained by factors: 71.7

 zyxwvutsrq
zy
164 Craig Galbraith and Dan Schendel

For consumer goods, components representing promotion posture (PPROM), cost and
integration structure (PINT), product and customer breadth posture (PBRDTH), product and
service quality posture (PQUAL), and new product posture (PNEWP) were formed from the
posture strategy variables, while the direction of promotion expenditures (DPROM), R & D
expenditures (DR&D), cost structure (DCOST), plant newness and usage (DPLNT), new
product development (DNEWP), and quality (DQUAL) were constructed from the annual
change variables.
Analysis of industrial products produced similar results, and computed components for
promotion posture (PPROM), product and customer breadth posture (PBRDTH), product
and service quality posture (PQUAL), vertical integration posture (PINT), and cost structure

zyxw
(PCOST); and for directional strategy components, promotion expenditures (DPROM),
manufacturing and R & D expenditures (DMNFG), quality (DQUAL) and cost structure
(DCOST).

STRATEGY TYPES

Construction of clusters
The construction of meaningful strategy types must systematically consider both the salient
relationships among the individual components that constitute a strategy, and the relative (to
competition) properties of the individual strategy components over time. Theoretical and
statistical consistency among these relationships is important; thus, as previously suggested, a
strategy type would not normally be accepted as logical where high prices are associated with
low quality products or services.
To identify groups or patterns of strategy components representing strategy types, the
cluster analysis was performed with data on the posture strategy components, the strategy

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direction components, the relative price and price change variables, and the two investment
strategy variables.
The consumer goods category and the industrial products sample were separately analysed
by the clustering process. By examining the various merger levels in the resulting dendograms,
the existence of six groups or clusters of strategies for consumer goods, and four clusters of
strategies for industrial goods were indicated. Table 5 , for consumer goods, and Table 6, for
industrial products, provide the mean values of the different strategy components for each of
the strategy types identified by this analysis. Descriptive labels for each strategy type are also
provided. A summary of the characteristics or patterns associated with each strategy type
follows.

Consumer products
Strategy type I (harvest)
Strategy type 1, Sl(C), clearly shows a ‘harvest’ strategy or strategy of disinvestment. The
- 0.983 and - 1.008 values on INVl and INV2 respectively are significantly less than for the
other five clusters, and indicate a disinclination to continue. Firms selecting this strategy type
tend to show extremely weak posture components, with the mean values on price, promotion,
quality, and new product strategy posture components all quite low.
Not surprisingly, no indication is given for any improvement in this relative position. The
negative mean value of the directional price component suggests a continuing effort to dispose
of the product through discounted prices, while the extreme negative values on the directional
promotion and R&D components also underline the decreasing support given to the product.
Table 5 .
An Empirical Analysis of Strategy Types
Strategy types for consumer goods: mean values on strategy components
zy
zy165

Strategy posture
PPRICE -0.577 - 0.234 -0.297 -0.754 0.796 1.364
PBRDTH 0.248 -0.191 0.154 -0.876 - 0.027 0.363
PPROM -0.462 0.125 -0.137 -0.714 -0.757 1.044
PQUAL - 0.282 -0.156 -0.284 -0.428 0.469 0.633
PINT 0.000 0.472 0.202 - 1.567 - 0.425 0.145
PNEWP -0.453 - 0.274 0.042 - 0.094 - 0.027 -0.225

Strategy direction
DPRICE - 1.327 -0.163 0.033 - 0.243 1.532 0.032
DPROM - 1.923 -0.192 -0.126 0.233 - 0.076 0.207
DR&D - 2.020 0.429 -0.133 0.704 0.917 0.072
DQUAL -0.376 0.123 0.004 0.317 0.631 -0.012

zyxwvutsrqp
DMNFG -0.626 - 0.030 0.002 0.179 0.485 -0.102
DCOST - 0.084 0.480 - 0.036 0.280 0.425 0.347
DNEWP -0.671 -0.799 0.1 I5 -0.297 0.482 - 0.239

INVl
INV2

% of sample zyxw
zyxwvutsr
zyxwv
lntlestrnent

Descriptive title
of strategy type
-0.983
- 1.088

6 7;

