Strategic Groups in Business
Summary and Keywords
A strategic group is defined as a set of firms within an industry pursuing a similar strategy. The strategic group concept emerged with much promise over 40 years ago. Research on strategic groups over time in a broad variety of settings has sought to clarify their theoretical and empirical properties. These research findings are gradually being translated into practical managerial guidance, so that the strategic group concept can be understood, operationalized, and used productively by managers.
Two main approaches exist for identifying strategic groups—a ground-up approach, using disaggregated data, and a top-down, using cognition. Once identified, managerial insights can be derived from clarifying a strategic group’s profile. Firm membership in a group helps to uncover immediate and more distant types of competitors. Group profitability differences reveal the more rewarding and less attractive areas within an industry, as well as identify the lower-return groups from where firm exits are likely to occur. Group dynamics reflect competitive and cooperative behavior within and between groups. Several promising areas for future research on strategic groups to improve understanding and practice of strategy.
A strategic group is defined as a set of firms within an industry pursuing a similar strategy. An industry may contain from one to many strategic groups. For example, the airline industry includes multiple strategic groups such as legacy carriers, low-cost carriers, niche operators, and international carriers.
Strategic groups may be isolated from one another by mobility barriers. Mobility barriers comprise impediments to imitation by firms in another group as well as obstacles to firms exiting their groups. Examples of mobility barriers include specialized expertise, emotional attachment, capital requirements, first-mover advantages, distribution networks, patents, and brand recognition, among others. Mobility barriers provide an explanation for what really separates different strategic groups, why firms cannot easily move between groups, and the stability of a particular configuration of strategic groups over time.
The strategic group concept can be traced back to Hunt’s (1972) observation that groups of firms pursuing different strategies were present in the United States’ white goods (appliances) industry and affected industry performance. This observation provided a more nuanced industry perspective than the prevailing view in industrial organization that firms typically pursue one strategy that varied in scale, which influenced their individual performance. This observation of the presence of groups of firms encouraged new avenues of research to deconstruct industries into different, common players; compare their profiles and performance; and draw insights.
Strategic group analysis lies in between industry and firm levels of analysis. The strategic group concept provides an attractive middle ground between firm and industry for both theory development and empirical analysis (Reger & Huff, 1993). Industry analysis may be too broad and may mix dissimilar firms (Amel & Rhoades, 1988), concealing finer patterns and insights. Firm analysis examines individual companies, which would be resource consuming and overwhelming when many firms exist in an industry. Strategic group analysis has the potential to provide finer insights not revealed by industry analysis as well as reveal common patterns beyond individual firms while conserving resources for data gathering and analyses.
Strategic group analysis can provide multiple insights. The number of strategic groups in an industry and strategic group membership add explanatory factors for performance (Cool & Dierickx, 1993). It can identify strategies and confirm theoretical generic strategies (Dess & Davis, 1984) being practiced. Once these group strategies are identified, they are useful to benchmark competitors or to test hypotheses based on quantitative models of group strategy. The early Purdue studies, such as Hatten, Schendel, and Cooper (1978) of the brewing industry, identified strategic groups to develop quantitative group strategy models. The identified strategic groups can also be used to uncover white spaces in an industry where no competitors exist (Lu, 1999). Strategic group analysis can reveal insights on relative competitor imitation responses within a group and between groups. Finally, it may be useful to predict from which groups and when competitor moves may occur.
The promise of strategic group analysis has prompted studies in a variety of settings, such as brewing (Hatten et al., 1978), oil-drilling (Mascarenhas, 1989b; Mascarenhas & Aaker, 1989), insurance (Fiegenbaum & Thomas,1990), pharmaceuticals (Cool & Dierickx, 1993; Leask & Parker, 2006), banking (Mas-Ruiz & Ruiz-Moreno, 2011), shipping (Lu, 1999), hospitals (Xue, Zhou, Bundorf, Huang, & Chang, 2013), mobile phone companies (Mayor, Bajo Davo, & Roux Martinez, 2015), National Football League teams (York & Miree, 2015), and hotels (Claver-Cortés, Molina-Azorin, & Pereira-Moliner, 2006). These studies have spanned services and manufacturing, domestic and international settings, and for-profit and not-for-profit sectors. They have sought to develop and clarify various aspects of strategic groups. These diverse, widely ranging applications are testaments to the potential value of the strategic group concept.
