Product-market Strategy and Performance: An Analysis of the Miles and Snow Strategy Types Stanley F. Slater University of Colorado, Colorado Springs, USA, and John C. Narver University of Washington, Seattle, USA Introduction The Miles and Snow{I] typology of strategic behaviour has recently been the subject of much debate and research in strategic management and marketing, This typology has important implications for managers and scholars because it seems to represent generic approaches to business strategy very well and the theory tells us that there are important market level and business-specific factors which determine the effectiveness of the strategy types. Since 1987, over a dozen empirical studies (see{2] for an extensive review) and several conceptual pieces (¢.¢{3, 4) have been published in the management and the marke literature. However, previous research has been predominantly descriptive (eg{5-7). In this study, we examine the business characteristics which lead to superior performance for the Prospector, Analyser and Defender strategy types. ‘The Miles and Snow Strategy Typology Miles and Snow’s strategy types are primarily differentiated by the manne: in which each solves the entrepreneurial problem, the strategic management of its product-markets [8, p. 6]. Defenders attempt to create a stable domain by aggressively protecting their product-market. In contrast, Prospectors approach their environment more proactively and seek to identify and exploit new opportunities through both product and market development, Occupying the middle position, Analysers carefully explore new product and market opportunities while maintaining a core of skills, products, and customers. ‘After a business determines its product-market strategy, it must create a system for producing and distributing its products (the “engineering problem’), and must develop and implement organizational structures and processes which support its entrepreneurial and engineering solutions (the “administrative problem”), According to theory, Defenders invest heavily in “The comments of Sully Taylor and Mike Hitt are gratefully acknowledged. Product-market Strategy 33 Received March 1998, Revised June 1996, Eagan ara of Mati Cmte BaEuropean Journal of Marketing 27,10 34 technological efficiency and manage the organization with a functional structure and centralized control. Prospectors invest in multiple, flexible technologies, and utilize product management and decentralized control. Analysers invest in both stable and flexible technologies, and utilize matrix structures and complex co-ordinating mechanisms, A fourth usually unsuccessful type, the Reactor, has not been consistently described. In research on the Miles and Snow typology, the Reactor often has been characterized as having unique strategic qualities (e.g{9-11)) which rank below the Defender in such attributes as proactiveness, attitude towards growth, and intensity of environmental monitoring{5,7]. However, Miles et al {12, p. 553] say that it is the Prospector and Defender which occupy the opposite ends of a continuum of adjustment strategies, and elaborate further that (1, p. 557}, “the Reactor is a ‘residual’ strategy, arising when one of the other three strategies is improperly pursued”. In an analysis of businesses in the adhesives and sealants industry, Wright et al[13] found that a three-cluster solution which roughly corresponds with the strategy types was superior to a four-cluster solution, thus supporting the proposition that there are three natural entrepreneurial archetypes, rather than four. Performance Analysis Performance of the Miles and Snow strategy types is not clearly understood. Miles and Snow{1] propose that Prospectors, Analysers and Defenders have the opportunity to be equally successful, and that these three will consistently outperform Reactors. In support ofthe theory, Wright et al[13} present counter- propositions for how different strategy types could achieve superior performance. However, in their review of research on the typology, Zahra and Pearce{2] concluded that support for equal effectiveness among Prospectors, ‘Analysers and Defenders was mixed. And, in contrast ‘o the theory, Snow and Hrebeniak{9] found that Reactors outperformed Prospectors and Defenders in the air transport industry. Research Objective ‘The primary objective of this paper is to describe the influence on profitability of theoretically important business-specific variables for the Prospector, ‘Analyser, and Defender types. This is accomplished in two stages. In the first stage, we cluster business units based on the proactiveness, basis for competitive advantage, and market focus dimensions of entrepreneurial strategy as suggested by Walker and Ruekert{4] and Segev{14) and validate the clustering using other theoretically related variables, In the second stage, we analyse the relationships between organizational characteristics and profitability in the strategy types. We include important market structure variables in the model as controls. Characteristics of the Miles and Snow Strategy Typology Consistent with Miles and Snow(1] and Wright et al{13], we expect to find that a three-cluster solution will effectively summarize the data and that the profiles,of the clusters will correspond with the characteristics of the Prospector, Analyser, and Defender strategy types as described below. Proactiveness. Proactiveness, the aggressiveness with which businesses pursue growth opportunities in their product-markets, is the foundation for the Miles and Snow typology{8], Defenders