Harvest
0.625
0.566

11 2,

Builder
-0.141
-0.140

47 7;)

Continuity
-0.044
-0.035

9 Y>

Climber
9%
0.363
0.132

Niche
- 0.289
-0.188

17%

Cashout

Table 6. Strategy types for industrial products: mean values on strategy components

Strategy posture
PPRICE -0.445 0.01 1 0.158 2.070
PBRDTH - 0.69 1 -0.217 0.739 -0.436
PPROM -0.515 -0.194 0.796 -0.436
PQUAL -0.749 0.008 0.177 0.718
PINT - 1.502 0.320 0.300 - 0.03 1
PCOST 0.427 -0.510 -0.144 1.031
Strategy direction
DPRICE -0.418 0.023 0.141 1.692
DPROM - 0.463 - 0.099 0.635 -0.703
DMNFG - 0.48 1 0.003 -0.215 -0.053
DQUAL -0.339 0.025 -0.385 1.337
DCOST 0.147 -0.203 0.226 1.300

In rest men t
INVl - 0.207 -0.187 0.485 0.387
INV2 -0.297 -0.245 0.309 0.157
7; of sample 17 ?<, 49 ?;, 25 q,':, 9

Descriptive title Low Maintenance Growth Niche

of strategy type commitment
166 zyxwvu
zyxwvutsrqp
Craig Galbraith and Dan Schendel

In addition, all other directional strategy components show negative mean values. Few firms in
the consumer goods sample appear to be taking this approach, however, as this strategy type
accounts for only 6 per cent of the total. Nevertheless, the firms using this strategy type show a

zy
clear and consistent effort to harvest the business by their actions.

Strategy type 2 (builder)

Strategy type 2, S2(C), accounting for 11 per cent of the consumer goods sample, apparentjy
represents strategies of firms with strong commitments to their products, as both investment
variables appear quite high. The commitment is further observed by the positive 0.125 mean
value of the promotion strategy posture component, and the high 0.429 value for R & D effort.
The strong commitments to promotion and R & D, combined with the high level of investment,
suggest that ‘builder’ strategies are used by firms attempting to rapidly expand-sales and/or
gain market share position. Such strategies require a high visibility for the product to the
customer, a degree of product differentiation and development, and investment support
substantially above the norm for firms of equivalent size in the market involved. The
characteristics of this strategy type directly coincide with this interpretation and closely
resemble Hofer and Schendel’s (1978) ‘share-increasing strategies’, Buzzell, Gale and Sultan’s
(1 975) ‘building strategy’, Utterback and Abernathy’s (1975) ‘sales maximization strategies’,
and Vesper’s (1979) multiplication strategy’. The negative mean value on price posture may
also indicate the importance of low pricing behaviour for expanding market share, and
experience gains, a la Boston Consulting Group (1972) pricing strategies.

Strategy type 3 (continuity)

The third strategy type, S3(C), corresponds to a ‘continuity’ or status quo strategy. Both
investment variables are relatively close to zero, as are all six strategy posture components, thus
indicating little deviation from the norms of the industry involved. The directional strategy
components also display relatively stable patterns, suggesting that little or no dramatic
changes in strategic behaviour are in the offing.

zyxwvutsr
Capturing 47 per cent of the consumer goods sample, S3(C) represents the most common
strategy type uncovered. This may suggest that a larger number of firms may find strategies
that simply adopt industry norms, or react in a like manner to competitor strategies, easier, and
less risky to formulate and implement.
Strategy type 4 (climber)
The fourth strategy type, S4(C), appears as a ‘climber’ or posture improvement strategy. On
the average, firms competing with this strategy type display narrow product bases, low prices,
and inferior quality postures. A significant disadvantage in cost posture is also observed.
Interestingly, firms in this group appear to be trying to improve their strategy posture over
time. The directional strategy components for promotion, price, R & D, and new products all
exhibit positive means. In addition, cost structures appear to be improving. Investment is
about average, with mean values of - 0.044 on INVl ,and - 0.035 on INV2. The combination
of poor strategy posture components, with the strong effort by firms to improve their strategy
position, suggests the S4(C) strategy as a type of ‘climber’ behaviour. About 9 per cent of the
consumer products sample appear in this category.

