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

Hypothesis 1. In discontinuous environments, differentiators

will outperform all other strategy types.

If this hypothesis is supported, then hospitals classified as following a differentiation strategy can be theorized to have an appropriate strategy-environment "fit." Hospitals following either a cost leadership or muddling strategy can be theorized not to have an appropriate strategy environment fit and can therefore be classified as "misfits." Under this research scenario four possible combinations of "fit" and "misfit" between strategy and environment can be posited (see Figure 1). First, hospitals with a fit-fit combination are those that have an appropriate strategy environment fit at [t.sub.1] and [t.sub.2]. Those hospitals that pursue a differentiation strategy at [t.sub.1] and [t.sub.2] will be among the highest performers at [t.sub.1] and [t.sub.2] and will exhibit no change in performance.

Hypothesis 2. A fit-fit combination will be associated with

high performance at [t.sub.1] and [t.sub.2], but there will

be no change in performance,

Similarly, hospitals that are misfits at [t.sub.1] i.e., following a cost leadership or muddling strategy) and do not develop the capabilities to differentiate their services in response to a discontinuous environment by [t.sub.2] will be misfits [t.sub.2] as well. Thus, hospitals with a misfit-misfit combination will be among the lowest performers at [t.sub.1] and [t.sub.2] and will exhibit no change in performance.

Hypothesis 3. A misfit-misfit combination will be associated

with low performance at [t.sub.1] and [t.sub.2], but

there will be no change in performance.

In line with the earlier discussion, we now turn to the issue of changes in generic strategies in response to discontinuous environments. The final two combinations we will consider are hospitals with either a fit-misfit or misfit-fit combination. There are plausible reasons for what may first seem to be the illogical fit-misfit combination. For example, hospitals following a differentiation strategy may find their bases for competitive advantage quickly eroding in times of industry change, thereby requiring a change in strategy. Or, the growing societal and regulatory pressures for cost containment may provide strong inducements for hospitals to change their differentiation strategy to one of cost leadership or muddling. Regardless, hospitals following a differentiation strategy at [t.sub.1] and inappropriately changing their strategy by [t.sub.2] in response to a discontinuous environment will exhibit a decrease in performance, since their strategy-environment combination is away from an appropriate theoretical fit.

Hypothesis 4. A fit-misfit combination will be associated

with a decrease in performance.

Similarly, hospitals not following a differentiation strategy at t, that develop the capability to differentiate their services by [t.sub.2] in response to a discontinuous environment will exhibit an increase in performance.

Hypothesis 5. A misfit-fit combination will be associated