Linking Porter's generic strategies to firm performance - Future ...

We focused on Porter's generic strategies' framework for a couple of ... Meaning of low-cost strategy relationship with firm performance. Skiptomaincontent Advertisement SearchallSpringerOpenarticles Search DownloadPDF Research OpenAccess Published:13January2020 LinkingPorter’sgenericstrategiestofirmperformance XhavitIslami1,2,NaimMustafa2&MarijaTopuzovskaLatkovikj3  FutureBusinessJournal volume 6,Article number: 3(2020) Citethisarticle 62kAccesses 7Citations Metricsdetails AbstractInthisstudy,thesignificanceofusingPorter’sgenericstrategiesinfirmsthatoperateincompetitiveenvironmentsisinvestigated.TheaimistoindicatetheeffectsofPorter’sgenericstrategies(low-coststrategy,differentiationstrategy,andfocusstrategy)onfirmperformance.Thequestionnairesofthestudyhavebeenprepared,theresponseshavebeenobtained,andtheeconometricmodelisconstructedtomeasuretheserelationships.Findingsstemmedbydatathatweretakenfrom113firmsthatoperateintheRepublicofKosovo.ttest,Pearson’scorrelationanalysis,andmultivariateregressionanalysiswereusedtoprovidetestingofhypotheses.EconometricresultssuggestthatpursuingdifferentiationstrategyprovideshigherfirmperformancecomparedtotwootherPorter’sgenericstrategies(low-coststrategyorfocusstrategy)thathaveapositiveimpactaswell. IntroductionIncreasingtheglobalmarket,internationalizeoffirms,nowadays,theuncertaintyoffirmsisincreasedmuchmore,consequentlythe ambiguity offirmsonansweringthequestions,whatdo wehavetodo?and howtodoit? isincreased. Aswellasalotofotherquestionsthat enhancetheneedtohaveastrategy,sotheimportanceofstrategyisgreatertodaythaneverbefore.Inadditiontothis,itisvaluableansweringthequestion,whatistheimportanceofhavingagoodstrategy?Thefirstchallengefacedbyfirmsthatenterintothemarketisfindingawaytosurviveinthatmarket.Statisticsandstudiesthataredonehaveshownapproximatelyone-thirdofnewEuropeanfirmsdonotreachthesecondyearoftheirexistence,whereas50%–60%ofthemdonotmanagetosurvivetilltheseventhyear[1].Currently,firmsarelosingtheirenergytofindmethodsthatofferthemtomaintaintheexistingpositioninthemarket,aswellastoincreasethemarketshareandprofit.About55%ofnewentrantsfailinthefirst5 years[2].AccordingtoEurostat[2],about83%ofnewbornenterprisesin2011havesurvivedin2012,whereasovertheyearsagradualdecreaseismarkedonly45%ofcreatedenterprisesin2007whichwereactivein2012.Thedeathrateoforganizationstendstodecreaseastheyage[3,4].Newlybornorganizationssuffera“liabilityofnewness”[5],inwhichtheyhavetolearnhowtosurvive,andmustcreatesuccessfulpatternsofoperationsdespitehavinglimitedresources[6].Slightlyolderorganizationscansuffera“liabilityofadolescence”inwhichtheycansurviveforatimeontheirinitialstoreofresources,butthentheirfailureratetendstofollowaninvertedU-shapedpatternastheyage[7],whereasfirmsinthephaseofdecreasetrytofindwaysinordertohavealongerlifecircleinthemarket.Olderorganizationscansuffera“liabilityofobsolescence”iftheiroperationsarehighlyinertialandunchangingandbecomeincreasinglymisalignedwiththeirenvironment[8].So,tosurvive,tobemoreprofitable,andtoincreasethemarketshare,firmsshouldcreatestrategies.Regardingorganizationalstrategies,organizationsarereferredtoas“specialists”iftheycansurviveonlywithinalimitedrangeofresources.However,firmsarereferredtoas“generalists”iftheycansurviveusingawiderangeofresources[9].Empiricalresearchhasshownthatorganizationsthataremoregeneralistinnaturetendtolastlongerthanspecializedorganizations[10].Generalistorganizationstendtohavemoreresourcesthantheyneedforroutineoperations,andonlyoperateatfullcapacitywhenrespondingtounanticipatedenvironmentaldemands[11].Generalistorganizationsalsotendtointroducemorenewproductsandreachbeyondtheirtypicalmarketsegmentsthandospecialistorganizations[11].However,thestrengthofgeneralizationversusspecializationcanbeinfluencedbythetypicaldurationofenvironmentalfluctuations[6].Researchesofthisscopehaveshownthatfirmsduringtheirlifecyclecanbefacedwithstrongcompetitionthatleadsthemtofailure.ThiswasthereasonthatarousedourcuriositytoresearchtherelationshipbetweenPorter’sgenericstrategiesandfirmperformance,asawaythatcandecreasethefailurescaleoffirms.Thefindingsofthispaperenrichthestrategicliteraturebyempiricalevidenceandofferanopportunityforbusinessstrategiststochoosethepaththatwillprovidefortheirorganizationstosurvive,toincreasetheprofit,andtoincreasethemarketshare.Onthesedays,firmsarecopingwithaverycompetitive,turbulent,andunstablemarketthatstemsfromprompttechnologicaldevelopment.Therefore,themanager’sfocusisoncreatingacompetitiveadvantagebycreatinganewwayofstrategicdevelopment,whichisappropriateforthemandenablesasuccessfuladaptiontothattechnologicalandindustrialchanges.Amajorstreamofstrategyresearchexaminestherelationshipbetweenstrategytypeandfirmperformance,whichwasdoneby[12,13,14,15,16,17].Thesestrategytypesaresometimescalledgenericstrategies[18].Therestofthispaperisorganizedasfollows:ThesecondsectionincludesliteraturereviewregardingPorter’sgenericstrategiesthatpresentthecharacteristicsoflow-coststrategy,differentiationstrategy,andfocusstrategy,aswellastheirwayofrelationwithfirmperformance.Inthethirdsection,theresearchhypothesesarepresented,whereasthefourthsectiondealswiththemethodologyusedtotesttheraisedhypotheses.Inthefifthsection,themodelusedispresentedandanalyzed.Inthesixthsection,hypothesesaretestedanddiscussionforresultsisincluded,andthisstudyendswithsomecontributive conclusions.ResearchobjectiveAfterPorter’sgenericstrategiesarereadandanalyzed,strategistsfallintoconfusionthatwhichstrategyshouldbepursuedorwhichstrategytoimplementintheirorganizationtoprovidebetterperformancefortheirfirms.EventhoughPorterhasanalyzedcarefullytheindustryenvironment,competitiveforces,andcompetitive strategiesthatshouldbebuiltbyfirms toachieve competitiveadvantages,itlackson presentingstrategiesbyquantitativeresults,identifyinghowmuch“separately”eachofthethreegenericstrategiesimpactsonfirmperformance.Asthesedataaremissing,strategistsmaypursuethewrongstrategywithoutknowingthatinthelong-termperiodstheyaredestructingtheirindustryandtheirbusinessaswell.Therefore,tofillthisgapintheliterature,theobjectiveofthisstudyistousethequantitativemethodtomeasuretherelationshipbetweeneachofthethreePorter’sgenericstrategieswithfirmperformance,inordertoenrichtheexistingliteratureandtobringsomethingnewandclearerstrategyforstrategistsonpursuingPorter’sgenericstrategies.TheresearchaimistoanalyzethepossibleinfluencebyimplementatingPorter’sgenericstrategies:(a)low-coststrategy;(b)differentiationstrategy;and(c)focusstrategyinthefirmperformanceoftheproductionsector,andalsotofindoutwhichofthesethreestrategiesismoresignificantwithincreasingfirmperformance.Literaturereview Sincetheearly1980’s,MichaelPorter’sstrategictypologyhasbeenoneofthemostwidelyacceptedmethodsofdiscussing,categorizing,andselectingcompanystrategies[19]. WefocusedonPorter’sgenericstrategies’frameworkforacoupleofreasons.Firstly,Porter’sframeworkofgenericstrategiesisinherentlytiedtofirmperformance.Secondly,Porter’sframeworkoverlapswithothertypologies.Porter’sdifferentiationstrategyresembles[20]prospectorstrategy,andPorter’sstrategyofcostleadershipissimilartoMilesandSnow’sdefender[21,22]costleadershipstrategies.Porter’sfocusstrategyisverymuchlikeMillerandFriesen’s[23]nicheinnovatorstrategy(citedby[24]).Tomake clearertheterm“strategy”arepresentedseveralstrategydefinitions.SchendelandHofer[25], definedstrategyas:“strategyprovidesdirectionalcuestotheorganizationthatpermitittoachieveitsobjectives,whilerespondingtotheopportunitiesandthreatsinitsenvironment.”“Strategyisanalyzingthepresentsituationandchangingitifnecessary.Incorporatedinthisisfindingoutwhatone’sresourcesareorwhattheyshouldbe”[26].Cannon[27],“Strategiesarethedirectionalactiondecisionswhicharerequiredcompetitivelytoachievethecompany’spurpose.”Strategiesarepotentialactionsthatrequiretopmanagementdecisionsandlargeamountsofthefirm’sresources[28].Inaddition,strategiesaffectorganization’slong-termprosperity,typicallyforatleast5 