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  • Competitive Strategy Measurement

    Încărcat de

    Shantanu Mishra
    22 vizualizări20 pagini
    NTU stern whitepaper

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    Competitive strategy measurement

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    NTU stern whitepaper

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    22 vizualizări20 pagini

    Competitive Strategy Measurement

    Încărcat de

    Shantanu Mishra
    NTU stern whitepaper

    Drepturi de autor:

    © All Rights Reserved
    Descărcați ca PDF sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    din 20
    ON THE MEASUREMENT OF COMPETITIVE STRATEGY: EVIDENCE FROM A LARGE MULTIPRODUCT U.S. FIRM PRAVEEN R. NAYYAR New York University Measures of strategy made athe product and business level wore com red uaing dats from s lary multiproduct US. fem. The busineos Tevel results wore not fond tobe good indicators af product-leve trat- gies. Also, contrary to previous rerearch, no evidence ofthe use of jon strategies was found at ‘The measurement of competitive strategy is an important issue in stra tegic management. Porter first defined three generic competitive strategies — ost leadership, differentiation. and focus—for businesses in 1980. Since then the three strategies have been studied extensively and considerable support for their existence and effectiveness has emerged (Calingo, 1989: Dess & Davis, 1984; Hall, 1980; Kim & Lim, 1988; Miller, 1988). Attempts to measure Porter's competitive strategies seek to capture differences in the extent to which firms emphasize various competitive dimensions. For ex- ample, previous studies have used (1) data from the Profit Impact of Market Stratogies (PIMS) data baso (Andorson & Zeithaml, 1984; Hambrick, 1983; Phillips, Chang, & Buzzell, 1983; White, 1986), (2) data collected via ques: tionnaires administered to managers (Dess & Davis, 1984; Kim & Lim, 1986; Miller, 1988; Robinson & Pearce, 1988), or (3) data collected via content analysis of annual reports (Calingo, 1989). This stream of research has al- ways focused on the business level, with scant attention to the competitive strategies adopted for specific products within a business. ‘Many researchers have noted, however, that most firms offer multiple products within an industry, defined at, say, the four-digit Standard Indus- trial Classification (SIC) code level, resulting in product portfolios in which ifferent competitive strategies may be adopted for individual products (Bai- ley & Friedlaender, 1982; Brander & Eaton, 1984; Reubitschek, 1967; Wer nerfelt, 1986; Wind & Mahajan, 1981), For instance, Kellogg had 25 nation- ally advertised brands of breakfast cereals (SIC 2043} in 1960, and General Mills had 19 (Raubitschek, 1987). Similarly, oil companies generally offer multiple products ranging from heavy oil to light fuels such as kerosene. An early recognition of the implications of wide product lines was that within such product portfolios, “Different marketing mixes must be used to serve the segments that have been identified, which will be reflected in different 1993 ayvor 1883 cost and price structures" (Day, 1977: 35). Wind and Mahajan noted that “the aggrogation of product-market segments may mean that they fall into a misleading ‘average’ position in the portiollo, which, ix turn, may cause inappropriate strategy designations ... aggregation may lead to erroneous positioning in the portfolio matrix as well as to poor resource allocation and. strategy recommendations" (1981: 158~ 159). Further, this problem is likely to be particularly severe when “the (business) units are leleroyeaevus wil respect to their perceived positioning and intended matket segments” (Wind & Mahajan, 1981: 160). Similarly, Bailey and Friedlaender noted that “ex- plicit disaggregation of product-lines is essential fora full understanding of the cost and tehuology of multiproduct firms” (1902: 1026). Several other researchers have also suggested the need to examine product-level strategies in the context of product portfolios (Buzzell & Gale, 1967; Calingo, 1989; Dess & Davis, 1984; Kim & Lim, 1988; Miller, 1988), ‘Wide pioduct lines are considered advantagcous for several reavons, A multiproduct portfolio serves multiple market segments (Brander & Eaton, 1984; Kekre & Srinivasan, 1990; Kotler, 1988), achieves cost economies through resource sharing (Panzar & Willig, 1981; Teece, 1980), and deters competitors’ market entry by establiching a firm's presence in many market segments (Brander & Baton, 1984; Raubitschek, 1987; Schmalensee, 1978) Firms can seek to establish a cost-leadership position within their market segments for some products in a portfolio while seeking a differentiated position in other markot segments. For example, the Maxwell House