Strategic Group Membership and Organizational Performance1

Strategic Group Membership and Organizational Performance1

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: https://www.jstor.org/stable/256040 Accessed: 21-01-2020 17:35 UTC

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?Academy of Management Journal 1984, Vol. 27, No. 3, 467-488.

Porter’s (1980) Generic Strategies as Determinants of

Strategic Group Membership and Organizational Performance1

GREGORY G. DESS

Florida State University PETER S. DAVIS

University of Oregon

A multimethod, multivariate analysis of “intended” strategies provides empirical support for the presence of strategic groups based upon Porter’s (1980) generic strat- egies. Variations in intraindustry profitability and growth are found to be related to strategic group membership. Firms identified with at least one generic strategy outper- formed firms identified as “stuck in the middle.”

The primary purpose of this paper is to demonstrate the viability and usefulness of categorizing firms within an industry into strategic groups on the basis of their intended strategies. These intended strategies may be identified on the basis of Porter’s (1980) generic strategies-differentia- tion, overall low cost, and focus. This study consists of three distinct but interrelated phases. Phase 1, the field study, examines the relationship be- tween a firm’s “intended or espoused” (Mintzberg, 1978) strategy-rep- resented by the competitive methods (e.g., competitive pricing) considered most important by the firm’s top management team-and the presence of strategic orientations within an industry. These strategic orientations are classified on the basis of which of the three alternative generic strategies they appear to represent most closely. Phase 2 consists of a panel of ex- perts who assess the importance of each of the identified competitive methods for each generic strategy. The use of this panel serves to corroborate the researchers’ inferences drawn from the field study. Phase 3 uses the perceptions of the chief executive officers to cluster firms that exhibit a

‘The authors wish to express their appreciation for the thoughtful comments made by Alan Bauer- schmidt, Danny Miller, and Carolyn Woo on an earlier draft of this paper, as well as the helpful sug- gestions of three anonymous reviewers. An earlier version of this paper was presented at the 1982 Acad- emy 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.

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Academy of Management Journal

similar strategic orientation into distinct groups. Measures of performance for firms comprising each strategic group are assessed to detect whether significant differences exist between strategic groups within an industry. Differences in performance have important implications for both practic- ing managers and academicians interested in the strategic group concept.

Theoretical Background and Empirical Research

The field of strategic management has shown a noticeable shift away from the atomistic view of strategy-in which each firm is considered unique in all aspects-toward a new view that supports the recognition of com- monalities that exist among firms. These configurations have been referred to as “gestalts” (Hambrick, 1983b; Miller, 1981), said to represent “tight- ly integrated and mutually supportive parts, the significance of which can best be understood by making reference to the whole” (Miller, 1981, p. 3). Similarly, Hatten (1979), in his discussion of strategic groups within an industry, recognized that subgroups of firms employ different mixes of what are substantially the same strategic variables. Thus, strategic groups provide a useful intermediate frame of reference between viewing the in- dustry as a whole and considering each firm separately (Porter, 1980). The emerging concept of a strategic group of firms provides a framework for answering recent calls for empirical “evidence that strategies differ among firms and that better strategies make a difference in performance results” (Schendel & Hofer, 1979, p. 517).

The presence of groups of firms within an industry following similar strat- egies has been identified in the home appliance (Hunt, 1972), the chemical process (Newman, 1973), the consumer goods (Porter, 1973), and the brew- ing industry (Patton, 1976). Quantitative models of the brewing industry (Hatten & Schendel, 1977; Patton, 1976) recognized that firms within an industry differ along dimensions other than size and market share.

Unfortunately, most of the multivariate measurement of strategy used to develop the strategic groups concept has relied almost exclusively on mea- sures of implemented strategy. One problem with existing typologies has been that few of the propositions regarding the types of strategies a firm may follow to become a leader in its market have been tested with data different from that used to develop them (Schendel & Hofer, 1979). This methodological limitation may lead to findings that lack generalizability and that are incapable of confirmation in other research settings. Another problem is that existing typologies tend to put business unit strategies into generic categories based on the size or market share of the firm and its rate of return on investment (Hatten, 1974; Porter, 1979). Such a narrow ap- proach limits the applicability of many typologies to a rather select group of firms within an industry and presents little in the way of prescriptions useful across size categories within an industry. It is believed that Porter’s framework of generic strategies and competitive dimensions provides a

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potentially valuable research tool for classifying the strategies of all com- petitors within an industry.

Many previous models of strategic groups (Hambrick, 1983a; Porter, 1974) have implied that organizational strategies could best be inferred by analyzing patterns in organizational resource allocations. However, the re- liance upon measures of resource allocations may inhibit recognition of the central thread or underlying logic of a firm’s strategy by failing to con- sider the role of strategic choice as exercised by key organizational members. The notion of strategic choice recognizes that similar organizations operating within the same environment may choose to address that environment dif- ferently based on the strategic orientation of their management (Ackoff, 1970). Indeed, the element of strategic choice is inherent within the con- cept of strategy, which is viewed as implying that “the organization pur- sues a purposive, directive course, whether it is described in terms of a pat- tern of decisions, or in terms of the goals, plans, or intentions of the organization” (White & Hamermesh, 1981, p. 216, emphasis added). Pre- vious evidence for the importance of strategic choice for market behavior, although compelling, has relied on indirect measures to show that firms follow different strategies within an industry (Caves, 1980).

Hambrick (1980) recognized that it should be possible to develop m

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