Business-Level Strategy & Empirical Issues

Abstract

This study focuses on strategic theory and empirical issues at the business level. It is based on the basic impact on business strategies a game plan for one line of business. Our analysis puts into consideration the empirical issues control to building and strengthening the firms’ long-term competitive position. The analysis sets tasks separating powerful from weak strategies and forging a series of recommendable strategic theories capable of producing a sustainable competitive advantage. The theories will be discussed under each article as listed in the reference lists.

Introduction

The concept strategy consists of all the competitive moves on business approaches to produce a successful and competitive performance. The keyword: being successful and competitive performance.

Empirical Prioritization Towards Contingency Variables

An empirical research study done by (Hamrick, 1995) shows that market strategies impact the profit gains on a particular type of business. The study prioritizes contingency variables in the field of business strategy. His experimental Chow-test shows a degree of significance to the ten widely cited contingencies. The most effective contingencies which emerged in the business level strategy according to Hambrick were the user sector, consumer, or industrial. He, however, reminds us that business research is hampered by the fact that, there is a nonoccurrence of two identical strategic settings.

Hambrick commenced these studies to identify the degree of significance because earlier studies by business strategy researchers had not prioritized this aspect of contingency variables though it’s believed to be an important element in business. His analysis determined the relative degrees of the overall significance of contingency variables by weighing them against each other to come up with statistical data Chow technique is presented in this study as the best method or technique to use to identify contingency differences for homogeneity of regression results,

This kind of research methodology suggests and implies that all the variables under the study need to be significant, This is because firms that differ in these variables also tend to differ in how their strategic attributes are associated with performance. In such kind of study researchers present different contingency variables that emerge as most important, Hambrick identifies stage product life cycle as the most significant. Porter (1980), identified three crucial contingency variables i.e. Degree of industry concentration, stage of the product life cycle, and exposure to international competition.

This shows that different research results in different outcomes and findings. Even though the study does not give full details regarding contingency variables, it sheds some light on the relative degrees of the significance of the ten contingency variables discussed in the case study. The above study acts as a guideline for researchers who have concerns for both theory development and research design. The study however leaves some questions unanswered about other possible variables not mentioned in the research project. Having highlighted the basic factors and principles in contingency research opens the field for extensive research in this particular area. There is still room to identify the significance of these other contingency variables.

Exit decisions in mature industries

Exit decisions are some of the difficult decisions made in a business environment. Harrigan’s (1992) study on exit decisions in mature industries pointed out that a firm may contemplate exit when its markets sour, profitability plummets when a part of the strategies does not fit with the rest of the business. He also notes that some exit barriers are part of the structure of the business. Barriers are tactics, altitudes, and other impediments that can intensify the firm’s reluctance to abandon a particular type of business. (Harrigan,1982, Pg 715)

These barriers at times affect the competitive ability of the business especially competition that arises as a result of pricing of its products in comparison with other similar products. it can also be noted from the study that a substantial exit barrier may exist when the firm is not willing to leave behind its investment in situations where it can not retrieve its value.

Harrigan shows the comparison in exit behavior within non-declining industries and uses findings from previous studies on the subject to make conclusions. His argumentative conclusion dictates that, affirms the ability to implement its decisions successfully(In our discussion, Exit) depends largely on the low industry exit barriers which allow marginal firms to exit with ease. (pg,707). The exit will also depend on the height of firms a strategic exit barrier which differs from the earlier data regarding their market competition.

The study tends to warn businesses, especially in the declining category to be wary of barriers that can interfere with the control of their business involvement. These barriers are recognizable by managers if they use the structure conduct technique developed by Harrigan. The method tries to figure out the competitive environment and factors that may impact the decision-making. From the above facts and findings, we can conclude that exit behavior is greatly influenced by structural conditions prevailing in the business during its maturity, expectations based on the continued demand and profitability of the business, other strategic exit barriers acting indirectly to competitors in homogenous and lastly past performance of the business. Empirical findings from this study show that there is little or no effect caused to competitors of the same line of production by exit barriers.