isolate and protect a relatively stable market and seek growth through market penetration, In contrast, the Prospector's distinctive competence is in identifying and exploiting ne product and market opportunities. The Analyser extends into new products from a relatively stable base of customers and products. Thus, its growth can come from further market penetration as well as from new product and market development. Shortell and Zajae{I1, p. 826] found that the strategy types could be differentiated from one another based on the overall emphasis placed on “new services and markets” Basis for competitive advantage. Prospectors may use either low-cost or differentiation-based competitive advantagef4, p. 17]. Being first-movers, Prospectors have the opportunity to achieve a sustainable cost advantage from learning or experience effects{15, p. 133; 16, p. 42; 17, p. 406] or by pre-empting rivals in the acquisition of scarce assets such as raw materials or plant and equipment{17, p. 44]. While Defenders are generally thought to place the greatest importance on low cost, Smith ef al{7] found no significant difference between Prospectors’ and Defenders’ emphasis on low cost. However, pioneering new markets also requires high quality, high service, or the development of new product technologies[15, p. 133], which are characteristics of differentiation-based competitive advantage{ 18}. Prospectors must also differentiate their offerings from offerings by competitors in threatened industries as was the case when the compact disc player was introduced to compete with the traditional turntable. Low cost and Gifferentiation are not inconsistent with each other{17], Porter's{18] definition of stuck-in-the-middle notwithstanding. Consequently, Prospectors may rely on either differentiation-based competitive advantage or low-cost-based competitive advantage, or both. Analysers are followers. They usually enter new markets or introduce new products only after their viability has been demonstrated by Prospectors, This requires that Analysers maintain a dual technological core to continue to serve existing customers with existing products and also to be sufficiently technologically flexible to follow Prospectors rapidly with new products. Miles and Snow{1] suggest that since the Analyser’s operations can never be completely effective or efficient due to this dual focus, they must rely primarily ‘on differentiation to distinguish their offerings from competitors’ offerings and achieve competitive advantage. The Defender’s focus is on solving its engineering problem: “how to produce and distribute goods or services as efficiently as possible'[12, p. 551}. This is accomplished by focusing on a highly cost-efficient core technology and by developing highly efficient administrative systems. Thus, low cost is the Defender's basis for competitive advantage. Product-market Strategy 35European Journal of Marketing 27,10 36 ‘Market focus. Because of their sensitivity to market needs, Prospectors and Analysers define their market scope rather narrowly. This enables them to understand the needs of individual market segments better and to develop new products and services to satisfy those needs. This does not preclude them from serving multiple market segments nor from realizing economies of scope from. offering related products. Tn contrast to Miles and Snow's view that Defenders direct their efforts at a narrow segment of the total market, we believe that Defenders must take a broader view of the market to offer standardized products and to attain sufficient economies of scale to achieve a low-cost position. Smith et al{7] found, on average, that Defenders take a broader view of the market than do Analysers or Prospectors. Conant e# al(5) also found that, on average, Defenders have lower skill at market segmentation, This makes the Defender strategy type similar to Porter's overall low-cost strategy. New product development and success. Product development differs between Prospectors and Analysers. Prospectors, being pioneers, seek to develop innovative new products, sometimes ‘at the expense of short-term profitability[15]. Analysers, being early followers, take an imitative approach to new product development and pursue effectiveness “through the well-conceived addition of new products.."[1, p. 77}. Consequently, growth through product development is essential to the success of both these organizations. McDaniel and Kolari{10] found no significant difference between Prospectors’ and ‘Analysers’ emphasis on new product development, and Shortell and Zajac{11] found no significant difference between the types in the actual number of new services offered by health care organizations in the past two years. Defenders, on the other hand, grow primarily through market penetration and engage in little new product development. “Product development in a Defender is usually a simple extension of the current product line.."[1, p. 37] McDaniel and Kolarif10] and Shortell and Zajac{11] found that Defenders put significantly less emphasis on new product development than either Prospectors or Analysers. Furthermore, even when they do develop new products, Defenders are unlikely to have the necessary organizational capabilities for successful new product management. Profitability. Both Miles and Snow, and Porter, suggest that effective implementation of any one of their strategy types could lead to acceptable performance. Consistent with the coalignment perspective{19] that inadequate performance is the result of poor co-ordination between strategy and environment or strategy and organizational capability, we expect there to be greater profitability variation within groups than between groups. In other ‘words, poor performance may be experienced by Prospectors, Analysers or Defenders which either do not have the requisite organizational capabilities or which are pursuing the strategy in an inhospitable environment, ‘Table I summarizes the expected profiles of the Prospector, Analyser, and Defender strategy types.