The extensive research on strategic groups has mostly focused on uncovering their theoretical and empirical properties but require resolution of several issues to develop meaningful managerial guidance for practitioners.
There are several unresolved practical, fundamental issues that need to be worked out before the concept of strategic groups realizes its managerial potential. Specifically, questions have been raised (Barney & Hoskisson, 1990) about (a) whether or not strategic groups really exist and (b) whether strategic groups exhibit profitability differences. If these group-level questions are not resolved satisfactorily, strategy may need to refocus on the firm-level idiosyncratic aspects of strategy.
To address these unresolved issues, the next section on “Strategic Group Definition” provides a definition of strategic groups. “Group Identification” clarifies two polar approaches to strategic group identification; “Group Membership” covers membership identification; “Group Profile” discusses insights derived from a group’s profile; “Groups and Profitability” discusses the profitability of strategic groups; “Strategic Group Dynamics” analyzes the dynamics of strategic groups; and “Competitive and Cooperative Behavior Within and Between Groups” examines competitive and cooperative behavior within and between groups. Finally, the “Conclusion” discusses the implications and promising areas for future development of the strategic group concept to attain its promise.
Strategic Group Definition
A strategic group is defined as a set of firms within an industry pursuing a similar strategy. Key points to note in this definition are that strategic groups focus on (a) “firms” and not “consumers” or “suppliers,” (b) “within an industry” rather than across multi-industry sectors, and (c) “strategy,” which is a broader concept than a single indicator in their profile, such as size or research intensity.
This definition also helps to identify what strategic groups are not. In particular, market segments are often confused with but are not strategic groups. A market segment is a set of customers with similar needs that reflects a demand mapping. Research on market segmentation has a longer history and more elaborate development relative to strategic group research. As the field of strategic group evolves and develops, it will be fruitful to juxtapose strategic groups on one axis and market segment on the other to develop a more complete picture of producers and consumers in a market.
A fundamental question raised by Barney and Hoskisson (1990) was whether strategic groups actually exist. For strategic groups to exist, they must be identifiable in practice and identified reliably. Over time, strategic groups have been identified by numerous research studies using a variety of approaches. These approaches include intended (Dess & Davis, 1984) and realized strategies. Strategies have been measured through perceptual and objective indicators. Perceptual approaches may capture subtle aspects that are not easily included in typically used secondary account and financial data (Reger & Huff, 1993), and perceptions have been found to be widely shared by many industry participants (Spencer, Peyrefitte, & Churchman, 2003). Convergence in competitive structures has also been observed when using archival and perceptual data as when using archival measures of strategy and direct measures of competitors, suggesting that strategic groups are not just a methodological artifact (Nath & Gruca, 1997).
To identify strategic groups, it is useful to find strategy variables that are theoretically based (related to mobility barriers) and that are practical (observable and/or summarize related less observable factors). Since strategy is multidimensional, the use of multiple identification variables instead of a single variable may better capture its complexity.
Certain theoretical concepts such as mobility barriers, isolating mechanisms, and controllable variables provide firmer bases for identifying strategic groups within industries, because they will influence, for example, mobility across groups (McGee & Thomas, 1986). Using mobility barriers to identify strategic groups provides a stronger foundation and greater credence that the strategic groups so identified are not artifacts of measurement. For example, in the oil-drilling industry, a procedure for identifying strategic groups based on mobility barriers was recommended and used. These mobility barriers were tied to drilling depth, international expansion, and offshore drilling, which involved different expertise, operational capabilities, and investments (Mascarenhas & Aaker, 1989).
Many studies have used surrogates for elements of a firm’s strategic direction, for example, vertical integration, product range, research and development (R&D) expenditure, resource commitment, and ownership type, to suggest bases by which creative and sustainable groups are formed. For instance, ownership type can be a parsimonious, important variable that managers use to easily classify firms into different strategic groups. Ownership types lead to different managerial outlooks and mentalities due to a number of macro and micro foundations giving rise to various managerial cognitions. Ownership types have been used to successfully predict strategic group memberships in China’s emerging economy (Peng, Tan, & Tong, 2004). Relating to the Miles, Snow, Meyer, and Coleman (1978) typology, state‐owned enterprises and privately owned enterprises tend to adopt defender and prospector strategies, respectively, while collectively owned enterprises and foreign‐invested enterprises exhibit an analyzer orientation that falls between defenders and prospectors on the strategy continuum. Ownership may reflect both resources and cognition factors. It may also be more observable than other related strategy variables.