years,andthusarefutureoriented.Strategieshavemultifunctionalormultidivisionalconsequencesandrequireconsiderationofboththeexternalandinternalfactorsfacingthefirm.Porter’smodelandgenericstrategiesareconsideredasanimportantpartofmanagementtheories,throughwhichitisexplainedthefirmbehaviortowardcompetitorsinacertainindustry.Theterm“genericstrategy”referstoawideareaofusageandopportunitytocreatecompetingadvantagedespitetheindustry,thesort,andsizeoforganization[29].Strategyisanessentialpartofanyeffectivebusinessplan.Byusinganeffectivecompetitivestrategy,acompanyfindsitsindustrynicheandlearnsaboutitscustomers[18].AccordingtoPorter,strategiesalloworganizationstogaincompetitiveadvantagefromthreedifferentbases:costleadership,differentiation,andfocus[18,30].Portercallsthesebasesgenericstrategies[28].Meaningoflow-coststrategyrelationshipwithfirmperformanceLow-coststrategyemphasizesproducingstandardizedproductsataverylowper-unitcostforconsumerswhoarepricesensitive[28].AccordingtoGriffin[31],low-coststrategyisastrategyinwhichanorganizationattemptstogainacompetitiveadvantagebyreducingitscostsbelowthecostsofcompetingfirms.ItisworthmentioningthataccordingtoThompsonetal.[32],alow-costprovider’sforemoststrategicobjectiveismeaningfullylowercoststhanrivals—butnotnecessarilytheabsolutelylowestpossiblecost.Instrivingforacostadvantageoverrivals,companymanagersmustincorporatefeaturesandservicesthatbuyersconsideressential.Low-coststrategyputsimportanceinanincrementinorganizationalperformance.Itincludestheprocessbywhichthecompanyiscapableofproducingordistributinggoodsandserviceswithalowercostthanthecompetitors[33].Porterdefinesalow-coststrategyastradingofstandardproducts30combinedwithaggressiveprices[18].Pursuinglow-coststrategyshouldbeconsiderednotasaproduct/serviceofferedwhichisaninferiorproduct,butasaproduct/servicethathassamecomparativequalitieswithcompetitorsandanappropriateprice[33].ItisworthmentioningthatPorter[30]hasshowntherelationshipbetweenlow-coststrategyandfirmperformance,andhefoundthatlow-coststrategyisasuccessfulwaytorealizestablecompetingadvantagethroughreducingandcontrollingthecostandasaresultraisingorganizationperformance.Numerousauthorsexplainedthatlow-coststrategycanbedefinedbytwoalternativetypes(e.g.,see[32,34,35]).Typeoneisalow-coststrategythatoffersproductsorservicestoawiderangeofcustomersatthelowestpriceavailableonthemarket.Typetwoisabest-valuestrategythatoffersproductsorservicestoawiderangeofcustomersatthebestpricevalueavailableonthemarket.Thereasonthatwhyorganizationscontinuetopursuelow-coststrategyisthatithelpsfirmstoincreasetheirperformance;forthesakeoflowcost,thecompanyiscapableofsellingtheproductandservicewithalowerpriceandstillprovidingthesamelevelofprofitabilitywiththecompetitors[36],andprotectingtheorganizationfrompowerfulsuppliersbyensuringnecessaryflexibilityinsidetheareaofprofittocopewithanincrementininputprices[33],itservesasabarrierforentrantsinconditionsoftheeconomicscale,control,andcuttingtheexpenses[33,36],aswellasthroughexperienceofcurve[37].Strategistsshouldbecarefulaboutdecisionmakingtopursuethelow-coststrategy,anditdoesnotprovideapermanentcompetitiveadvantageforcompaniesthatuselowcostorbestvalue.Low-coststrategymustachievetheircompetitiveadvantageinthewaythatisverydifficulttocopyormatchbycompetitors.Ifthelow-costmethodcanbefoundrelativelyeasybyrivalsorisinexpensivetoimitatethatstrategy,thelow-costadvantagewillnotlastlongenoughtoyieldavaluableedgeinthemarketplace[28],whichclaimsthatinamannerthatlow-coststrategyissuccessfulinimprovingorganizationperformance,itmustfulfilltwowaystoaccomplishthis:(a)performvaluechainactivitiesmoreefficientlythanrivalsandcontrolthefactorsthatdrivethecostsofvaluechainactivitiesand(b)revampthefirm’soverallvaluechaintoeliminateorbypasssomecost-producingactivities.But,bothofthesestepscouldbeimitatedbycompetitors,andtherefore,strategistsshouldanalyzeindetailthecompetitorsandtheirabilitytorespondwiththesamestrategy,beforetheydecidetoapplythelow-coststrategy.Bypursuingalow-coststrategy,firmsmustbecarefultousenosuchaggressivepricecutwhichleadstheirprofitstobelowornotexisting.Usingthisstrategyconstantlyismindfuloftechnologicalbreakthroughcost-savingoranyothervaluechainprogressbyrivalsthatcoulderodeordestroythefirm’scompetitiveadvantage.Asuccessfullow-coststrategyusuallyinfiltratestheentirefirm,asevidencedbyhighefficiency,lowoverhead,limitedperks,intoleranceofwaste,intensivescreeningofbudgetrequests,widespansofcontrol,rewardslinkedtocostcontainment,andbroademployeeparticipationincostcontrolefforts[34].Canthedifferentiationstrategyserveasatoolforincreasingfirmperformance?YesDifferentiationstrategyisoneofPorter’skeybusinessstrategies[38].Differentiationreferstothedevelopmentofauniqueproductorservice[28,30,33,36,39,40,41,42,43,44].Differentiationstrategyisastrategyinwhichanorganizationseekstodistinguishitselffromcompetitorsthroughthequalityofitsproductsorservices[31].AccordingtoPorter[30],ifproductorserviceisunique,thisstrategyprovideshighcustomerloyalty.Therefore,ifcustomersperceivetheproductorserviceasunique,theyareloyaltothecompanyandwillingtopaythehigherpriceforitsproducts[40,45].AccordingtoHesterleyandBarney[46],differentiationofproductorserviceisanexpressionofindividualandgroupcreativityinsidefirms,whichmeansthattheriskofimitatingdifferentiationisdependedonfirms’capacitytobecreativeinfindingmethodsthatmaketheproductunique.Andforthisstrategy,Porter30showedtherelationshipwithfirmperformanceandtheadvantagesthatfirmsearnfrompursuingdifferentiationstrategyreferringtorealizinghigherincomescomparedwithcompetitorsbecauseofmarktrust,quality,andperceptionthatclientshaveforthecompanyproduct.Itisworthmentioningthatevendifferentiationstrategydoesnotdefendthefirmstrategyfromimitationbycompetitorsforever,andDavid[34]wrotethatdifferentiationdoesnotguaranteecompetitiveadvantage,especiallyifstandardproductssufficientlymeetcustomerneedsorifrapidimitationbycompetitorsispossible.Accordingtohim,successfuldifferentiationcanmeangreaterproductflexibility,greatercompatibility,lowercosts,improvedservice,lessmaintenance,greaterconvenience,ormorefeatures.Asuccessfuldifferentiationstrategyallowsafirmtochargeahigherpriceforitsproductandtogaincustomerloyaltybecauseconsumersmaybecomestronglyattachedtothedifferentiationfeatures[28]declaresthattotheextentthatdifferentiatingattributesaretoughforrivalstocopy,adifferentiationstrategywillbeespeciallyeffective,butthesourcesofuniquenessmustbetime-consuming,cost-prohibitive,andsimplytooburdensomeforrivalstomatch.Therefore,thefirmshouldpayattentionwhenitdecidestopursuethedifferentiationstrategy.Intheirresearch,Guisado-Gonzálezetal.[47]havefoundthatimplementationofadifferentiationstrategyinthemanufacturinginnovativecompaniesinfluencespositivelytheprobabilityofestablishingagreementsofR&Dcooperationandinnovationwithotherorganizations.ThewaysthatmanagerscanenhancedifferentiationbasedonvaluedriversaccordingtoThompsonetal.[32]includethefollowing:createproductfeaturesandperformanceattributesthatappealtoawiderangeofbuyers;improvecustomerserviceoraddextraservices;investinproduction-relatedR&Dactivities;striveforinnovationandtechnologicaladvances;pursuecontinuousqualityimprovement;increasemarketingandbrand-buildingactivities;seekouthigh-qualityinputs;andemphasizehumanresourcemanagementactivitiesthatimprovetheskills,expertise,andknowledgeofcompanypersonnel.Isitpossiblethatfirmsimplementdifferentiationstrategyandlow-coststrategysimultaneously?Giventhebeneficialimpactofbothstrategiesonthefirmcompetitiveposition,itlogicallywillraisethequestion:Canafirmsimultaneouslyimplementbothstrategies?Afterall,ifeachstrategyseparatelycanimprovefirmperformance,wouldn’tbebetterforthefirmtoimplementbothofthem?Theanswerstothesequestionsarenotcompatiblebetweenauthors.AccordingtoHesterlyandBarney[48],theanswerisNo:Thesestrategiescannotbeimplementedsimultaneously.Intheirview,theorganizationalrequirementsofthesestrategiesareessentiallycontradictory.Low-coststrategyrequiressimplereportingrelationships,whereasproductdifferentiationrequirescross-divisional/cross-functionallinkages.Accordingtothem,firmsthatdonotmakethischoiceofstrategies(mediumprice,mediummarketshare)orthatattempttoimplementbothstrategieswillfail.Thesefirmsaresaidtobe“stuckinthemiddle.”InthePorterstrategytrade-offparadigm,opposedstrategicdimensionscouldnotbepursuedatthesametimewithoutcreatingsomesortofinefficiencyinthefirm’svaluechain[18,43].Thisisbecausestrategicpositioning,suchasdifferentiationandlowcost,involvescontradictoryactivitiesandresourceallocationthataremutuallyexclusive.Anotherapproachofstrategywhichiscalled“blueoceanstrategy”arguestheopposite;evenmore,theygobeyondthatfirmscanapplyalltheseactivitiessimultaneously:elimination,reduction,growing,andcreating.Strategicauthors[49]haveanalyzedthe“blueoceanstrategy”byconductedastudyofbusinesslaunchesin108companies.Theyfoundthat86%oftheselauncheswerelineextensions,i.e.,incrementalimprovementstoexistingindustryofferingswithinredoceans,whileamere14%wereaimedatcreatingnewmarketsorblueoceans.Whilelineextensionsinredoceansdidaccountfor62%ofthetotalrevenues,theyonlydelivered39%ofthetotalprofits.Bycontrast,the14%investedincreatingblueoceansdelivered38%oftotalrevenuesandastartling61%oftotalprofits.Giventhatbusinesslaunchesincludedthetotalinvestmentsmadeforcreatingredandblueoceans(regardlessoftheirsubsequentrevenueandprofitconsequences,includingfailures),theperformancebenefitsofcreatingblueoceansareevident.Inthisexplanation,blueoceanstrategylooksabitlikedifferentiationstrategy,becauseitcreatessomethingdifferentfromexistingproducts.So,whatistherelationshipbetweenblueoceanstrategyanddifferentiationstrategy?Theexplanationoftherelationshipbetweentheblueoceanstrategyanddifferentiationstrategyisgiveninthefollowing:Blueoceansaredefinedbyuntappedmarketspace,demandcreation,andtheopportunityforhighlyprofitablegrowth.Althoughsomeblueoceansarecreatedwellbeyondexistingindustryboundaries,mostarecreatedfromwithinredoceansbyexpandingexistingindustryboundaries.Inblueoceans,competitionisirrelevantbecausetherulesofthegamearewaitingtobeset.Theterm“blueocean”isananalogytodescribethewiderpotentialofmarketspacethatisvast,deep,andnotyetexplored.Itwillalwaysbeimportanttonavigatesuccessfullyintheredoceanbyoutcompetingrivals[49].Sothemaindirectionwhichispromotedbyblueoceanstrategyistocreatesomething(productorservice)differentfromtheproductsorservicesthatexistinthemarket.Anotherquestionisregardingtherelationshipbetweenblueoceanstrategyandlow-coststrategy.Isblueoceanstrategybasicallyalow-coststrategy,i.e.,isitaboutcapturingthelowendofamarketwithalowenoughprice?(www.blueoceanstrategy.com).TheanswerisNo;blueoceanstrategypursuesdifferentiationandlowcostsimultaneouslybyreconstructingmarketboundaries.Ablueoceanstrategicmovecapturesthemassoftargetbuyersnotthroughlow-costpricing,butthroughstrategicpricing.Thekeyhereisnottopursuepricingagainstthecompetitionwithinanindustrybuttopursuepricingagainstsubstitutesandalternativesthatarecurrentlycapturingthenon-customersofyourindustry.FocusstrategyinthefunctionofimprovingfirmperformanceFocusstrategyisproposedfromPorter30asagenericstrategy,whichhasshownthatifthefirmimplementsthefocusstrategyinanappropriateway,itsperformancewillbeincreased.Focusstrategyisastrategyinwhichanorganizationconcentratesonaspecificregionalmarket,productline,orgroupofbuyers[31].Throughfocusstrategy,thecompanyhasasapurposetoserveasegmentintheclosemarket[30,39,40,41,42,43,50].Pursuingthisstrategyprovidesfirmtheintegrationofwiderangeactivitiesthatareconnectedwithdifferentiationandlowcostinaparticularsegmentfromwhichcompanygenerateshigherprofits,andPulaj[33]statesthatfirmsadvantageduringimplementationoffocusstrategyarehigher.Oneoftheadvantagesisfirm’scapacitytoactwithhighspeedinordertoadjustthechangesintheenvironment,taste,andpreferencesofconsumers.Focusingonaspecificmarketwithdifferentneedsfromtheothers,itcreatesanadvantagecomparedtorivalsbasedontheknowledgeandexperienceinfieldsrelatedtocompetenciessuchaslowcostordifferentiation.AccordingtoDavid[28],asuccessfulfocusstrategydependsonanindustrysegmentthatisofsufficientsize,hasgoodgrowthpotential,andisnotcrucialtothesuccessofothermajorcompetitors.Strategiessuchasmarketpenetrationandmarketdevelopmentoffersubstantialfocusingadvantages.Accordingtoauthors[32,34,35],focusstrategyhastwoalternativetypes.Typeoneisalow-costfocusstrategythatoffersproductsorservicestoasmallrange(nichegroup)ofcustomersatthelowestpriceavailableonthemarket.Typetwoisabest-valuefocusstrategythatoffersproductsorservicestoasmallrangeofcustomersatthebestpricevalueavailableonthemarket.Sometimescalled“focuseddifferentiation,”thebest-valuefocusstrategyaimstoofferanichegroupofcustomerstheproductsorservicesthatmeettheirtastesandrequirementsbetterthanrivals’productsdo.Midsizeandlargefirmscaneffectivelypursuefocus-basedstrategiesonlyinconjunctionwithdifferentiationorcostleadership-basedstrategies.Allfirmsinessencefollowadifferentiatedstrategy.Becauseonlyonefirmcandifferentiateitselfwiththelowestcost,theremainingfirmsintheindustrymustfindotherwaystodifferentiatetheirproducts.Focusstrategiesaremosteffectivewhenconsumershavedistinctivepreferencesorrequirementsandwhenrivalfirmsarenotattemptingtospecializeinthesametargetsegment[28].TheconceptualmodelderivedfromtherelationshipbetweenPorter’sgenericstrategiesandfirmperformanceTheliteratureforstrategiesprovidesnumeroustheories,researchmethodologies,andideasonthestrategy–performancerelationship[12].Researchershavefoundthelinkbetweengenericstrategiesandperformancelessenedbysituationalvariablesincludingafocusonmanufacturingandprofitability[51].Toinvestigatethegenericstrategiesandperformancelink,manyresearchersbeganutilizingapproachesfoundtobegeneralizableacrossindustries,specificallythoseproposedbyPorter[18,30].Severalresearchershavetreatedthisrelationshipandlateronweresupportedbyotherresearchers(see[52,53,54,55,56,57,58]).Someoftheresearchsupportedsingulargenericstrategiesalsoproducesresultswhichsowseedsofdoubtabouttherelationshipbetweensingulargenericstrategyandsuperiorperformance,anditappearssomebusinessessucceedonlywhentheycombinedifferentiationandlow-costgenericstrategies[55].AllenandHelms[12]seekfurtherresearchontherelationshipbetweenstrategyandfirmperformance,includingpotentialmoderatorsofthisrelationship,whichisclearlyneededinordertoadvancestrategictheory.Thereforestartingfromtheexistingliteratureforstrategy,itwillbepresentedtherelationbetweenPorter’sgenericstrategyandfirmperformance.Figure 1showstheconceptualmodelofthisstudy.Authorswereagreeingontheimportanceofgenericstrategies,butresearchershavenotdeterminedyet,whichofthethreegenericstrategyframeworkshelpsmorethefirmtoincreaseitsperformance.Itseemsthatsomecombinationofpracticesismoreeffective,butpropositionsonstrategicpracticeshaveremainedlargelyuntestedandthereisarecognizedneedforempiricalworksinthisarea.Thisexploratoryresearchbeginstofillthisgapintheliteratureandfindoutwhichofthethreegenericstrategiesisbettertopursuebyfirms.Fig. 1Source:ByauthorConceptualmodel.FullsizeimageFigure 1presentstheresearchconceptualmodel,whichfigurativelysummarizeshypothesesthatwillbeexploredbelow.HypothesesandresearchquestionsBasedontheabovementionedliteratureinthissection,thehypothesesofthestudyarepresented.Bytestingthehypothesesofthisstudy,thegapintheexistingstrategicliteraturethatdealswiththerelationshipoflinkingPorter’sgenericstrategieswithfirmperformancewillbefilled.InordertoprovidetheempiricalevidenceforthemostimportantofPorter’sgenericstrategy,whichenablesthefirmtoincreasethecompetitiveenvironment,thefollowinghypotheseshavetobetested: H 1 Low-coststrategyhasapositiverelationshipwithfirmperformancethatoperatesinacompetitiveenvironment. H 2 Differentiationstrategyhasapositiverelationshipwithfirmperformancethatoperatesinacompetitiveenvironment. H 3 Focusstrategyhasapositiverelationshipwithfirmperformancethatoperatesinacompetitiveenvironment. Bytestingthesehypotheses,thedatawillbetakenforeachPorter’sstrategyseparately,buttoclarifymore,theaimofthispaperwastocreatetworesearchquestions.Thesequestionsshowthatthestudyhasaccomplishedtherequiredrulestogetthefinalresults: 1. Aretherespondentfirmsoperatinginthecompetitiveindustry?Thisquestionstressestheenvironmentwherethefirmswerecompeting,asitiswellknownthatPorter’sgenericstrategiesaresuitableonlyforfirmsthatoperateinthecompetitiveindustry.Iftherespondentfirmswerenotoperatingonacompetitiveindustry,theresultsofthisstudywouldnotbesignificantforstrategicliterature. 