Generic strategies and performance – evidence from manufacturing firms

Purpose - The purpose of this study is to examine the relationship between business‐level strategy and organisational performance and to test the applicability of Porter's generic strategies in explaining differences in the performance of organisations. Design/methodology/approach - The study was focussed on manufacturing firms in the UK belonging to the electrical and mechanical engineering sectors. Data were collected through a postal survey using the survey instrument from 124 organisations and the respondents were all at CEO level. Both objective and subjective measures were used to assess performance. Non‐response bias was assessed statistically and it was not found to be a major problem affecting this study. Appropriate measures were taken to ensure that common method variance (CMV) does not affect the results of this study. Statistical tests indicated that CMV problem does not affect the results of this study. Findings - The results of this study indicate that firms adopting one of the strategies, namely cost‐leadership or differentiation, perform better than “stuck‐in‐the‐middle” firms which do not have a dominant strategic orientation. The integrated strategy group has lower performance compared with cost‐leaders and differentiators in terms of financial performance measures. This provides support for Porter's view that combination strategies are unlikely to be effective in organisations. However, the cost‐leadership and differentiation strategies were not strongly correlated with the financial performance measures indicating the limitations of Porter's generic strategies in explaining performance heterogeneity in organisations. Originality/value - This study makes an important contribution to the literature by identifying some of the gaps in the literature through a systematic literature review and addressing those gaps.