Generic strategies and performance – evidence from manufacturing firms

Abstract

PurposeThe purpose of this study is to examine the relationship between business‐level strategy and organisational performance and to test the applicability of Porter's generic strategies in explaining differences in the performance of organisations.Design/methodology/approachThe study was focussed on manufacturing firms in the UK belonging to the electrical and mechanical engineering sectors. Data were collected through a postal survey using the survey instrument from 124 organisations and the respondents were all at CEO level. Both objective and subjective measures were used to assess performance. Non‐response bias was assessed statistically and it was not found to be a major problem affecting this study. Appropriate measures were taken to ensure that common method variance (CMV) does not affect the results of this study. Statistical tests indicated that CMV problem does not affect the results of this study.FindingsThe results of this study indicate that firms adopting one of the strategies, namely cost‐leadership or differentiation, perform better than “stuck‐in‐the‐middle” firms which do not have a dominant strategic orientation. The integrated strategy group has lower performance compared with cost‐leaders and differentiators in terms of financial performance measures. This provides support for Porter's view that combination strategies are unlikely to be effective in organisations. However, the cost‐leadership and differentiation strategies were not strongly correlated with the financial performance measures indicating the limitations of Porter's generic strategies in explaining performance heterogeneity in organisations.Originality/valueThis study makes an important contribution to the literature by identifying some of the gaps in the literature through a systematic literature review and addressing those gaps.

Five Competitive Forces Model and the Implementation of Porter’s Generic Strategies to Gain Firm Performances

“…This implies that by selling their products to certain markets such as to consumers that prefer unique furniture design or to certain market group such as schools, universities, banks, hospitals, and other group markets, the owners can increase their financial and market performance. The findings of this study support the findings of Bordean et al (2011) [6], but are contrary to the findings of Powers & Hahn (2004) [22], and Nandakumar et al (2011) [16].…”

“…In more detail can be explained that when the wooden furniture owners perform CLS by cutting their production costs such as raw material cost, auxiliary cost, and labor cost, firm performance like financial and market performance will not automatically increase. The findings of this study support the findings of Bordean et al (2011) [6], but are contrary to the findings of Nandakumar et al (2011) [16], Baroto et al (2012) [4], Banker et al (2014) [3].…”

“…However, study by Nandakumar et al (2011) [16] found out that firms adopting one of the strategies, namely cost-leadership or differentiation perform better than "stuck in the middle" of Porter's Generic Strategies to Gain Firm Performances firms which do not have a dominant strategy orientation.…”

Multiple Managers, Competing Strategies and Business Unit Performance: A Case Study of PINDAD Company, Indonesia

“…If a company can achieve and maintain differentiation it will be an above-average performer in its industry, and if the company can achieve sustained cost advantage (focus cost) or differentiation (focus of differentiation) in its segment and the segment is structurally attractive, Will be an above average company in its industry. Based on research conducted by Barney and Wright in [17], Nandakumar, et al in [18] and Teeratansirikool and Siengthai in [19], empirically in his research proved that the relationship between competitive strategy and organizational performance is positive and significant improve performance organization. In particular it is also evident that differentiation strategies not only have a direct and significant effect on organizational performance but also have a direct and significant impact on organizational performance through financial measures.…”

Behavioral Perspective of Strategic Human Resource Management: Theoretical Causality Model

“…Empirically, causal relationship between organizational strategy and organizational performance proves that organizational strategy content has significant effect directly on organizational performance [3], [8], [20], [40], [50], [51]. Porter's generic competitive strategies empirical studies and their effects on organizational performance provide varied results related to the implementation of strategies or combination of strategies towards the achievement of organizational performance.…”