The study however does not suggest timely methods to mitigate the effect of these barriers. More findings to certain this report is welcome in the strategic business exit. The research should assess the implication of these barriers on competition and better methods of maximizing profits.

Differentiation versus low Cost

Theoretical studies on differentiation and low cost have suggested that generic strategies of differentiation and overall cost are inconsistent. Hili (1998) however does not accept this view about his research. The paper points out that differentiation can be used to create low-cost conditions. Porters’ business-level strategies created a phenomenon that viewed each element differently when sustaining a competitive advantage. He rules out the fact that there is an inconsistent relationship between differentiation and low cost. Situations might develop in a company that makes the firm consider pursuing both differentiation and low cost simultaneously.

Hili agrees that companies that do emphasize differentiation and low cost will achieve a superior economic performance reward. This statement contradicts that of porters in which he categorized such firms as’ stuck in the middle and with inferior reward in performance. Though his arguments were based on that particular point of view, Porter’s studies on the subject shed much light on further research by predicting that it is possible to combine differentiation and low cost to achieve competitive advantage. Verification of this statement can be seen in this paper done by Hill. He urges that the circumstances under which differentiation and low cot pursuit make sense are common, depending on factors different from those highlighted by porter, and may lead the company towards achieving a competitive advantage.

The study documents areas under which differentiation can be used to achieve lo-cost position: Industry where there is a high possibility of growth (economies of scale) and posses the potential to differentiate their products. The study gives managers insight on how to use differentiation and low cost to gain a competitive advantage. The ways of implementation only lie with the managers as it differs in the different environments. The impacts on profitability are not well illustrated in this document. Future research should focus on establishing how this combination of the two theories impacts either positively or negatively on a business. Future researchers can use this analysis and data as a starting point to draw their conclusions.

Credible spatial pre-emption

A study conducted by Judd (1985) on credible spatial pre-emption mentioned that when there is a possibility of entry into a business by a new entrant, the incumbent may deter the entry through preempting investment of new goods. Judd presents competition as the main reason behind this motive. This occurs when the entrant has the possibility of reducing profits from other goods. In a normal competitive environment, incumbents take the priority to invest in goods and services and saturating the market before any potential entrant gains the opportunity. This system approach in the market system deters the potential entrant’s further progress, ultimately creating a monopolistic market.

Judds demonstrates that the above conclusion can be altered substantially when one allows multi-product incumbent firms to exit in response to entry instead of assuming high exit costs (Pg,153). He also demonstrates that it may not be credible for the multi-product incumbent to threaten the entrant with intense competition.

We can conclude that the above business strategy creates an equilibrium industry structure that is less monopolistic, have less exit cost, and presence of intense competition between producers. The credible pre-emption presented by the multi-product incumbent is almost impossible unless the exit cost is too high for them. The problem presented by Judd shows that such cases are impossible in a business environment. For an incumbent to prevent the entry of new participants the cost of exit should be as low as possible. The study, therefore, contradicts other previous analyses done on the subject. Further research opportunities exist on this topic to verify the information contained in this paper.

Efficiency. Structure-conduct relationship

The study on efficiency versus conduct as authored by (McWilliams, 1993) depicts an interrelation of the strategic management field and other social sciences disciplines such as Psychology, economics, and sociology. The many concepts that describe strategy are derived from some or part of the above categories. This paper pursues the possibilities of theory transfer from disciplines such as; International Organization, economics to strategic management and establishes if the transfer can lead to inappropriate or costly generalizations. The undermining problems in the paradigm of business strategy are the high cost associated with research.

The structure conduct paradigm(S-C-P) emerges as a costly research tool for this particular strategy. Due to this associated cost, McWilliams offers an alternative approach referred to as the efficiency paradigm. The two paradigms differ in several point areas, their view towards the relationship between industry structure and industry is different in that; in S-C-P there is a direct linkage between relationship, industry structure, and performance.

The efficiency paradigm ascertains no linkage but assumes that the major canters are competitive. In terms of competition, S-c-p views it as an equilibrium outcome in a static environment while the efficiency paradigm views completion as a process in the dynamic market. These differences can lead to strategists differing in their research and the overall outcome in a business environment. From this paper, managers are advised to choose the best alternative that will produce a sustained advantage in a competitive market. Further Research is open for less costly and much more effective paradigms to be developed for use when carrying out this kind of research.