Strategy type 5 (niche)

The fifth strategy type, S5(C), conforms to a ‘niche’or specialization strategy emphasizing high
quality product or service characteristics. These strategies are marked by high mean values on
the quality posture component, the price posture component, the price direction component,
 zy
zyxwvutsr An Empirical Analysis of Strategy Types

and a low value on the advertising strategy component. In addition, important increases in
R & D effort and new product introductions are observed. As expected, firms competing with a
‘niche’ type of strategy experience a high cost posture, although the directional cost
167

components suggest attempts to improve such costs. Utterback and Abernathy’s (1975)

zyxwvut
‘performance maximizing’, and Vesper’s (1 979) ‘specialization’ strategies show similar
characteristics. The number of firms selecting S5(C) strategies represents about 9 per cent of the
consumer products sample.

zyxwvu
Strategy type 6 (cashout)
The sixth strategy type, S6(C), shows the highest mean values on price, quality, and breadth
posture; although the negative values on the new product posture and new product directional
strategy components, combined with the low R & D effort, suggest that little effort is being
allocated to product improvement. S6(C) strategies appear to correspond with Hofer and
Schendel’s generic ‘profit’ strategy, and Kotler’s ‘profit-maximizing’ strategies. The advan-
tageous cost posture, and the slight negative values on both investment variables, also support
this interpretation.
The high promotion posture is somewhat unexpected, however, although several expla-
nations are possible for this phenomenon. For example, firms competing with a ‘cashout’ type
strategy may utilize advertising and promotion to inflate their product’s perceived worth to
command higher prices, higher margins, and hence higher profits. Also, some firms competing
with this strategy type, particularly those in declining markets, may employ a form of

zyxwvuts
promotional ‘hype’ in order to extend the life of their product. S6(C) strategies are the second
most popular among the consumer products businesses, accounting for 17 per cent of the
sample.

Industrial products
Strategy type 1 (low commitment)
Strategy type 1, Sl(I), accounting for 17 per cent of the industrial products sample, appears as
a strategy of low commitment. The negative values of the investment variables suggest that
firms are unwilling to commit significant funds to their product, relative to both the current and
expected future market growth rates. Firms competing with this strategy type also tend to
display extremely weak posture strategy components, while the negative values on the
directional strategy components indicate little or no effort is being given to improve the firm’s
already deficient strategy posture positions. Not surprisingly, vertical integration efforts are
quite limited, and the already high cost structures appear to be increasing. In general, this
strategy type coincides with the ‘harvest’ strategy type, S 1(C), discussed for consumer goods,
although a few important differences are evident.
The primary divergence between the two industrial and consumer strategy types is observed
in the investment variables. Although INVl and INV2 are negative for Sl(I), the corre-
sponding figures for Sl(C) are prominently lower. In addition, a variation is uncovered in the
breadth strategy component, with Sl(1) showing a negative mean value on PBRDTH while
Sl(C) has a positive number for PBRDTH. For these reasons, it was decided to label this
strategy a ‘low commitment’ strategy versus the stronger ‘harvest’ label used to characterize
Sl(C).
Strategy type 2 (maintenance)
The second strategy type, S2(I), for industrial goods appears as a hybrid strategy, combining
the characteristics of a ‘continuity’ strategy with those of a cost reduction strategy. Most of the
168 zyxwv
zyxwvutsrq
Craig Galbraith and Dan Schendel

marketing related posture components of price, promotion, breadth, and quality display mean
values relatively close to zero, an indication that little deviation from industry norms is
occurring. The similar pattern uncovered for the corresponding direction components
indicates that no trend is developing away from these norms. Such results hint that S2(I) is a
maintenance strategy with respect to marketing variables. However, the advantageous
integration and cost structures underline the importance of cost reductions for understanding
this strategy type. This behaviour is typical of what Utterback and Abernathy (1975) entitle
‘cost minimizing’ strategies where emphasis is given to reducing the overall costs required to
manufacture and distribute the product, while maintaining one’s position in the market-place.
Like the analogous ‘continuity’ strategy for the consumer goods sample, S2(I) is the most
popular strategy type, accounting for about 49 per cent of the industrial products sample.