2. WhichofthethreePorter’sgenericstrategieshasmoreimpactonfirmperformance?Answeringthisquestionprovidesforstrategistsinbusinessandacademiccirclesthefinalresultthatisthecoregoalofthisstudy.Bytestingtheabovehypotheses,thedataprovidewhetherPorter’sgenericstrategieshaveapositiveornegativerelationshipwithfirmperformance.Afterresultsaretakenfromhypothesestestbythemultivariateregression,theanswertothisquestionisfoundout. MethodologicalapproachThemethodologyconsistsofacombinationofprimaryandsecondarydatathathavebeenusedtorealizethisstudy.Thearticlehasbeenpreparedusingtheanalysisofsecondarydataforliteraturereview(scientificpublicationsandarticlesfromspecializeddatabases,suchasScienceDirect,SpringerNature,Emerald,andothercredibledatabases),whereasprimarydataintheformofthequantitativesurveyconductedinrespondentfirmsthatoperatetheirbusinessactivitiesintherepublicofKosovo.Fortheempiricalanalysisofthestudy,thedataweregatheredbyself-administeredquestionnaires.Theparticipantswererandomlychosen.Tomeasuretheimpactbetweenvariablesinthisstudy,SPSSversion25programhasbeenused.DatacollectionFrom150questionnairesthatintotalweredistributedto150firm’smanagers,only127validquestionnairesareobtained(sothescaleofresponseswas84.6%).Eventhough127filledquestionnaireswerereturned,14ofthemlackedindataandcannotbeenteredinthefurtheranalysis;therefore,only113questionnaireswithfulldatawereanalyzed.Thequestionnaireisdesignedtotaketheevaluationoffirm’smanagersregardingthepursuingofPorter’sgenericstrategiesintheirfirms.Respondedfirmsoperateinproducesector.Thescaleusedinquestionnaireisbasedonafive-pointLikertscale(1—stronglydisagree,2—disagree,3—neutral,4—agree,5—stronglyagree).Thequestionnaireiscreatedbasedontheanalysisof[28]whichhasshownthefactorsunderwhicheachofthePorter’sgenericstrategieswillbeeffective: (a) Low-coststrategycanbeespeciallyeffectiveunderthefollowingconditions(whenpricecompetitionamongrivalsellersisespeciallyvigorous;whentheproductsofrivalsellersareessentiallyidenticalandsuppliesarereadilyavailablefromanyofseveraleagersellers;whentherearefewwaystoachieveproductdifferentiationthathavevaluetobuyers;whenmostbuyersusetheproductinthesameways;whenbuyersincurlowcostsinswitchingtheirpurchasesfromonesellertoanother;whenbuyersarelargeandhavesignificantpowertobargaindownprices;whenindustrynewcomersuseintroductorylowpricestoattractbuyersandbuildacustomerbase). (b) Differentiationstrategycanbeespeciallyeffectiveunderthefollowingconditions(whentherearemanywaystodifferentiatetheproductorserviceandmanybuyersperceivethesedifferencesashavingvalue;whenbuyerneedsandusesarediverse;whenfewrivalfirmsarefollowingasimilardifferentiationapproach;whentechnologicalchangeisfastpacedandcompetitionrevolvesaroundrapidlyevolvingproductfeatures). (c) Focusstrategycanbeespeciallyattractiveunderthefollowingconditions(whenthetargetmarketnicheislarge,profitable,andgrowing;whenindustryleadersdonotconsiderthenichetobecrucialtotheirownsuccess;whenindustryleadersconsiderittoocostlyordifficulttomeetthespecializedneedsofthetargetmarketnichewhiletakingcareoftheirmainstreamcustomers;whentheindustryhasmanydifferentnichesandsegments,therebyallowingafocusertopickacompetitivelyattractivenichesuitedtoitsownresources;whenfew,ifany,otherrivalsareattemptingtospecializeinthesametargetsegment). Table 1showsthefactorsthatareincludedinthequestionnairesthatweredistributedtotherespondentfirms,inordertomakewhichdimensionsareincludedwithineachPorter’sgenericstrategyclearandtodefinefactorsthataredirectlyrelatedtopursuingtherespectivegenericstrategy.Porter’sgenericstrategiescanbeparticularlyeffectiveunderthefollowingconditions,andalsothistablehelpstoclarifywhatismeantandwhatitemsthatvariableshaveincludedinthisstudybylow-coststrategy,differentiationstrategy,focusstrategy,andfirmperformance.Table 1Summaryofsurveyitems.FullsizetableQuestionnairesasaninstrumenttogatherdataInordertoobtainthenecessarydataforthisresearch,primarysourcesofinformationweremainlyused,andquestionnaireswereusedasdatacollectioninstrument,withthetargetatmanagersorresponsibleoftherespondentfirms.Questionnairescontainedfourpages,andtheirpreparationwasacombinationofthequestionnairesthathavebeenusedfordoctoraldissertationsfrom[33,59,60],followedbysuggestionsofthreefirms’managersintheproducesectorandtwouniversityprofessors;afterallthecommentsandsuggestionsareincorporatedandanalyzed,thefinalversionofthequestionnairewaswritten.ThequestionnairewassentinJune2017physically,orbyelectronicmailifsuchinformationwasavailableinthedatabasesused.DemographicdataofrespondentsfirmFinally,113questionnairesweredulycompleted,brokendownbysizeandage.Table 