A Business Strategy Typology for the New Economy - Reconceptualization and Synthesis

A Business Strategy Typology for the New Economy:

Reconceptualization and Synthesis

John A. Parnell

Texas A & M University-Commerce

ABSTRACT

Research on the nature of the competitive strategy-performance relationship has focused primarily on traditional, brick and mortar businesses. Although competitive strategy theory is applicable to the new economy, generic strategy typologies do not account for the opportunities and challenges that this economy has presented to strategic managers. This paper reticulates three critical debates in the field--IO/resource-based theory, strategic groups, and combination strategies and performance--into a business strategy framework specifically applied to businesses operating in the digital, knowledge-based economy. Challenges for future research are presented.

INTRODUCTION

The strategic management literature is replete with strategy typologies, research methodologies, and theories on the strategy-performance relationship. In general, researchers have demonstrated that strategies that emphasize quality, incorporate a product or service's distinctive competencies, and focus on the core business are most likely to result in superior firm performance (Dacko & Sudharshan, 1996). Advances in the field notwithstanding, however, a consensus concerning the precise nature of competitive strategy and its relationship to business performance has not yet emerged (Mauri & Michaels, 1998), and recent changes in social, technological, and economic factors suggest that this relationship be revisited. This paper proposes a competitive strategy typology for the new economy.

The remainder of the paper is divided into four main sections. First, an historical development of business strategy research is presented, including discussions on the industrial organization (IO) perspective, strategy typologies, the combination strategy debate, and resource-based theory. Second, the strategic implications of recent social, technological, and economic changes are presented. Third, a framework integrating these changes into existing theory is developed. Finally, challenges for utilizing the framework are outlined.

HISTORICAL DEVELOPMENT OF BUSINESS STRATEGY THEORY

The roots of contemporary business strategy research can be traced to--among other perspectives--industrial organization theory. Within Bain (1956) and Mason's (1939) IO framework of industry behavior, firm profitability is viewed as a function of industry

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structure. Characteristics of the industry--not the firm--are viewed as the primary influences on firm performance (see also Barney, 1986c). More recently, Bain and Mason's basic structure-conduct-performance model has been posited as most appropriate for industries with uncomplicated group structures, high concentration, and relatively homogeneous firms (Seth & Thomas, 1994).

Early strategy researchers challenged the IO perspective, noting its inability to explain large performance variances within a single industry. As a result, the strategic group level of analysis was proposed as a compromise between the deterministic, industry level of analysis proposed and developed by industrial organizational economics and the firm or business level of analysis of interest to strategic management researchers (Hergert, 1983; Hunt, 1972; Porter, 1981). Strategic groups describe apparent clusters of firms that exhibit similar or homogeneous behavior within a somewhat heterogeneous industry environment (Fiegenbaum, McGee & Thomas, 1988).

Theorists have proposed at least three rationales for the existence of strategic groups (Fiegenbaum et al., 1988). First, differing goals (i.e., profit, revenue, or growth maximization) among industry players lead to different competitive approaches. In addition, firms with similar goals may seek to attain them through different strategies. Second, strategic managers make different assumptions about the future potential of their industries, and are thereby affected differently by changes in the external environment. Third, skills and resources vary among competitors. Following this logic, it is reasonable to assume that there may be at least several "groups" of businesses, each with common goals, similar resources, and shared assumptions.

Strategic group research has demonstrated group-performance linkages in the home appliance (Hunt, 1972), brewing (Hatten & Schendel, 1977; Hatten, Schendel, and Cooper, 1978), chemical process (Newman, 1973), consumer goods industries (Porter, 1973), paints and allied products (Dess & Davis, 1984), industrial products (Hambrick, 1983), U.S. insurance (Fiegenbaum & Thomas, 1990), and retail mail-order (Parnell & Wright, 1993) industries, among others. However, not all studies have supported a strong association (McGee & Thomas, 1986, 1992). Ketchen et al.'s (1997) meta-analysis found that only about eight percent of firms performance can be explained by strategic group membership. Katobe and Duhan (1993) identified three strategy clusters among Japanese businesses--"brand skeptics, mavericks, and true believers"--and found that membership in one of the groups was not a significant predictor of performance. Rather, the link between strategy and performance was moderated by organization situational variables such as the degree of emphasis on manufacturing and profitability. Additional studies have also examined variables thought to moderate the strategic group-performance relationship (Davis & Schul, 1993; Nouthoofd & Heene, 1997; Zahra, 1993).

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Business Strategy Typologies

As strategic group assessments identified clusters of businesses employing similar strategies, researchers were beginning to categorize similarities within the strategic groups across studies. Business strategy typologies identifying several generic strategic approaches were developed and utilized as a theoretical basis for identifying strategic groups in industries. Although strategic groups are an industry-specific phenomenon, many strategic group researchers began to utilize approaches believed to be generalizable across industries, specifically those proposed by Porter (1980, 1985) and by Miles and Snow (1978).

According to Porter's framework, a business can maximize performance