Porter's generic strategies, discontinuous environments, and performance: a longitudinal study of changing strategies in the hospital industry

Health Services Research, Dec, 1993 by Bruce T. Lamont, Dan Marlin, James J. Hoffman

This study uses Porter's (1980) approach to generic business strategies for three reasons. First, other typologies (e.g., Miles and Snow 1978) predate the more theoretically sophisticated Strategic notions of Porter (Miller 1988). Second, Porter's types are similar to other strategy categorizations in the literature. For example, Miles and Snow's (1978) "defenders" and Hambrick's (1985) "efficient misers" pursue a cost leadership strategy. Also, Miles and Snow's 1978) "prospectors" and Miller and Friesen's (1984) S5 innovators, S1A and SIB adaptive firms, and S3 mature giants all pursue various forms of a differentiation strategy. Finally, Porter's typology has received more empirical support from previous research than have the other typologies Kim and Lim 1984).

Although researchers proposing the notion of generic strategies (e.g., Porter 1980; Miles and Snow 1978) have tended to assume that the various strategies are alternative, viable approaches across environmental contexts, others have suggested that the environment can influence both strategy selection and viability (Burns and Stalker 1961; Dess and Beard 1984; Hambrick 1983, 1985; Miller and Friesen 1984). Specifically, it has been theorized that cost leadership strategies are appropriate in stable and predictable environments Hambrick 1983; Miller 1988; Kim and Lim 1988). Firms that pursue a strategy of cost leadership are required to become the lowest-cost producers in an industry. They must devote much effort to cost control so that above average returns can be obtained. A cost leadership strategy is most effective in stable and predictable environments, since environments that are unpredictable or subject to much change, will create severe diseconomies for organizations trying to pursue a cost leadership strategy Miller 1988). Moreover, the many alterations needed to cope with a discontinuous environment would severely threaten a cost leader's efforts at efficiency and cost control.

It has also been theorized that differentiation strategies are most appropriate in dynamic and uncertain environments (Hambrick 1983; Miller 1988; Kim and Lim 1988). The strategy of differentiation aims to create a product or service that customers see as unique. Differentiation often involves new technologies, unforeseen customer and competitor reactions, and the confluence of many unstructured marketing problems (Hofer and Schendel 1978; Miles and Snow 1978; and Miller and Friesen 1984). All of these factors increase environmental unpredictability. Thus, a differentiation strategy 's most effective in dynamic environments in which products, services, and Practices change quickly (Duncan 1972) or where it can be used to avoid more costly forms of competition like simple price cutting (Hambrick 1983; Hofer and Schendel 1978; Miller 1988; Porter 1980).

STRATEGIC CHANGES, DISCONTINUOUS

ENVIRONMENTS, AND PERFORMANCE

If we are to examine fully the performance impact of changes in strategy in a discontinuous environment, a longitudinal research design that identifies a firm's strategy at two points in time, t, and 12 (corresponding to two points in time during which the environment is discontinuous) must he used. Based on the research just reviewed, it can be hypothesized that a differentiation strategy is appropriate for discontinuous environments and that therefore it will outperform all other strategy types i.e., cost leadership and muddling).