Strategy type 3 (growth)

The third strategy type for industrial goods, S3(I), conforms to a growth strategy for firms with
a strong commitment to their products. Investment is quite high, and a strong commitment to
expand market position is noted by the particularly high positive values on the promotion and
breadth strategy posture components. The positive mean value on the promotion direction
component suggests a continued trend in this direction. Quality posture appears somewhat
above the norm, although the trend, as indicated by the negative value computed for DQUAL,
is toward the norm. Similarly, cost structures appear about average. However, unlike the
corresponding ‘builder’ strategy type for consumer goods (S2(C)), the price posture for this

zyxwvutsr
strategy type is somewhat higher. Perhaps price competition to enhance market position, while
effective in consumer products, may be less common in the industrial products category. About
25 per cent of the firms competing in the industrial products sample fall under this strategy
type.

Strategy type 4 (niche)

Finally, the fourth strategy type, S4(I), for the industrial products sample conforms to a ‘niche’
or specialization strategy similar to that uncovered for consumer goods. A superior quality
posture and directional strategy, and the high pricing policies, underline this interpretation.
This compensates for the elevated cost structures associated with this strategy type. Also, a
narrow product line, with only marginal emphasis on promotional activities, characterizes the
‘niche’ nature of SqI) strategies. About 9 per cent of the industrial products sample falls into
this category.

IMPACT ON FIRM PERFORMANCE

By definition, strategies are intended to achieve results or goals set for the firm. The necessity
for selecting a specific strategy lies in the desire that certain levels of performance will result.
However, corporate objectives are generally multiple, including profitability goals, cash
requirements, and sales and/or market share objectives among others. Clearly, different
strategies are designed to accomplish different objectives, often at the expense of other
objectives (Schendel and Patton, 1978).
All of this returns attention to the second research question posed earlier: that is,

Is there an association between business strategy types and measures of performance?

 zy
zyx
An Empirical Analysis of Strategy Types

To educe the relationship between various strategy types and indicators of business
performance, mean values for cashflow (CASH), return on investment (ROI), and percent
annual change in market share position (SHARE) were computed for each of the six strategy
169

types developed for the consumer goods category, and for each of the four strategy types
formed from the industrial products category.
There is evidence to suggest firms’ competitive positions in the market-place may also affect
the relationship between strategy types and business performance. Theoretical arguments for a
positive correlation between market share, for example, and profitability have been cited often
by the Boston Consulting Group (1972), and others (e.g. Fogg, 1974)’while empirical evidence
of this relationship is provided by a number of studies (e.g. Buzzell et al., 1975). In the majority
of these studies, though, little consideration has been given to the content of the strategies

zyx
employed. To study this issue, the sample was thus partitioned according to strength -of
competitive position in the market-place, with a business defined as holding strong competitive
positions if it ranked either first or second in market share leadership, weak if it ranked third or
lower.
Table 7 presents the mean values for cashflow, return on investment, and changes in market
share position for the six strategy types for consumer goods; while Table 8 provides the same
information for the industrial products. Given these results, two general conclusions are
suggested:

(1) Trade-offs exist between the three measures of business performance for the different
strategy types-this holds true for both consumer and industrial products; and
(2) Given the same strategy type, firms holding dominant competitive positions generally
enjoy more favourable performance results than those holding less dominant market
positions.

Clearly, there are dramatic trade-offs between the various performance measures for
consumer goods firms employing Sl(C) or ‘harvest’ strategies. For firms holding lower
Table 7. Impact on performance of strategy types for consumer goods (mean values)

zyx
Strategy type Performance Competitive position
measure
Dominant Weak

zyxwvutsr
Harvest Sl(C) CASH 30.21 36.18
ROI 29.06 8.54
SHARE 4.67 -26.12
Builder S2(C) CASH - 10.32 - 15.41
ROI 21.96 7.65
SHARE 22.03 6.39
Continuity S3(C) CASH 6.87 2.97
R0 1 25.64 13.53
SHARE 4.31 1.92
Climber SqC) CASH -0.09 -2.01
ROI 27.91 11.82
SHARE 7.89 3.31
Niche S5(C) CASH -4.07 - 4.54
ROI 20.83 14.49
SHARE 23.00 3.30
Cashout S6(C) CASH 15.94 12.38
ROI 32.33 9.51
SHARE 11.74 - 6.03
170 zyxwvutsrq
zyxwv
Craig Galbraith and Dan Schendel
Table 8. lmpact o n performance of strategy types for industrial products (mean values)