Divi- sion of Krait General Foods has established a cost-leadership position in regular ground coffee but carved out a differentiated position with several of its other offerings, such as Rich French Roast and Colombian Supreme, Similarly, the Honda Civic Hatchback occupies a cost-leacershin pasition in subcompact cars, and the Honda Accord occupies a differentiated position. Procter & Gamble's soap product line also contains both cost leaders and differentiated products. These ohsarvatinns have at least two implications for the measurement of competitive strategies. First, there may be considerable variance in com- petitive strategies within business units. This possibility suggests that it ‘would be prudent to measure competitive strategy at the product level, not at the firm or hnsiness level, especially when a firm or a business unit within. € firm offers multiple products or serves multiple market segments, or bot. Although previous investigators have measured competitive strategies only at the business level, whether business-level measures adequately indicate product-level competitive strategies remains unclear. Thus, in this study T sought an empirical answer to the following question: At what level should competitive strategies be measured? Second, although individual products in @ portfolio may represent ei ther a cost-leadership or a differentiation strategy, business-level analyses have suggested the presence of combined strategies encompassing elements of both generic strategies. Such findings in previous research have raised doubts about the mutual exclusivity of cost-leadership end differentiation 1056 ‘Academy of Management journal vecember stratogies. Discussions of generic competitive strategies have suggested, however, that each strategy requires different organizational arrangements, control procedures, incentive systems, leadership styles, corporate cultures, and people. As a result, sustained commitment to one strategy is usually necessary to achieve success (Porter, 1980). Thus, firms must choose be- tween seeking to be the cost leader and adopting a differentiation strategy in any industry. Porter noted, however, that “this may not be true in all industries, differentiation may not be incompatible with relatively low costs and com- parable prices to those of competitors” (1980: 38). Other authors have also shown conceptually (Tlill, 1900; Jones & Dutler, 1900; Kamnani, 1904: Mur- ray, 1988) and empirically (Dess & Davis. 1984; Hall, 1980; Hambrick, 1983; Miller, 1969; Phillips et al. 1983) that cost leadership and differentiation are not mutually exclusive strategies but two dimensions of any competitive strategy. Those arguments and ompiricol findings are, howovor, based on bbusiness-level analyses that do not address variation in product-level strat- egies within businesses. Ifa firm employs different competitive strategies for different products in a portfolio, such results can be expected when bus ngss-lovel measures are used even if no single product in a portfolio is marketed under a combined competitive strategy. Honco, whether the two goneric strategies are indeed mutually exclusive remains unclear. Thus, 1 sought an empirical answer to the following question: Are cost-leadership and difforantiation stratngias mutnally exchicive when measiired at the ap- propriate level? METHODS Data Collection 1 obtained permission from the chief executive officer of a large multi- product U.S. firm active in several consumer product markets to study the competitive strategy adopted for its many different products. ! was granted access to several managerial levels ranging from the corporate office to prod- uuct management teams. This access was granted on the explicit condition that I maintain strict confidentiality about the identity of the firm, its em- ployees and specific products, and any product-specific data. The firm mar- kets over 2,000 products worldwide, including health and beauty aids, phar- tmaceuticals, agricultural produce, packaged foods and beverages, household products, frozen and refrigerated foods, and several restaurant and food service products. Thus, although the firm I studied was highly diversified, this isa single firm study, which may limit the generalizability of my results. Perhaps the most important firm characteristic I could discern in my re search and from articles about the firm in the business press was the em- phasis placed at all decision-making levels on careful analysis and consid- eration of economic, industry, and competitive data. However, it was clear that considered risk taking was encouraged in the firm. The firm has a policy of promotion from within and places considerable cmphaais on managerial 1999 Nayyor 1955 development and training. An annual planning cycle is followed that in-

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