———EE Prospector Analyser Defender lustering variables Progetiveness High Low Differentiation strategy High Low Low-cost strategy High High Market focus Narrow Broad Validation variables [New product importance High High Low [New product responsibilty High High Low New produet success rate High High Low Average profitability No difference. Performance analysis HI; SBU Autonomy + + - H2: Market orientation + + NR HS: HRM emphasis + + Hi: Relative cost : NR = Norelationship Determinants of Performance SBU autonomy: Decision-making autonomy of strategic business units (SBUs) puts responsibility close to the market, allows decisions to be made rapidly, and enables the business unit to be flexible and adaptable(4], Prospector and Analyser business units are concerned with maintaining flexibility both in locating new market opportunities and in developing new technology. These business units will be more effective when they operate with few restrictions from headquarters and when they have low interdependency with other SBUs in the corporation, as any constraints will restrict their ability to respond rapidly to changes in their environment{20) In Defender business units, the focus on low cost requires “close attention to operational details, including the relentless pursuit of cost economies and productivity improvements through standardization of components and processes, routinization of procedures, and the integration of functional activities across business units” (4, p. 21}, These activities are likely to be accomplished most effectively when there are cost-reducing interdependencies among business units[20] and when decision making and control are centralized). Hib; There is a negative relationship between SBU autonomy and profitability for Defender business units. Product-market Strategy 37 ‘Table I. Summary of| Propositions and HypothesesEuropean Journal of Marketing 27,10 38 Market orientation. Market orientation is the business culture which is committed to the continuous creation of superior value for customers{21-22], Market- oriented businesses continuously monitor their external environments for opportunities and threats. In that both Prospector and Analyser business units depend on product development and market development for growth, both strategy types engage in customer and competitor analysis in their market scanning efforts. Both customer and competitor analysis are integral to market orientation, On the other hand, with their internal focus on low cost and efficiency, Defenders gain relatively little benefit from a high magnitude of market orientation. In fact, a substantial investment of resources in market-oriented activities could distract the Defender from its primary preoccupation with low cost, causing it to become a Reactor. H2a: There is a positive relationship between market orientation and profitability for Prospector and Analyser business units. H2b; There is no relationship between market orientation and profitability for Defender business units. HRM emphasis. HRM emphasis is a business's concern for employee welfare, work conditions, and employee development. It has been found to be positively related to performance in a broad sample of firms{23), However, as Zahra and Pearce [2, p. 752] note, “managers will emphasize different human resource philosophies depending on the strategic type of the organization.” While concern for employees is certainly humane management practice, it could interfere with the Prospector's need for flexibility. Employee ‘opportunities in the Prospector businesses are most likely to come from the SBU’s growth rather than from formal programmes for employee advancement and development{24]. Also, Prospector businesses frequently hire key individuals from the outside and disproportionately use professionals who do not require formal career development [1 p. 61,62,65]. This suggests that a high level of HRM emphasis could be counterproductive for Prospectors, ‘Owing to their dual technological core, Analysers require extensive co- ordination and conflict resolution mechanisms. Co-ordination and conflict resolution will be facilitated when employees feel that they are being fairly treated. Thus, HRM emphasis should lead to a more effective Analyser organization. Because Defenders rarely are able to offer employees opportunities for advancement based on organizational growth, they must have a clear and proactive human resource management programme to maintain job satisfaction and retain high performers(19}. H3a: There is a negative relationship between HRM emphi profitability for Prospector business units, H3b: There is a positive relationship between HRM emphasis and profitability for Analyser and Defender business units, sis andRelative cost. Achieving low cost isthe result of the effectiveness of a business! engineering decisions. Relative cost has a very strong theoretical influence on business profitability[25], A low relative cost implies a cost advantage, thus, we expect a negative relationship between relative cost and business profitability forall strategy types, but it will be most important