Strategy competitive Performance

measure
Competitive position

Dominant Weak

Low commitment SI(1) CASH 8.04 5.45

ROl 19.02 13.98

zyx
SHARE 6.25 0.74
Maintenance S2(1) CASH 10.37 6.37
ROI 25.73 17.92
SHARE 6.21 1.88
Growth S3(I) CASH 2.54 0.73
ROI 25.14 17.25
SHARE 10.21 1.95 .
Niche SqI) CASH 7.18 6.33
ROI 24.56 16.81
SHARE 20.31 0.16

competitive positions this trade off is particularly noticeable. As expected, cash generation is
quite high, significantly higher than the cash flows generated from any other type of strategy. In
conjunction with the strong cashflow position, however, a drastically decaying market share is
observed. For strongly positioned firms, ‘harvest’ strategies also generate magnified cashflows.
In contrast, the detrimental effect on market share position is not as evident as with the less
dominant firms.
In the opposite direction, S2(C), or ‘builder’ strategies, do just that; that is, firms appear
willing to sacrifice cashflows to capture or expand market share position. This appears the
general case regardless of competitive position, thus empirically verifying the often cited
argument that market share increases are costly to gain-at least with ‘builder’ type strategies.
Another less obvious trade-off exists for S4(C) or ‘climber’ strategies. This is especially the
case for less dominant firms where negative cashflows are observed, and average return on
investment is relatively low. Evidently, to improve one’s strategic posture, while not gaining
much in market share, is very costly in terms of cashflow and profitability.
While ‘harvest’ strategies appear to expand cashflow, usually at the expense of market share,
S6(C) or ‘cashout’ strategies seem to inflate ROI figures, especially for dominant firms. With
firms holding dominant competitive positions, no degradation in market share position is
noticed, while for less dominant firms, ‘cashout’ strategies are associated with low or negative
market share changes. Surprisingly, though, the positive effect of ‘cashout’ strategies is not
clearly recorded on the ROI measure for less dominant firms. In fact, return on investment for
weaker firms competing with ‘cashout’ type strategies appears about average when compared
to the other strategy types.
Performance outcomes for firms implementing ‘niche’ type strategies indicate that product
and/or service specialization requires substantial cash outlays, although market share gains are
noticed. Interestingly, dominantly positioned firms appear to enjoy substantial positive share
moves with this strategy, in fact the highest value on SHARE is shown by S3(C) strategies. This
may indicate that a strong competitive position, with the attending distribution network and
superior market power, is required to effectively produce and market a specialized product;
particularly after the dominant product design has been established by the industry. It is likely
that smaller firms may have more success with specialization strategies before the industry
adopts a dominant product design (Utterback and Abernathy, 1975; Woo and Cooper, 1981).
The culmination of this trade-off process is recorded with the S3(C) or ‘continuity’ strategy
type. For firms in all classes of competitive position, the values on the three business
 zy
zyx
zyxwvu
An Empirical Analysis of Strategy Types 171
performance variables are about average in relation to other possible strategies, thus balancing
the important trade offs associated with the different competitive strategies.
Trade-offs between performance variables are also visible with the strategy types for
industrial products. The results for S3(I), or ‘growth‘ strategies, for example, suggest that
strong commitments to market share increases are paid with diminishing cashflow prospects,
while industrial product firms selecting the S2(I) or ‘maintenance’ strategy type appear to enjoy
favourable ROI and cashflow figures, but primarily at the expense of market share gains,
particularly in the case of firms holding strong competitive positions.
‘Niche’ strategies for the industrial products sample show results similar to that observed for
consumer goods. Such strategies appear to favour dominant businesses as a way of gaining
market share as evidenced by the large mean value on SHARE. No such pattern is indicated for

