A dynamic perspective of strategic groups and performance: a longitudinal study of the U.S. computer equipment industry, 1975-1989

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Virginia Tech


Recent developments in industrial organization and strategic management have conceptualized an industry as being composed of finer groups of firms. The cluster of firms with similar strategic behavior is called the "strategic groups". This concept has important implications for strategy researchers because it offers a systematic way to study the relationships between strategy and performance. A review of the literature on strategic groups reveals that the dynamics and performance implications of strategic groups have not been systematically studied. Thus, the major focus of this study was to examine the dynamic characteristics of strategic groups and performance implications over time, and to understand the nature and pattern of competition.

To guide this study theoretically, the concepts of strategy, strategic groups, strategic group movement, and mobility barriers are defined explicitly. Under the guidance of research questions and the theory of strategic groups, three hypotheses on the strategic group dynamics were provided based on the inter-temporal stability of firm members, firm movement pathways, and contextual factors motivating changes in group membership. In addition, three hypotheses on the performance implications of strategic groups were derived from between and within-group analysis and the consequences of mobility dynamics.

In order to test these hypotheses, constructs were operationalized in a multidimensional manner. Strategy was operationalized in terms of three dimensions (scope, differentiation, efficiency) each of which were found to be significant in previous research. Performance was operationalized to include the financial and growth dimensions. The data used to perform the empirical tests was obtained from COMPUSTAT II and other objective, secondary sources (e.g., annual reports and 10-K, the Annual Survey of Manufacturers). The U.S. computer equipment industry for the period 1975-1989 served as the setting for this study.

Analysis results suggest that strategic groups are a relative part of the competitive structure in an industry. The mobility rate between relatively similar groups is higher than that between less similar groups. Firms that change group membership have different contextual factors than firms that do not change membership. Moreover, no significant performance difference was found among strategic groups over time. Instead, individual firm effects contribute more to explaining the performance differences. The primary contribution of this study is the integration of strategic management, industrial organization, and organization theory to provide a cohesive platform from which to understand the role and value of strategic groups in competitive strategy.