A key managerial purpose of strategic group identification is to obtain a mapping of the industrial landscape. Identification clarifies the number of groups that exist in an industry and the number of firms in each group. Group identification is different from and can provide additional insights relative to other common industrial metrics such as industrial concentration, or the percentage of industry sales accounted for by the largest four or eight firms in an industry.
Group identification provides an inventory of where the various industry players are positioned, how they are competing, and how they are seeking to add value. If the industry has many groups, the field is crowded with many different sets of contestants competing in different ways, and competition may be more intense than what would be suggested by its concentration ratio. An example of such a situation was found in the U.S. appliance industry (Hunt, 1972). In an industry crowded with many strategic groups there is less room for new niches to develop. If there are one or two groups that exist in an industry, there may an opportunity for business model innovation that creates a new group. If there are many firms in a particular group, there is more head-to-head competition and rivalry is more intense. However, a group can also be composed of few firms or even one firm with a distinct strategy with little immediate competition. The latter may occur when one firm is substantially different from all other firms in an industry. For example, in the American brewing industry when it was multidomestic, Anheuser-Busch was substantially larger in scale and scope than all other competitors and did not fit with the typical firm profiles of the mid-sized regional or small microbrewery strategic groups.
Two polar approaches for identifying strategic groups are the (a) top-down approach and the (b) ground-up approach.
Top-Down Identification Approach
The top-down identification approach needs a person who is knowledgeable about the broad industry to subjectively partition the industry into different sets of internally similar firms. Examples of such broadly knowledgeable industry experts include consultants, financial analysts, or industry trade association executives. This approach relies on the experience and judgement of these experts to perceptually (Hodgkinson, 1997) identify groups. The benefits of this approach are that it is quick and few data/computing resources are needed. Potential problems include finding and obtaining the cooperation of such broadly knowledgeable experts. The groups derived this way may also suggest obvious, known groups and miss less obvious groups that actually exist. This approach would be lacking if the purpose is to uncover unexpected, little-known strategic groups.
Ground-Up Identification Approach
The ground-up identification approach begins by uncovering various possible firm success factors in an industry. These factors should be firm traits such as product diversity, geographical coverage, distribution channels used, branding, marketing effort, degree of vertical integration, product/service quality, research intensity, and/or pricing. These success factors should not be external environmental elements, such as customers, regulation, or commodity prices. These success factors should be possessed by at least one firm and should not be uniformly possessed by all firms. Otherwise they would have little discriminating ability to partition firms. Sources of information to identify a rich variety of relevant success factors include open-ended surveys and informal interviews with executives.
The next step is to rate each firm on these various success factors. A 7-point rating scale may be employed. The rating should be performed by individuals familiar with the firms in the industry, such as research analysts, consultants, and trade association officials. It may also be possible to collect and use objective data on all the firms on some success factors—such as firm size (sales or employment) or research intensity (R&D expenditures/sales)—from published financial statements, annual reports, and websites.
After a data set is compiled of each firm’s profile on every success factor, a cluster analysis is performed to reveal tight groupings of firms (Harrigan, 1985). The cluster analysis identifies sets of firms that are similar with respect to the success factors. The cluster analysis output will suggest how many relatively “tight” groups exist in the industry. The output will also reveal the profile of each group based on its average rating on the success factors and identify the membership of each group through the firms assigned to it.
The ground-up approach’s key benefits are that it is driven by disaggregated data and likely to suggest strategic groups that may not be perceived using a big-picture approach. The downsides of the ground-up approach are that it requires data/computing resources and interpretation of the objective findings, which may be detailed and numerous.
Since a major question has been the reliability of the groups identified, a promising area for development is the combination of top-down and ground-up identification approaches. A combination of research methods helps to cover each method’s weaknesses and capitalize on its strengths, as well as provide more reliable, valid, and convergent findings (Lyon, Lumpkin, & Dess, 1980).