z
competitors suffering less dominant positions.
For both consumer and industrial products, firms holding strong competitive positions
appear to enjoy more favourable performance outcomes than other rivals-for the same

zyx
strategy type. In fact, for each strategy type examined, the values on ROJ, CASH, and
SHARE, are higher for dominantly positioned firms than for businesses in weaker competitive
positions. The evidence is clear-it pays to be number one or two in share rank, although firms
. with smaller shares can also be quite profitable, e.g. ‘niche’ strategy types for consumer goods.
These results thus support previous theoretical and empirical work positing that market share
position is associated with increased profitability and market power (i.e. Buzzell et al., 1975),
but only conditionally. By locating highly successful strategies utilized by lower share firms,
such as the ‘niche’ strategy, these results support the findings of Woo and Cooper (1981) who
argued that, given the right strategy, low share firms may be quite profitable.

CONCLUSIONS

While there has been a flood of recent attempts to define useful classifications of generic
strategies or strategy archetypes, little empirical work has been accomplished in this regard.
This study has extended the notion of strategy types, and based on empirical analysis of
managerial decision variables, defined a number of strategy types for consumer goods and
industrial products categories.
It was argued in this paper that strategy is a complex system or network of intertwined
relationships between various management decision variables such as marketing, pricing,
production, research etc. In addition, strategy is not static; rather strategies are formulated
and implemented over time. Using principal component and cluster analysis over cross-section
and time-series data, the complex patterns between the constituent components of strategy
were captured. It was possible to group businesses that employed like strateges, while businesses
located in different clusters exhibited significantly different strategies, in terms of both strategic
posture and the directions in which the strategies were evolving.
Based on this analysis, and the heterogeneous nature of the strategies between clusters, it was
argued that the different clusters presented a good typology of strategies. Each strategy type
was labelled according to the characteristics of the strategies embodied by the cluster. For the
consumer goods category a typology of six strategies described the nature of strategies used.
These strategies were labelled harvest, builder, cashout, niche or specialization, climber, and
continuity. For industrial products, a typology of four strategies best fits the nature of strategic
competition. These strategies were descriptively labelled as low commitment, growth,
maintenance, and niche strategy types.
172 zyxwv
zyxwvutsrqp
Craig Galbraith and Dan Schendel

The typology of strategies developed in this paper reaffirms the arguments of previous
authors that distinct, consistent, and recurring patterns of strategic behaviour exist. This study
goes beyond previous work, however, by providing an empirical basis for developing
typologies of business level strategy. In several cases, the strategy types identified in this study
correspond well with the strategy types conceptualized by other strategy researchers.
It was further recorded that different strategy types were associated with different business
performance outcomes; and that important trade-offs exist between cashflow, return on’
investment, and changes in market share position depending on the strategy type. Also, the
impact of these strategies upon business performance varied according to the relative
competitive strength of firms, with dominantly positioned firms generally enjoying more
favourable performance results than competitors holding less dominant positions. This
conclusion must be tempered though in that some strategy types, such as the ‘niche’ strategy,
appear quite profitable for firms in weaker market positions-in some cases, more profitable
than other strategy types employed by dominant businesses. These findings add to the growing
body of literature which suggests that business performance is not a unitary concept, such as
neoclassical profit maximization, but rather consists of multiple objectives; and that important
trade-offs between performance measures may occur depending on the strategy used and the
relative competitive strength from which the firm implements its strategy.
Owing to the breadth of this research, and the characteristics of the data base employed, the
current study provides only limited, albeit empirical, insight into the study of strategy types,
and their impact upon business performance. One important issue not addressed in this paper
is that of determining the appropriate conditions for formulating and implementing the
different strategy types identified. The traditional motivation behind constructing strategy
typologies has been normative in nature, that is, to describe the economic, technological, and
competitive conditions under which strategies should be employed to achieve a set of corporate
objectives. Our research is currently investigating the impact of changing competitive
conditions upon the use and effectiveness of different strategy types.

ACKNOWLEDGEMENTS

This research was partially funded by a grant from the Basil Turner Foundation. We wish to
thank Dr. S . Schoeffler and the Strategic Planning Institute for providing access to the data
used in this study.

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zyxw
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