A HETEROMORPHIC MODEL OF BUSINESS STRATEGY: EMPIRICAL ANALYSIS OF CONSUMER AND INDUSTRIAL PRODUCTS

CRAIG SCOTT GALBRAITH, Purdue University

Abstract

Contingency models of business strategy have made significant contributions to the continuing development of the policy field. In general, these strategy models posit that a firm's strategy should be based upon the competitive situation in which it is engaged. However, previous empirical research examining contingency based strategy models have traditionally assumed a static framework. These early empirical models simply identified variables representing the strategic decisions of a firm which were related to various measures of business performance, with little or no consideration given to how the nature of business strategy changes as the industry progresses through its life cycle. This research identifies the dynamic nature of business strategy over the different phases of the market life cycle. Consideration is given to a firm's relative competitive position within an industry when determining the impact of various strategies on business performance. Given the data demands of this type of research, a PIMS (Profit Impact for Market Strategy) data base was selected as the most appropriate data source. The methodology for investigating the heteromorphic nature and impact of business strategy was developed from a synthesis of the principles underlying industrial organization economics, marketing theory, and recent business strategy theory; and included analytical techniques of cluster analysis, principal component analysis, regression analysis, and discriminant analysis. Businesses representing both consumer and industrial products industries were examined. The major findings of the study are: (1) The market life cycle for consumer goods is best described by a six stage model: introduction, early growth, late growth, shakeout, maturity, and decline. The life cycle for industrial goods is described by a five stage model: introduction, growth, shakeout, maturity, and decline. (2) Consumer goods firms tend to compete with six generic strategies or strategy archetypes. These are: disinvestment strategies, share-increasing strategies, maintainance strategies, posture improvement strategies, specialization strategies, and profit strategies. Industrial products firms show four basic strategy archetypes: weak commitment strategies, maintenance strategies, aggressive strategies, and specialization strategies. (3) The nature or pattern of strategic competition varies according to the stage in the market life cycle and the relative competitive position of the firm. This holds for both consumer and industrial products. (4) The impact of different strategies on business performance (ROI, cashflow, and market share) varies over the life cycle. In addition, tradeoffs exist between ROI, cashflow, and market share for different strategies. These tradeoffs also vary according to life cycle stage and competitive position. (5) The market share mechanism becomes more stable in later life cycle stages. However, firms in dominant competitive positions tend to enjoy a more stable market share mechanism, and appear to have greater control over their market share positions than firms in less dominant competitive positions.

Degree

Ph.D.

Subject Area

Business community

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