Analysis of firm membership in a strategic group is important for two reasons. First, it reveals which firms are the immediate contestants engaged in head-to-head competition. Firms within a group are more likely to closely monitor and imitate one another. Managers may consider how to differentiate themselves from these immediate, similar competitors or to possibly combine with one another to reduce competition. A recent case in point is the airlines industry where a number of major U.S. carriers merged, increasing their market power relative to consumers, and have increasingly levied fees for baggage, seating, meals, and other services that were previously included in the fare.
Second, if mobility barriers exist among groups, membership may be stable because there are impediments to firm movement. Movement may occur especially when performance declines and managers are forced to take drastic action, such as exit by liquidation or sale to a firm from another group or industry. For example, in the oil-drilling industry, intergroup mobility was infrequent during economic stability and growth periods, while greater mobility occurred during a period of economic decline. Mobility was also higher between similar groups than between dissimilar groups (Mascarenhas, 1989b).
The mean values of the success factors of firms in a group help to define its distinctive strategy profile and the bases on which they compete. These profile mean values in combination can help to suggest the integrative strategy being pursued by firms in that group. The strategy may involve high intensity on some factors and low intensity on others and links among the various dimensions. An example could be a research-intensive strategy with extensive international expansion to amortize costly R&D over a larger sales volume attained by selling to a larger geographical area. The demand and cost conditions may differ between the groups, as well as the responsiveness, such as to advertising in the brewing industry (Tremblay, 1985).
A potential benefit of identification of strategic groups is that quantitative strategy models of each group can be estimated, linking firm objectives, strategy, and the environment (Hatten et al., 1978). Such quantitative models of different strategic groups were estimated in the brewing industry for the period 1952 to 1971 in an early application of the strategic group concept. The profiles of the existing groups suggest the various common strategies being pursued within an industry. They also suggest where existing firms are currently positioned and, by implication, where there are no groups or there is empty space in the industry. Mapping of these empty spaces without existing competitors are areas of opportunity for firms to develop and move into. Incumbents may be less likely and less able to respond if entry occurs into an empty space where new types of resources are needed.
Groups and Profitability
Two fundamental questions are (a) what factors influence firm profitability and (b) do and should strategic groups exhibit different average profitability levels over time?
Relative Importance of Strategic Groups to Firm Profitability
A long‐standing debate has focused on the extent to which different levels of analysis shape performance—firm, strategic group, and industry levels. The strategic group level has been largely excluded from this inquiry, despite evidence that group membership matters. All three levels were found to have firm profitability explanatory power in a study of 1,165 firms in 12 industries over a seven-year period, with the firm effect being the strongest, while the strategic group effect rivaled and for some measures outweighed the industry effect (Short, Ketchen, Palmer, & Hult, 2006).
Group Differences in Average Profitability
Most research studies of strategic groups in a wide range of settings have found significant differences in financial performance across strategic groups, but the evidence is not unanimous and at times has revealed unexpected reversals. The evidence has shown financial performance differences among some groups but not all groups and, with respect to some but not all financial metrics, no differences when controlling for other variables and no differences with respect to all operating performance metrics. For example, National Football League strategic groups exhibited financial performance differences but did not exhibit differences in game performance on the field (York & Miree, 2015). Similarly, hospital strategic groups in China exhibited some performance differences, which did not continue to be observed once organizational culture was included in the analysis (Xue et al., 2013).
Computing and comparing the average profitability over time for each group may reveal the more financially attractive areas within an industry. If these profit differences are sustained over time, managers may be interested in probing why these profit differences exist and persist. The profiles of groups with higher profitability can also suggest to managers more effective strategies (Leask, 2007) and which strategic groups are more attractive to participate in or to enter into from outside the industry. Conversely, groups with lower profitability groups can suggest strategies and groups to be avoided.