to Defenders, Ha: There is a negative relationship between relative cost and profitability for Prospector, Analyser, and Defender business units. Hab; Achievement of low relative cost is most important to Defenders. Table I also displays the performance-based hypotheses as the form of the relationship between the organizational characteristic and performance for the strategy types. In the analysis, we also control for market growth rate, buyer power, and rate of product innovation as these variables have been found to influence performance for the strategy typesfe.g. 2, 8} Research Design Instrument Development ‘The “Business Practices Survey” is composed of existing scales and scales which were developed to measure constructs which are important to this study. ‘The instrument was pre-tested with six current or former SBU managers of the corporation from which our sample would be drawn. On the basis of their ‘comments, we refined some items and developed the final instrument. The Sample ‘The sampling units in this study are 140 SBUs of a major, highly diversified, forest-products corporation. These SBUs vary from mills to wholesale distribution centres to value-added manufacturing operations. Thus, while all the SBUs operate in the forest-products industry, they face substantially different product-market conditions. Within each SBU the top management team was identified by the responsible group executive and each member was sent a questionnaire titled “Business Practices Survey” with questions about the SBU’s competitive practices and strategies, competitive environment, and performance in its principal served market. ‘There is a trade-off between using SBUs from one corporation as the sampling frame and sampling from a broader group of businesses. Our approach produces high response rates and access to multiple respondents within each SBU. The reduction in measurement error{26-27] increases the internal validity of the study: However, the generalizability of the study may be reduced. We believe that internal validity should be the primary concern in the early stages of research. The number of useable questionnaires returned was 371, a response rate of 84 per cent. Within each SBU, top management team responses were aggregated and an average score on the constructs of interest was calculated for the SBU. ‘Averaging responses within an SBU allows measurement errors to cancel out each other and thus the reliability of the measure is increased]26]. There was a Product-market Strategy 39European Journal of Marketing 27,10 40 total of 116 SBUs (83per cent) with useable data, averaging three respondents per SBU. Clustering Variables Proactiveness. Consistent with Miles and Snow's emphasis on the different approaches to growth which are employed by the different strategy types, we measured proactiveness based on a SBU's relative emphasis on market penetration, market development, product development, and introduction of new products into new markets. The Prospector’s distinctive competence is in identifying and exploiting new product and market opportunities. In contrast, the Analyser extends into new products from a relatively stable base of customers and products. Thus, its growth can come from further market penetration as well as from new product and market development. Defenders seek to isolate and protect a relatively stable market, thus their growth is ‘generated through additional market penetration. Following Gupta and Govindarajan{28], we construc:ed a weighted-average strategy index based on each strategy’s importance to the SBU and its magnitude of proactiveness. They offer evidence of the validity of a similar measure of SBU strategy based on its correlation with the SBU's market share. As proactiveness is a measure of the aggressiveness of the SBU’s growth strategy, it should be strongly related to the SBU’s sales growth rate. The correlation coefficient for the relationship between Proactiveness and sales growth is 0.3923 (p = 0.0001). Differentiation-based and low-cost-based competitive advantage. Drawing on Porter{18] and Dess and Davis{29], we developed a five-item scale to measure differentiation-based competitive advantage and a six-item scale to measure low-cost-based competitive advantage (see Appendix for a description). A similar measurement approach was employed by Govindarajan and Fisher{20] and was demonstrated to have convergent validity as well as adequate reliability. Market focus. Similar to the approaches of Smith ef al{7] and Conant et al{5], we use a single item, “the importance to overall competitive strategy of segmenting the [SBUS] served market”, to measure market focus. Cluster Validation Variables New product development importance. This is measured using a seven-point scale of the “importance in your strategy of developing new products’. New product responsibilty is assessed by the extent to which “our busines unit is responsible for its own new-product development.” New product success rate. This is measured as top management's assessment of the SU's new product success rate relative to all other ‘competitors in the SBU's principal served market over the past year. Relative performance was used to control for performance differences among the SBUs’ different industries and served markets. Subjective measures of performanceare commonly used in research on private companies or on business units of large companies and have been found to correlate strongly with their objective counterparts (e.g{30). Profitability, An SBU's profitability is top management's assessment of the SBUSs