The Market-share profitability Relationship

The relationships between market share and business profitability can be said to be context-specific. According to (Prescott, Kohli, and Venkatraman, 1986) believe that the nature of the relationship that exists between these variables has deceived many researchers, consultants, and managers over many years. The dilemma of these groups of people lays in the fact that they question whether investing in high market share reciprocates to the high value of profits. The dilemma further escalates as they question the outcomes of this relationship. They contend that if the relationship is positive then the pursuit of market share is appropriate, but if this is the opposite, it would be of no use.

Prescott, Kohli, and Venkatraman, (1986) address this dilemma by examining the nature of MS-BP relation focusing their intention towards identifying in positive or negative effects exist. This type of research is important as it allows businesses to put control of their expansion to ensure that they always remain profitable. The data given from this study is just for reference purposes and each business manager should carry out a market study to determine the environment they are operating in and if there are any chances for increased market share.

Business managers should carry out research and establish major industry environments suitable for the different business strategies. They should emphasize performance results as some of these principles are realized in mature industries where all several firms have achieved a minimum cost position. For practicing business people (strategists) this research provides insights that may eventually identify major strategic methods that will immerse demonstrations in how the above strategies are associated with increased profitability. For well-informed strategists, he will surely consider the best alternatives to place him in advantageous poison over his or her competitors.

Porters (1980) Generic Strategies

The importance of strategic management has been emphasized in the case study of (Dess, 1984) issue. His arguments are based upon Porter’s (1980) generic strategies. From the analysis, Dess outlines the basis under which firms can be categorized based on the adoption of intended strategies.

From the study, strategies emerge as the determinants of business performance and strategic group membership. The positive performance of a business leads to increased profitability and growth among the strategic group members

(Dess, 1984), identifies the intended strategies concerning generic strategies as proposed by porters (1980) which include differentiation, overall cost, and focus. In his developments, Dess views strategies in a different way than the commonly known. He argues that commonalities that exist among firms contribute to the different approaches to strategic management. Earlier studies did show that the uniqueness of affirming determined strategy. From the discussion, it is evident that firms employ different mixes of the same strategic variables. The term groups emerge due to the different methods firms using strategic management the above view had lead to porter’s conclusion that each business needed to be considered separately by its uniqueness rather than the whole.

The study does not however contend with the earlier reports but supports his comments and analysis based on the emerging concept of strategic groupings. His empirical remarks show that firms use different strategies. It is through this that differences are realized in terms of performance results. Other studies have also verified the above concept as proposed by Dess, the question of coming with such conclusions has been the major cause of concern to many researchers, the methodological approaches of measurement of the strategy used to develop strategic groups lack consistency when analyzing data from research.

The controversy creates therefore opportunities to explore this area of research to come up with a correct model for future reference. Porter’s framework only provides a research tool for classifying the strategies of all competitors within an industry. (pg, 22)

References

Dess, G.G (1984). Porters (1980).Generic strategies which are determinant of strategic group membership and organizational performance, Academy of management Journal, Vol. 27 (3) 467-488.

Hill, C.W. (1998). Differentiation v. low cost or differentiation & low cost; A contingency, framework, Academy of management review, vol. 13 (3), 400-412.

Harrigan, K. R. (1982) Exit decisions n mature industries Academy of management journal, vol. 25 (4), 707-732.

Hambrick, D.C (1985). Towards, p prioritization prioritizations of contingency variables for business strategy, Academy of Management journal, vol. (25 (4), 763-788.

Judd, K. L. (1985). Credible Spatial Preemption, Rand Journal of Economics, vol. 16 (2).

McWilliams, A. & Smart, D.L (1993) Efficiency v. structure conduct and performance implications for strategy research and practice, Journal of management, vol. 19(1) 63-78.

Prescott, J. E., Korki, A.K., and Venkatraman, N. (1986). Strategic management journal.