For example, a strategic group analysis of 87 public hospitals in China (Xue et al., 2013) was conducted to uncover their strategies and examine their performance, as well as their organizational culture. Little evidence existed on the different strategies of hospitals in China and their performance. The study identified five strategic groups that had significant differences in product position, competitive posture, and market position. The five strategic groups were identified as leaders (providers of comprehensive care over a wide geographic area with advanced technologies, research, and education), specialists (providing less comprehensive services in few clinical areas), followers (less pronounced on all dimensions than leaders), community-oriented (providing comprehensive services in a limited geographical area), and basic service providers (having a narrow scope of services without education and research). The leader, specialist, and follower strategic groups were found to be more profitable than other groups, with leaders and specialists also delivering higher patient satisfaction. The study also suggested that in order to improve performance hospitals should cultivate an organizational culture that is appropriate for their strategy, rather than just adopt a strategy. Having a culture appropriate to the strategy enables better execution and leads to higher performance.
Several studies have found performance differences across strategic groups (Dess & Davis, 1984; Fiegenbaum & Thomas, 1990; Mascarenhas & Aaker, 1989) but with unexpected, conflicting evidence (Leask & Parker, 2006). Performance differences that persist suggest the presence of mobility barriers between groups that prevent firms from moving to a higher profit group.
A possible reason for inconsistent performance difference findings is that, coincidentally, groups with different contextual conditions may still end up with similar ending profitability. Equifinality holds that a given outcome can be reached from any number of different developmental paths. Multiple strategic groups can be equally effective under a given set of conditions (Marlin, Ketchen, & Lamont, 2007), and there need not be a difference in their performance even if they are pursuing different strategies. Certain strategic group variables, such as number of firms in a group and number of groups in an industry, have often not been included in prior analyses but could be influential in explaining performance. If performance differences do exist between strategic groups, and there are mobility barriers between these groups, intergroup firm mobility will be impeded and the group performance differences will endure.
Reversed, unexpected performance findings of protected groups having a lower profitability may also arise due to managerial misperceptions of the economic attractiveness of different industry groups. Managers may be swayed by fads rather than fact. Managers may not know which groups, in fact, are the most profitable and attractive in an industry. In a study of Spanish banking, a strategic group composed of smaller firms was found to be less profitable supposedly because of their lower market power (Mas-Ruiz & Ruiz-Moreno, 2011). But in the oil-drilling industry, it was found that the highest profitability occurred in the easier, less prestigious shallow, land, domestic drilling group populated by small firms, while large firms were being attracted by a fad to enter the more glamorous offshore, deep, international drilling where returns were lower due to the heavier investment needed, complicated operation, and international risks (Mascarenhas & Aaker, 1989).
The profitability differences across groups, to the extent that they are based on mobility barriers, have implications for entry. If high-profit groups are protected by greater mobility barriers, potential entrants may find it easier to first enter groups that are less protected and use these groups as a beachhead for transitioning to groups with higher profitability (Christensen, 1997). In the steel industry, for example, foreign producers initially entered by producing low-quality rebar and gradually migrated toward producing higher quality stainless steel. Similarly, in the U.S. auto industry several Chinese and Japanese producers initially entered by producing low-cost, smaller cars before moving into luxury larger cars, pick-up trucks, and sports/utility vehicles.
Strategic Group Dynamics
Mobility barriers are impediments to firm movement. They deter exit from a group as well as imitation by firms in another group. Mobility barriers can be identified by the presence of specialized expertise, emotional attachment, capital requirements, first-mover advantages, distribution networks, patents, brand recognition, and so on. Mobility barriers are the impediments that make difficult firm movement out of a group or between groups.
In general, mobility barriers among groups discourage movement of firms across groups (Porter, 1980). Entry is more likely to occur if mobility barriers into a strategic group are low. Thus these mobility barriers can provide insights on how likely or possible it is for a firm to move into a specific strategic group from another.
Low profitability should also act as a deterrent to entry, but managers may still pursue entry if they are unaware of a group’s typical financial performance and they seek prestige or have a “follow the herd” mentality. Firms may not change strategy unless they face a crisis resulting in lower profitability. This reasoning suggests that exits from a group, usually in the form of liquidations, sales, or redirections, should occur from groups with persistently low profitability. While weak performance may be an indicator of when and which firms are likely to change strategy and exit, it is not clear where in the industrial landscape this is likely to occur. A strategic group mapping and the average profitability of each group can suggest the groups in an industry where this firm movement is likely to originate and move toward.
Managers interested in anticipating competitor moves and strategic opportunities in an industry should consider both the possibility of irrational manager motivations in the short run and their negative financial consequences in the long term. For example, the weakest players in a strategic group with low profitability may create opportunities for consolidation and acquisition when they eventually seek to exit.