return on assets relative to all other competitors in the SBU’s principal served market over the past year. Previous comments about relative measures and subjective assessments apply here also. Independent Variables and Control Variables SBU autonomy. Autonomy is measured by the extent to which respondents agree with the statement, “our management team has the autonomy to manage ‘our business with minimal interference from higher management.” Market orientation. We use Narver and Slater’s{22] measure of market, orientation which is based on a business's customer orientation, competitor orientation, and interfunctional co-ordination (see Appendix). Narver and Slater offer evidence of discriminant validity, convergent validity, and concurrent validity for their measute. HRM emphasis. We use Hitt and Ireland’{31] six-item scale for assessing the importance which a business attaches to policies and activities for recruiting, motivating, and rewarding employees (see Appendix). Relative cost. Relative cost is the average total operating costs of a business relative to those of its largest competitor in its principal served market -gment (on a 1 to 8 Likert-type scale). ‘Market growth. Market growth is the “approximate average annual growth rate of total sales in your principal served market segment” over the past three years, measured on a 1 to7 Likert-type scale. Buyer power. Using a seven-point Likert-type scale, respondents were asked to indicate, “the extent to which buyers are able to negotiate lower prices from sellers[18) Rate of product innovation. We used Miller's{32] scale for rate of product innovation. On a 7-point scale, respondents indicated the extent to which the rate of innovation of products or services in their principal served market had increased or decreased. Analysis and Results ‘Tables Il and III contain descriptive statistics and intercorrelations for the variables used in the cluster analysis and the regression analysis respectively. Reliabilities are reported on the diagonals of the correlation matrices. Reliability for variables measured with multi-item scales (differentiation, low cost, market orientation, and HRM emphasis) is assessed with Cronbach's alpha and exceeds 0,68 for all multi-item scales. For single-item scales we use the single-item estimator of interrater reliability[33]and find median intra SBU reliabilities ranging from 0.74 for market focus to 0.90 for relative cost. “Thus, we have confidence in the reliability of our measures. Product-market Strategy 41[00> 9 wee T0>d “te 4 ayiqenas sour werpapy = ¢ ‘eudje sypequary = ¢ 0 ow H00 TO wstzo tect TEN someon BLO Z6OTO a1 anS5TO ZANT aesGHFO eel CO ssooons npaid MAN a0 SiO Se Low tLwL ysuodsax onpaid Hoy 9 SLO HF ISTO. aestB90 an BIB doueyodutonpard Hong PLO 440120 aesf190 ane SBCO sro IY *p L090 18900 BOKOT E 810 suv0 180 scummy ® o @ © w @ am (qs) weay é 2 | da s ai, g 3 225 ae S21 qe a: Bias ai28 Bs25 Zes¢ aass 9 e582rae ive 28 9 Prey Be S28 02 Es azeue go gest g | i z | oH f weoyuttsou=sn | T000>4 00> oro>d uu wap = eye sypaquasy =» (ord 880 LD NDAD anatt¥O” SOU stato TOOT 8 oo 80 ‘800 re00 000 seo z00 wero 026 samod sang ~y ozo) 306m) ew] eTO ORLY uonesouur neo 9 se) it 3000 100 1000 e100 ORE pos HEY “S (oor) 60 800 awlsz0- emo wooannmey (oreo) G0 eestly0eszzo OF sseydun yan *t (oev0) 250 a6r0 OF nO Z (ooo) aay Ow wooony 1 oO @ ® &) © @ ao (as) wea,European Journal of Marketing 27,10 44 Forming Strategic Types: Cluster Analysis SBUs are classified by strategic type using cluster analysis based on a business's approach to the entrepreneurial problem. After scores on proactiveness, DCA, LCCA, and market focus were standardized, a complete linkage algorithm(34] was used to cluster the business units. To determine the appropriate cluster solution, the agglomeration schedule was examined for a large increase in the squared Euclidean distance. Relatively small, regular increases in the squared Euclidean distances occurred until a large increase between the three-cluster and two-cluster solutions (irom 31.7 to 48.3) indicated that the three-cluster solution was most appropriate. The three-cluster solution is also consistent with our @ priori expectation that there would be three archetypal entrepreneurial strategy types. Determining Group Profiles: ANOVA and Muatiple Comparison Tests Differences between characteristics of the Prospector, Analyser, and Defender strategy types were assessed using analysis of variance and the Scheffé multiple comparison test. To validate the cluster solution{35], we also assessed characteristics of the clusters on independent variables which are not used in forming the clusters, but which are theoretically associated with the strategy types. From Table IV we see that the characteristics of the strategy types are highly consistent with the profiles suggested in Table I. The Prospector is significantly more proactive, places greater importance on differentiation, and more aggeressively segments its markets than either the Analyser or Defender. ‘The Prospector puts more emphasis on low cost than does the Analyser, and places greater emphasis on new product development than either the Analyser or Defender and enjoys a higher new product success rate than the Defender. ‘The Prospector's profitability is not different from the mean. he Analyser is moderately proactive, places a moderate emphasis on differentiation and market segmentation. The Analyser’s new product success rate is substantially higher than that of the Defender but its profitability is not significantly different from the sample mean. The