Business strategy types and innovative practices.

This study explores how firms with different strategic orientations manage innovative practices. Specifically, we examine differences in how firms with contrasting strategic orientations view the environmental and organizational factors that influence their management of innovation. Although there are many dimensions of strategic behavior, our focus on innovation is driven by a substantial body of empirical and theoretical work that highlights its increasingly critical role as a source of sustainable competitive advantage (Eisenhardt and Martin, 2000; Fiol, 1996; Storey, 2000; Teece et al., 1997).

This article contributes to the integration of the strategic management and innovation perspectives by empirically examining how innovative practices vary among firms with different strategic orientations, thereby achieving tighter integration between these two important theoretical perspectives. In doing this, we begin to address some important questions which are likely to be of crucial interest to both scholars and practicing managers. For example, how do innovative behaviors in strategically conservative firms differ from those in firms that are less conservative? Are the former less innovative than the latter, or do they simply target their innovative activities to different areas of the value chain? Likewise, what are the most important sources of knowledge and innovation for such firms and how do they differ? By exploring these and related questions we provide new insights into organizational strategies and related innovative behaviors.

The article proceeds as follows. We first establish a foundation for our study by examining the literatures on strategy and innovation, especially concentrating on the Miles and Snow (1978) strategy typology. We then develop hypotheses on relationships between a firm's strategy type and its management of innovation. We then test the hypotheses using data from 244 firms. A discussion of the empirical results and conclusions drawn from them close the article.

LITERATURE REVIEW

Strategy and Innovation

One key to successful strategic management is the ability to achieve fit or coherence among a set of competitive factors, both internal and external to the organization, in a manner that facilitates high performance. The strategic choice perspective (Child, 1972) argues that organizations do not simply react to their environments but dynamically interact with them via the strategic actions of top managers. Achieving strategic fit thus requires alignment of organizational resources, capabilities and competencies with environmental opportunities and threats (Bourgeois, 1980; Schendel and Hofer, 1979). Beyond this, proper fit requires internal consistency with regard to the firm's overall activities and operations. In this sense, strategic management constitutes a "pattern in a stream of decisions" (Mintzberg, 1978) intended to dynamically regulate the relation between an organization and its environment while at the same time ensuring that internal interdependencies are efficiently managed and that strategic actions are inherently consistent. While strategic managers strive to formulate cohesive strategies to guide managerial decision making, the results of these decisions may be unanticipated. Mintzberg (1978) distinguished between deliberate strategies, whereby an intended strategy is actually realized, and emergent strategies, whereby a realized strategy may have never been intended. This notion has subsequently been extended (Brown and Eisenhardt, 1998; Jennings et al., 2003; Mintzberg et al., 1998; Tegarden et al., 2003) to further highlight the dynamic interplay between the organization and its environment and the distinctions between rational and extemporaneous aspects of strategic management.

Through the ideas of dynamic fit and interdependencies, the strategic choice perspective introduces the notion of equifinality into examinations of firm performance--that is, within similar environments there may be multiple equally effective organizational strategies (Doty et al., 1993). Firms may thus establish competitive advantage on the basis of different sets of distinctive competencies, which are aggregates of specific activities that organizations perform especially well relative to other organizations within a similar environment (Selznick, 1957; Snow and Hrebiniak, 1980). For example, some firms are particularly adept at developing new products and markets, whereas others excel at delivering existing products and services in more efficient and cost-effective ways. Equifinality, therefore, suggests that different strategic approaches may represent equally viable means of establishing competitive advantage in a given industry, whereby high performance is contingent upon achieving consistency across multiple dimensions of organizational design and context (Doty et al., 1993).

The influential resource-based view (RBV) of strategic management (Barney, 1991) has focused on how firms develop distinctive sets of capabilities that provide sources of sustained competitive advantage. Consistent with the notion of equifinality, firms are assumed to be heterogeneous with respect to resources, capabilities and endowments, which are acquired and developed through idiosyncratic and path-dependent processes that cannot be easily duplicated by competing firms. Scholars have linked the RBV to the concept of market dynamism (Brown and Eisenhardt, 1998; Eisenhardt and Martin, 2000; Teece et al., 1997) using the term "dynamic capabilities," which describes the strategic and organizational processes by which managers alter their resource configurations to achieve strategic fit with the environment and/or to create market change. In their view, effective patterns of dynamic capabilities vary with market dynamism. While some facets of strategic management suggest patterned activity oriented to relatively specific objectives, creative and improvisational behavior provides sources of strategic flexibility and sustained competitiveness. The managerial challenge is to reconcile improvised and innovative aspects of strategy, which are potentially disruptive, with existing resource endowments, capabilities and organizational routines, which reflect prior strategic choices. As such, the role of innovation and the targeting of innovative efforts should be somehow linked to the distinctive competencies and strategic orientations of a particular firm.

While scholars have recognized that innovation and strategy are intertwined in efforts to create sustainable competitive advantage (Cahill, 1998; Ettlie et al., 1984; Ireland et al., 2001; Knott, 2003; Mone et al., 1998; O'Brien, 2003), there is surprisingly little work that explores how firms with different strategic orientations differ with regard to specific innovation practices (see Ettlie et al. (1984) for a notable exception), and an understanding of innovative behavior in organizations remains relatively undeveloped (Wolfe, 1994). Although it is beyond the scope of this article to provide a detailed review of the expansive literature on innovation, we discuss here a representative sampling of the work that is most germane to the strategy-innovation link, and describe how this study will extend such work in the context of strategic management.

A large amount of research has focused on organizational attributes that differentiate more from less innovative firms. A number of attributes have been examined including structure, managerial characteristics, available resources, administrative intensity, and internal/external communication (see Damanpour (1991) for a review), although no set of explanatory variables has emerged (Wolfe, 1994). This may be because research in this tradition typically centers on whether or not organizations innovate (e.g., adoption decisions), rather than on how they innovate. Although our work fits within this broad research stream, we adopt a more process-oriented approach by examining the nature of innovative activities rather than adoption decisions. We focus on strategic orientation as an attribute because it encompasses a number of previously investigated organizational features in a holistic manner.

Researchers have also distinguished among several types of innovation based on certain characteristics or attributes. Examples include radical versus incremental (Dewar and Dutton, 1986), sustaining versus disruptive (Christensen, 1997), competence enhancing versus competence destroying (Tushman and Anderson, 1986), product versus process (Utterback and Abernathy, 1975), and technical versus administrative (Damanpour and Evan, 1984). Much of the research on innovation type is concerned with industry-level phenomena, such as environmental change (Tushman and Anderson, 1986) and innovation diffusion (Rogers, 2003; Teece, 1980), rather than its firm-level determinants, which are our concern, although some has also focused on innovation-performance links (Damanpour et al., 1989) and innovation adoption at the firm level (Ettlie et al., 1984). This article adds to the literature on innovation types by examining whether there are propensities among firms to focus on certain innovative activities as a function of their strategic orientation.

We have argued thus far that effective strategic management requires a coherent yet flexible fit between organizational capabilities and environmental context and that innovative efforts should be linked to the strategic orientations of a particular firm. We next discuss the strategy typology we used to frame our research and develop our hypotheses.

Miles and Snow Typology