Carroll and Swaminanthan (1992) introduced organizational ecology to provide new insights on dynamics in the modern American brewing industry with respect to three groups—the mass producer, the microbrewery, and the brewpub. The analysis covered the period from 1975 to 1990 and examined the life histories of 253 breweries. The findings support the use of an ecological model of resource partitioning and of organization form-specific models of density. They examined fundamental metrics of survival and mortality. They found that founding rates of microbroweries and brewpubs, which were a new organizational form within the U.S. brewing industry, increase with density and then decline. Mortality rates of microbroweries were also observed to increase with density. Because of this curvilinear relationship between firm density and performance, managers of firms should monitor the evolving legitimation and competitive forces with changing density of firms in their group and act accordingly. For example, at low levels of density they should publicize that additional entrants gives legitimacy to the strategy of their group. At high levels of density, they need to take action to mitigate the increasing competition of too many similar firms in their group. The optimal level of density occurs when the diminishing positive legitimation benefits of an additional entrant are equivalent to its growing negative competitive effects.
The concept of resource partitioning, as originally developed, relates to evolutionary change in species in response to selection pressures generated by interspecific competition (Walter, 1991). When applied to industries, resource partitioning can help explain the relative rise and decline of different strategic groups or organization forms as they interact and compete with one another (Caroll, Dobrev, & Swaminathan, 2002). In the brewing industry, three common strategic groups are microbreweries and brewpubs. intermediate-sized mass producers, and large mass producers. Over time as industry concentration increased, large mass producers garnered greater market share as they pursued the main, largest market segment and their products were perceived as increasingly ordinary and common. The rising dominance of large firms simultaneously increased the appeal for specialty brews produced by small microbrewers and brewpubs at the other end of the spectrum. Meanwhile, intermediate-sized brewers faced growing competitive pressures from these two other groups. As a result, mortality rates were highest for these intermediate-sized firms (Carroll & Swaminathan, 1992).
Competitive and Cooperative Behavior Within and Between Groups
Phillips (1960) conjectured that to understand oligopolistic behavior and performance, the interfirm organization as well as the firms in the group must be studied. “As with people, firms may behave differently in a group than they do in isolation” (p. 604).
A strategic group acts as a reference point or identity for group members in formulating competitive and cooperative strategy among its members (Fiegenbaum & Thomas, 1995; Sonenshein, Nault, & Obodaru, 2017). In one study of strategic groups of 87 food trucks (Sonenshein et al., 2017), it was found that members cooperate to help each other meet the central tendencies of their group—the properties that typical group members have—and yet compete to strive for the ideal tendencies of the group—the attributes of members held in highest regard. It was found that similarities among group members can foster cooperation, which in turn encourages more similarity, improved reputation, and better status for the group as a whole. Competition among group members was directed at status that comes from gaining respect as ideal group members, which helped gain prestige for the collective. Competition was aimed at setting a good standard, for other members to look up to, which can help elevate the average member. Establishing strategic group identity creates important benefits that protect the group.
Imitation among members is another observed trait within a strategic group. A study of 352 foreign direct investments of 30 Spanish banks in 55 countries between 1986 and 2008 showed that strategic group members imitated one another’s prior modes of foreign market entry through their use of wholly owned subsidiaries instead of shared-control entries. Group members recognized their mutual dependence and cooperated or tacitly colluded with one another (Mas-Ruiz, Ruiz-Conde, & Calderon-Martinez, 2018).
Strategic change in an industry may be easier within a strategic group than across strategic groups when mobility barriers exist between groups. Mobility across groups, while infrequent, occurs more commonly between similar groups than between dissimilar groups. Mobility rates among groups were observed to be higher during economic decline than during stability or growth (Mascarenhas, 1989b).
The rivalry behavior within and between groups is asymmetric (Mas-Ruiz, Ruiz-Moreno, & de Guevana Martinez, 2013). There is greater rivalry among competitors within than outside strategic groups (Tremblay, 1985). There is some evidence that strategic groups comprising large firms experience a large amount of retaliation from firms within their group and accommodation from the group comprising smaller firms. Small firms, on the other hand, experience a small amount of retaliation from the group comprising large firms and no reaction from the other firms in their group (Mas-Ruiz et al., 2013).