Defender is minimally proactive, emphasizes low-cost-based competitive advantage and defines its market broadly to take advantage of economies of scope and scale, The Defender’s profitability also is not different from the sample mean, ‘The three-cluster solution and the profiles of the strategic types produced in the cluster analysis are strongly consistent with Miles and Snow's theory. Both our theory-driven, a priori expectations of the relationships among the constructs and the consistency of our results with the findings from previous studies lead to high confidence in the validity of our classification procedure. Performance Analysis: Table V contains results of the regression analysis. We utilize step-wise regression to determine the set of independent variables that best explainsStrategy 45, “Test “| Product-market 190 uosuedkuon agg 9auoG Wor, VAONY #0hdq ‘suonetap prepueTs PUP SURDIA % ca & 950 Jo oq, on Deen . SN sn sx N REF Awiqeyond “9H rd od a sx “ Se ssapons Dnpord MN GH juev SN SN SN . sehr aytgysuodsas ompoid ay, ASH (60) oa coed ” 7 ae62) anueyoduut pnpaxd aN, 704 50) eed oy oy om ae aH oro) od SN o os ast eH (eo om a oe ee 8H (oso aos) ALO o a os “ one SY ers eH e% et zt of Smpwapq sPSsuy saoDedsag stat Jo uostedu0.) 01 BIE;European Journal of Marketing 27,10 46 Table V. Results of Multiple Regression Analysis. Regression Coeficient (Standard Erron) Dependent Variable = ROL Analyser a SSBU autonomy 0.289" (0138) Market orientation opis 0386+ 0240) (0300) | HRM emphasis 1201 (262) Relative cost agree 290 ogee (0130) (0170) (ozzy Market growth, ossgees ony Rate of product innovation oar 0215) | Buyer Power oa ssi aay (0290) Fale rags LsTg* L2gageee Acdusted R? oss 03 0539 © p<095, * penol + p<0001 Note | ‘Step-wise regression employed. Significant (90.10) coefficients reported, sd performance for the strategy types. Consequently, only significant coefficients are reported, Profitability and Prospectors. With an adjusted R? of 0.64, the Prospector ‘model has substantial explanatory power. Consistent with hypotheses 7a and 8a, the signs for the coefficients of SBU autonomy and market orientation are positive and significant. Consistent with hypothesis 9, the sign for HRM asis is negative and significant (p = 0.0001). As expected, the sign for relative cost also is negative and significant, Profitability and Analysers. Compared to the Prospector model, the explanatory power of the Analyser model is modest (adjusted R® = 0.27), but is within the range of typical economic models of firm performance{23, p. 400}. In addition to relative cost position, market orientation is the only organizational variable which is significantly associated with profitability, None of the market structure variables is significantly associated with profitability. This suggests that the Analyser strategy type may be viable in all environments.Profitability and Defenders. The explanatory power of the Defender model is also substantial (adjusted R? = 0.54), As hypothesized, this power primarily is due to relative cost. Discussion of Performance Analysis and Suggestions for Future Research The Prospector strategy type appears to be a complex business to manage. Not surprisingly, strong market orientation is essential to the Prospector's success This means that innovation is externally, rather than internally, motivated. This finding contrasts with the warnings from Hayes and Wheelwright{36) and Bennett and Cooper{37] that market-driven product development primarily, leads to imitative products and line extensions, Recent evidence{21,22] seems to confirm that market-driven businesses enjoy superior new product success. Von Hippel[38] suggests that innovators should work with lead users, those early, adopters who are most likely to see and appreciate product development. ‘Under conditions of rapid market change, proactive business units must be free to modify or alter their strategies to take advantage of opportunities or deter threats(39], Market orientation and autonomy are positively related|40] and both are important to the fast-moving Prospector. Thus, if being market oriented is important to Prospectors and autonomy is important to achieving a high degree of market orientation, Prospector business units should benefit from being relatively autonomous. Prospector businesses are exciting, but highly demanding, places to work. Recent high-profile examples such as Microsoft and Apple bring to mind internally motivated, dedicated employees working very long hours. While there is the risk of burnout in this environment, there is often the possibility of substantial financial reward. Thus, overmanaging employees could be ‘ounterproductive for Prospectors. Further research on motivation systems and human resource manaygement practices in Prospector businesses would be very useful. While the findings that rate of innovation is positively associated with profitability and that market growth is negatively related to profitability confirms Hambrick’{8] findings about Prospector businesses, these results are still somewhat perplexing in that both market characteristics are associated with uncertainty. While itis likely that there is a lagged relationship between innovation and profitability, a longitudinal study would provide more insight into this relationship As creative imitators, Analysers need to have very broad and intensive market scanning efforts, which explains the significance of market orientation. Analysers must maintain a continuous dialogue with customers to assess the shortcomings of pioneering offerings, and thus to