Strategy-performance relationships in service firms: a test for equifinality.

In the process of using the open systems model to legitimize organizational studies, Katz and Kahn (1966) discussed the properties of open systems and included the notion of equifinality. The systems paradigm peaked in 1972 and eventually went out of fashion by 1976 (Ashmos and Huber, 1987). However, in the strategic management and strategic marketing literature, many statements have been made that within a certain strategic typology, no one strategy is neither inferior nor superior to that of another strategy (Kald et al., 2000; Deshpande and Farley, 1998). In fact, Miles and Snow (1978) and Porter (1980) argue that the strategies described in their respective typologies are neither inferior nor superior. Certain researchers have posited that the notion of equifinality may offer insights into this superiority-inferiority argument (Gresov and Drazin, 1997; Jennings and Seaman, 1994; Matsuno and Mentzer, 2000). Interestingly, within the strategic management and marketing literature, the notion of equifinality has been studied and has taken on two theoretical perspectives. One such perspective (the strategy approach) is that an organization can achieve an outcome by a variety of strategic actions or strategies (Miles et al., 1978). The other perspective (the strategy-structure fit perspective) is that a feasible set of equally effective, internally consistent patterns of strategy and structure exist (Van de Ven and Drazin, 1985). In essence, proponents from both schools make the same argument--a desired outcome can be reached by the use of different approaches. The "strategy approach" school argues that different strategies can yield the same outcome. This is the rationale used by Miles and Snow (1978) and by Porter (1980) in stating that the strategies described in their respective typologies are neither inferior nor superior. However, advocates of the "strategy-structure fit" school add an extra dimension to their argument in that the firm's strategy must be aligned with its structure and that a variety of strategy-structure matches can be used to acquire the same outcome. While most of the research on equifinality within strategic management and marketing has been theoretical in nature, two empirical studies of equifinality have been conducted (Doty et al., 1993; Jennings and Seaman, 1994). Both of these studies have supported the notion of equifinality in that a variety of strategic approaches can achieve the same outcome.

The purpose of this study is to extend research on equifinality by examining the strategy-performance relationship across a variety of service firms. First, the literature on contingency theory and business strategy is reviewed to present a theoretical framework and to develop hypotheses. Next, the methodology used in the study is presented, and then the findings are reported and discussed.

THEORETICAL FRAMEWORK AND HYPOTHESES

Contingency Theory

Two sets of pervasive arguments exist among contingency theorists with respect to how fit affects performance. One such argument suggests that a one-best strategy-structure arrangement exists to fit a given industry environment (Dill, 1958; Hage and Aiken, 1970; Lawrence and Lorsch, 1969; Lorsch and Morse, 1974). The other argument is that organizational effectiveness results from fitting certain organizational characteristics to contingencies that reflect the situation of the organization (Burns and Stalker, 1961; Galbraith, 1973; Hage and Aiken, 1969; Pugh et al., 1969). These contingencies include the environment (Burns and Stalker, 1961), organizational size (Child, 1975), and strategy (Chandler, 1962). Proponents of the contingency school of organizational behavior (Donaldson, 2001; Pennings, 1975; Pfeffer, 1997; Schoonhoven, 1981; Scott, 1992) argue that a variety of strategic approaches can be equally effective. Donaldson (2001) argues that those scholars who assert there is one best way to organize belong in the universalistic theory of organization thought rather than to the contingency theory school.

Business Strategy

Miles and Snow (1978) identified four business strategy types that were labeled as defender, prospector, analyzer, and reactor. Defenders usually direct their products or services to a clearly defined segment of the total market and they offer their target market a full range of products or services and strive to build satisfied customers. Growth is achieved cautiously and incrementally through market penetration. Having chosen stable products and markets, the defender organization protects its domain by offering higher quality, superior service, and competitive prices. Prospectors have a broad product/market domain that is in a continuous state of development. Growth is achieved through product development and market development. Multiple technologies are developed for its different products and its technological processes are flexible in order to constantly produce new products. Analyzers are a combination of the prospector and defender types of organizations. The analyzer's domain consists of products and markets, some of which are stable while others are changing. It has a dual technological core to meet the demands of it stable and changing domains. It is an avid follower of change and imitates the best products and markets of the prospector through extensive market surveillance. Growth occurs through market penetration as well as through market development and product development. Reactors respond inappropriately to environment change and uncertainty because they do not have mechanisms to respond consistently to their environment. Within the Miles and Snow (1978) typology, a conflicting assertion exists. For example, an entire chapter of the 1978 book is devoted to a description of the reactor strategy as a fourth "ideal" type. However, the authors describe the reactor as a "residual" type of behavior in that organizations are forced into this response mode when they are unable to pursue either a defender, prospector, or analyzer strategy (Miles and Snow, 1978: 93). Also, the authors state that an organization may be classified as a reactor when "management fails to align strategy, structure, and context in a consistent fashion" (Miles and Snow, 1978: 12).

Organizations having a reactor strategy have been addressed as both a residual and as a unique type of strategy. While Hambrick (1983) and Zajac and Shortell (1989) simply assumed that the reactor is a residual category, other researchers have identified organizations with a strategy that closely resembled the status of a reactor. As an example, Smith et al. (1989) used a cluster analytic technique to identify a group of organizations that closely resembled the reactor. Segev (1989) concluded that prospectors, defenders, analyzers, and reactors are four ideal types of strategy that are unique. Doty et al. (1993) argue that the reactor should be treated as a unique ideal type of strategy. Thus, in our study, the reactor is treated as a strategy that is both unique and ideal.

Since the Miles and Snow (1978) typology deals with the intended rate of product/market change within a business, it provides a useful format for studying the successful implementation of different strategies. It is the only typology that characterizes an organization as a complete system, with a focus on the organization's strategic orientation (Croteau et al., 1999; Evans and Green, 2000; Karimi et al., 1996; Snow and Hrebiniak, 1980). Miles and Snow (1978) posited that defenders, analyzers, and prospectors are likely to perform equally well but that these three strategy types will outperform reactors. Since reactors exhibit an inconsistent pattern of response, often leading to inappropriate reactions to change and uncertainty, they perform poorly (Croteau and Bergeron, 2001; Miles and Snow, 1978; Smith, et al., 1989; McKee et al., 1989; Conant et al., 1990; Zahra and Pearce, 1990). Snow and Hrebiniak (1980) found that defender, prospector, and analyzer organizations consistently outperformed reactor organizations in the plastics, semiconductor, and automotive industries. These findings support Donaldson's (2001) contingency theory argument that there is no best single strategy for a given industry environ ment.