Substantial research has been conducted on strategic groups over the past 40 years since the concept of strategic groups emerged. This research has gradually improved our understanding of industries and has the potential to inform and shape managerial strategic decisions in a wide range of settings.
A definition of strategic groups improves understanding of the concept and its implementation. It also provides guidance on how to translate theory into practice by suggesting how to identify strategic groups and how to describe and detail each group’s strategy by examining its profile with respect to its defining success factors.
The identified groups and their firm membership suggest which firms are direct competitors. These immediate competitors are more likely to monitor and imitate one another. Group members may cooperate with one another on their central tendencies and compete with one another on their ideal dimensions. Group members also have a greater potential to be combined to reduce duplication to gain efficiencies and market power.
Examining and comparing the profitability of the various groups provides insights on the most financially attractive groups to enter. Persistent profit differences among groups over time suggest the presence of mobility barriers across groups that make entry and exit into a group difficult. Strategic redirection and combinations are likely to occur in financially weak firms in low-profitability groups, and mobility across groups is infrequent but more likely between similar groups and during declining economic conditions.
There are several promising areas for future strategic group research. First, strategic group analysis fundamentally is based on uncovering various common strategies in an industry. Existing strategy typologies that have been used to identify strategic groups include Porter’s (1980) generic strategies of Low-Cost, Differentiation, Focus, and/or Stuck-In-The-Middle; Miles and Snow’s (1978) strategies of Prospectors, Analyzers and Defenders, and Reactors; and Mascarenhas’ (1989a) ownership-based strategies of State-Owned, Publicly Traded, and/or Privately Held firms. Studies that have utilized other factors to identify strategic groups have revealed other, possibly more numerous group strategies. Some studies have uncovered eight strategic groups in an industry, for example. These other strategies need to be compared and examined for their recurrence across industry studies and in order to articulate their competitive logic. This follow-up research on existing studies’ findings can expand the knowledge of what these other common strategies are about and why they should be considered by managers.
Second, among the generic strategies, there is a pressing need for expanding knowledge and developing categorizations of the specialist strategy. Few generalizations or categorizations of niche strategies exist because they can take multiple forms and can be idiosyncratic.
Third, strategic group analysis has the potential to discover new strategies that existing firms are not pursuing. Analysis of the white spaces in between existing strategic groups are opportunities for developing new strategies and the formation of new groups.
Fourth, research is needed to provide evidence on the strategic dilemma of whether to participate in one strategic group and benefit from simple focus or to participate in multiple strategic groups that may improve a firm’s resilience (Amel & Rhoades, 1988) because of greater diversity. In banking, for example, most firms participate in both wholesale and retail strategic groups (Amel & Rhoades, 1988). Emerging evidence suggests that focusing on one group is preferable to being stuck in the middle (Dess & Davis, 1984) by participating in multiple groups. More research evidence is needed over multiple time periods and economic conditions. Future research also needs to examine how intersecting industries, which increase complexity, affect the definition and operationalization of strategic groups.
Fifth, while research has mostly studied possible performance difference of various strategic groups within an industry, the relation between average industry profitability and the structure of its strategic groups needs further research. This is the original question that spawned research on strategic groups and has still not been addressed adequately through the use of multi-industry data. Specifically, does the number of strategic groups increase competition and depress industry profitability? If so, then the strategic group profile of an industry can be used as a screening tool for corporate strategy decisions on which industries to enter and which to avoid. Such a criterion could be added to other screening tools, such as manufacturing versus services, import competition, and growth rate.
Sixth, the strategic group concept encourages and enables new avenues of research on areas of collaboration and competition. Firms may seek to collaborate within a group to improve their returns relative to other groups or consumers.
Seventh, a promising area for application of the strategic group concept is for use by supplier and customers of an industry. For example, consultants can apply the strategic group framework to provide insights to industry participants. Having developed insights on a particular strategic group and identified its members, consultants may then target, roll out, and leverage their accumulated expertise and services to multiple members of that strategic group.
The strategic group concept has attracted much attention, a wide range of applications, and diverse lines of inquiry. As evidence accumulates and the field matures, the strategic group’s promise is gradually being realized.
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