identify opportuniti themselves. Furthermore, they must monitor constantly the activities of their competitors to ascertain their competitors’ successes and failures. However, Analysers should also find opportunity in pursuing cost advantages over Prospectors. Consistent with Aaker and Day’s{41] proposition Product-market Strategy 47European Journal of Marketing 27,10 48 that Analysers have the opportunity to enter markets with lower costs than those of the pioneering Prospectors, there isa strong, and expected, relationship between low relative cost and profitability. Unfortunately, this study gives little insight into the type of organization which can manage this dual external internal focus. A study that helps to understand the requisite organizational characteristics would be a major contribution Based on the results of this study and the underlying theory, low cost is the name of the game for Defenders. As we now have substantial confidence in the relationship between low cost and profitability itis time to shift the focus of future research on Defenders to the determinants of low cost. Perhaps it is not too surprising that the old paradigm of centralized decision making and rigid personnel policies is not related to success. It is becoming accepted that achievement of a low-cost position requires high quality and continuous process improvement. Total quality management addresses these issues by recognizing the innovative capabilities of line workers and by empowering them to take action without authorization from supervisors or managers. Other managerial issues include the areas in the value chain which offer the greatest potential for cost reduction; contributions by the marketing function to reduce total cost without diminishing organizational effectiveness; and how marketing can best convey the low-cost message without jeopardizing a premium quality image As one of the few analyses of within-types profitability, the present study sheds light on some questions and raises other questions. Thus, research on understanding the reasons for within-groups performance variation should proceed. We believe that future studies should recognize that Reactors are not unique strategy types. Reactors are Prospectors, Analy'sers or Defenders which are not aligned with appropriate organizational structures and processes, o market conditions. Analysis within the Prospector, Analyser, and Defender types should include structure, process, and technology variables suggested by Miles and Snow{1]. As in the current study, the in‘luence of theoretically important market structure variables on performance should be examined and controlled. Conclusion ‘This study has important implications for managers and scholars. As one of the few studies to assess the characteristics which lead to superior profitability for the Prospector, Analyser, and Defender types, it provides guidance to the ‘managers of businesses with different strategic orientations, However, it eaves a number of questions open to further study. Specifically, what marketing programmes are most effective for the different strategy types, what organizational processes allow Analysers to manage their dual internal- external focus effectively, and what are the best routes to achieving low cost for Defenders? These are important questions which marketing and strategy scholars should pursue.References 10. u 12, 13, 15. 6 1. 8 19. ak Miles, RE. and Snow, CC, Organizational Strategy, Structure, and Process, McGraw-Hill, New York, NY, 1978 Zalnra, SA. an Pearce, IL, .A., "Research Evidence on the Miles Snow Typology’, Journal ‘of Management , Vol. 16 No.4, 1990, pp. 751-68. Govindarajan, V, "Decentralization, Strategy, and Efectiveness of SBUs in Multibusiness Organizations”, Academy of Management Review, Vol. 11 No.4, 1986, pp. 844-56, Walker, O.C. and Ruekert, R.W,, "Marketing's Role in the Implementation of Business Strategies: A Critical Review and Conceptual Framework”, Journal of Marketing, Vl. 51, 1987, pp. 15:33 Conant, JS, Mokwa, MP. and Varadarajan, PR,, “Strategic ‘Types, Distinctive Marketing ‘Competencies, and Orgznizational Performance: A Multiple Measures-based Study", Strategic Management Journal, Vol. 11 No.5, 1990, pp. 365-3, McKee, DO, Varadarajan, PR. and Pride, W.M., “Strategic Adaptability and Firm Performance: A Market-contingent Perspective”, Journal of Marketing, Vol. 53, July 1989, pp. 2135, ith, K.G, Guthrie, JP. and Chen, M, “Strategy, Size, and Performance", Organization ‘Studies, Vo. 10 No, 1, 1989, pp. 6381. Hambrick, DC, “Some Tests of the Effectiveness and Functional Attributes of Miles and ‘Snow's Strategic Types", Academy of Management Journal, Vol. 26 No. 1, 1983, pp. 526. Snow, CC. and Hrebeniak, L., “Strategy, Distinctive Competence, and Performance”, ‘Administrative Sconce Quarterly, Vol. 25, 1980, pp. 317-3. ‘MeDaniel, SW. and Kolar, JW, “Marketing Strategy Implications of the Miles and Snow Strategic Typology”, Journal of Marketing Vol. 51,1987, pp. 19.30 Shortell, SM. and Zajac, EJ, “Perceptual and Archival Measures of Miles and Snow's Strategic Types: A Comprehensive Assessmant of Reliability and Valiity”. Academy of ‘Management Journal, Vol. 33 No. 4, 1990, pp. 817-32. Miles, RE, Snow, CC, Meyer, A.D and Coleman, HJ, “Organizational Strategy, Structare, ‘and Process", Academy of Management Review, July 1978, pp. 51662. Wright, P, Kroll, M, Chan, P.and Hamel, K, “Strategic Profiles and Performance: An Empirical Test of Select Key Propositions’ Journal of the Academy of Marketing Science, Vol. 19 No.3, 1991, pp. 245.54. Seges, E., “A Systematic Comparative Analysis and Synthesis of Two Business-level Stratexic Typologies’, Strategic Management Journal, Vol. 10 No.8, pp. 487-505. Lamnbkin, M., “Order of Entry and Performance in New Markets’, Strategic Management Journal, Vol. 9 Special Issue), 1988, pp. 127-40. Lieberman, MLB, and Montgomery, DB., "First-mover Advantages", Strategic ‘Management Journal, Vol. 9 Special Issue, 1988, pp. 41-58 Hill, C.WL., "Differentiation versus Low Cost or Differentiation and Low Cost: A Contingency Framework", Academy of Management Review, Vol. 13 No.3, 1988, pp. 401-12, Porte, MLE, Competitive Strategy, The Free Press, New York, NY, 1980. Venkatraman, N. and Prescott. [E., "Environment strategy Coalignment: An Empirical ‘Test of Its Performance Implications’, Strategic Management Journal, Vol. 11 No.1, 1980, pp.123, Govindarajan, V. and Fisher, J, “Strategy, Control Systems, and Resource Sharing Effects on Business Unit Performance”, Academy of Management Journal, Vol. 33 No.2, 1990, pp. 259.8 Kohli, A.K.and Jaworski, BJ, “Market Orientation: The Construct, Research Propositions, and Managerial implications” Journal of Marketing, Vol. 54 No. 2, 1990, p. 1-18. Product-market Strategy 49European Journal of Marketing 27,10 50 BS 8 8 8 3. 8 #R eS Ss 8 8 Narver, J and Slater, 8 "The Effect of a Market Orientation on Business Profitability”, Journal of Marketing, Nol. 54 No.4, 190, pp. 238. Hansen, GS. and Wernerfelt, B., “Determinants of Firm Performance: The Relative Importance of Economic and Organizational Factors", Strategic Management Journal, Vol. 1ONo.5, 1988, p. 399-41. Slocum, LW. J, Cron, WL, Hansen, RIW. and Rawlings, S, “Business Strategy and the “Management of Plteaued Employees’, Academy of Management Journal, Vo. 28 No.1, 1965, pp. 19354 Scherer, FM, Industrial Market Structure and Economic Performance, Rand McNally, Chicago, IL, 1980. Peter LP, "Reliability: A Review of Psychometric Basis and Recent Marketing Practices" Journal of Marketing Research ol. 16, February 1979, pp. 617 uber, GP. and Power, DJ, "Retrospective Reports of trates level Managers: Guidelines for Increasing Their Accuracy", Strategic Management Jowrral, Vol. 6, 1985, pp. 17-80 Gupta, A.and Govindarajan, V, “Business Unit Strategy, Managerial Characteristics, and Business Unit Effectiveness at Strategy Implementation", Academy of Management Journal, Nol. 27 No. 1, 1984, pp. 25-1. Dess, GG. and Davis, PS, "Porter's (180) Generic Stratus As Determinants of Strategie Group Membership and Organizational Pxformance", Acadimy of Managemen! Journal, Vol. 27 No.3, 1984, pp. 46788, Dess, GG and Robinson, RB. J, “Measuring Organizational Performance in the Absence ‘of Objective Measures: The Case ofthe Privately Held Firm and Conglomerate Business Unit, Strategic Management Journal, Vl 5, 1984, p. 255.73 Hitt, MAA. and Ireland, RD: “Relationships among Corporate-level Distinctive Competencies, Diversification Strategy, Corporate Structure, and Performance’ Jounal of ‘Management Studies, Vol.23 No.4 1988, pp. 401-16. Miler, D, “The Structural and Environmental Correlates of Business Strategy”, Strategic “Management Journal No 8No. 1 1887, pp. 6676. James, LR, DeMaree, RG. and Wolfe. "Estimating Within group Rater Relibility with and without Response Bas" Journal of Applied Psychology, Vol 69, 1984, p. 8598. Norusis, MJ, SPSS-X Advanced Statistics Guide, nd ed, MeGraw-Hil, New York, NY, 1988, [idenderfer,MS. and Blashfield, RK, Custer Analysis, Sage. Bevery ils, CA, 1984 Hayes, RH. and Wheelwright SC, Restoring Our Compettse Edge, ohm Wiley & Sons, New York, NY, 1984. Bennet Rand Cooper, "Beyond the Marketing Concept”, Business Horizons, june 1979, pp. 7583. von Hippel, “Lead Users: A Soure of Novel Product Concepts", Management Science, Vol 32No.7, 1986, pp. 35265. Day, GS, "Learning about Markets", Marketing Sconce Institte Commentary, Report No, 91-117, 19. Jaworski, BJ. and Kohli, AK, "Market Orientation: Antecedents and Consequences Marketing Science Institute Working Paper, Report No. 92 104,192. |. Aaker, DA. and Day, GS, “The Perils of High Growth Markets’, Strategic Management Journal, Vol.7, 1986, pp. 409-421,Appendix: Scale Items Competitive Advantage Scales © Ditferentiation-based competitive advantage: (1) Product quality; (2) Differentiation; (@) Customer service; 4) Marketing research; and (6) Broad product fine. © Low cost-based competitive advantage: (1) Manufacturing cost; (2) Manufacturing ‘modernization; 3) Plant layout; (4) Capacity utilization; 6) Raw material value analysis; and (6 Special advantage access to raw materials HRM emphasis: (1) Develop and maintain effective policies for hiring, taining, and promotion; 2) Optimize employee turnover; (3) Constantly work to improve employee motivation. job sstisfaction, and morale; () Stimulate and reward employee creativity; (5) Develop and maintain responsive rievance procedures; (6) Encourage employee education, Market Orientation Subscales © Customer orientation: (1) Customer commitment; (2) Create customer value (@) Understand customer needs; (4) Customer satisfaction objectives; (5) Measure customer satisfaction; (6) Aftersales service, © Competitor orientation: (1) Salespeople share competitor info; (2) Respond rapidly to competitor actions; (3) Top management discusses competitor strategies; () Target ‘opportunities for competitive advantage. © Interfunctional co-ordination; (I) Interfunctional customer call; (2) Information shared ‘among functions; (3) Functional integration in strategy; (4) AIT functions contribute to customer value. Product-market Strategy 51