2showsthedataofrespondentsconcerningdemographicdatasuchas:thesize,age,andthepositionofthequestionnairefillerintherespondentfirm.Thequestionnairesarefilledbyowners,directors(CEO),ormanagersoftherespondentfirms.Theparticipantsareselectedrandomly.Therespondedfirmsarechosenbythefirmsthatoperateintheproductionsector,whereasthesizeofrespondentfirmswassmallandmedium-sizedfirmsform1–250Footnote1employees.Table 2Demographiccharacteristicofrespondents.FullsizetableInstrumentdesignTomaketheregressionanalysis,firstlywehavetopresentthelinkbetweentheindependentvariables,ifthecorrelationbetweenvariablesiswithinthelimits(− 0.7to0.7);fromthegeneralruleofcorrelation,ifthevalueisoutsidetheselimits,variableshavestrongconnectionbetweenthem,whichproducesincorrectestimatedresults.Wehavemulticollinearitywhenwehaveahighcorrelationbetweenindependentvariables[62,63,64,65,66]citedby[67].ThemodelcreatedandvariablesInordertoshowtherelationshipbetweenPorter’sgenericstrategiestofirmperformance,inthissection,aneconometricmodelisbuiltbasedonmultivariateregression.Thiseconometricmodelisnottosueanyexistingmodel,butitisusedandpresentedtomakeourdependentandindependentvariablesthataretestedinamathematicalwayclearer.$$\hat{Y}=\alpha+b_{1x1}\ldots+\,b_{n}x_{n}+\varepsilon_{i}$$ (1) where\(\hat{Y}\) = dependentvariable,α = non-standardizedcoefficients(constant),b1…n = non-standardizedcoefficientofvariables,x1…n = independentvariablesandεi = standarderror.Dependentvariable“firmperformance”throughusingnon-standardizedweightsofregressioncanbepresentedasfollows:$$\hat{Y}_{a}=\alpha+b_{1}{\text{LCS}}\left({b_{1}{\text{lcs}}_{1}+\cdots+b_{6}{\text{lcs}}_{6}}\right)+\varepsilon_{i}$$ (2) $$\hat{Y}_{b}=\alpha+b_{1}{\text{DS}}\left({b_{1}{\text{ds}}_{1}+\cdots+b_{7}{\text{ds}}_{7}}\right)+\varepsilon_{i}$$ (3) $$\hat{Y}_{c}=\alpha+b_{1}{\text{FS}}\left({b_{1}{\text{fs}}_{1}+\cdots+b_{3}{\text{fs}}_{3}}\right)+\varepsilon_{i}$$ (4) where\(\hat{Y}_{a}\)isthefirmperformancewhichusesthelow-coststrategy;\(\hat{Y}_{b}\)isthefirmperformancewhichusesthedifferentiationstrategy;and\(\hat{Y}_{c}\)isthefirmperformancewhichusesthefocusstrategy.AsitcanbeseenevenintheconceptualmodelshowninFig. 1,threePorter’sgenericstrategieshaveanimpactonthefirmperformance,basedontheauthors[40,55,58,68,69,70,71,72,73],whohavefoundontheirresearchstudiesthatacombinationofthesestrategiesmaybringtothefirmthebestchancetoachieveahigherperformance;basedonthis,thefollowingmodel(\(\hat{Y}_{\text{fp}}\)—firmperformance)iscreated:$$\hat{Y}_{\text{fp}}=\hat{Y}_{a}+\hat{Y}_{b}+\hat{Y}_{c}\to\hat{Y}_{\text{fp}}=\alpha+b_{1}{\text{LCS}}+b_{1}{\text{DS}}+b_{1}{\text{FS}}+\varepsilon_{i}$$ (5) Independentvariables:low-coststrategy(LCS),differentiationstrategy(DS),andfocusstrategy(FS).Dependentvariables:firmperformance(FP).WithSPSSsoftware,wehavetestedEqs. 2,3,4,and5;theresultsarederivedfromthoseeconometrictests.EmpiricalresultsPorter’sgenericstrategiesareapplicableinthecompetitiveenvironment;wehavetestedthecompetingenvironmentofrespondentfirms.Table 3showsthedataforthecompetitiveenvironmentinwhichrespondentfirmsoperate.InthequestionspresentedinTable 3,theparticipantshadfivescalestopresenttheircompetingenvironmentfrom1—notatallcompetingenvironmentto5—extremelycompetingenvironment.Fromthistable,itcanbeseenthatthehighestassessmentbytherespondentfirmshastakentheascertainment“products/servicesaresimilarinthemarket”whichisevaluatedonaveragewith4.39from5thatwasthemaximalevaluation,whilethelowerevaluationhastakenascertainment“asmallnumberoffirmsaredominantinthemarket”onaveragewith2.63by5thatwasthemaximalevaluation.Bytheseresults,theanswerisfoundforthefirstresearchquestion:Aretherespondentfirmsoperatinginthecompetitiveindustry?So,theenvironmentwheretherespondentfirmsoperateisacompetitiveenvironment,andtheseresultsprovidetheneededconditionstogofurtherwithhypothesestestingthatderivesbythethirdsectionofthisstudy(Table 4).Table 3Firm’sresponsesforcompetingenvironment.FullsizetableTable 4Descriptivestatisticsofthestudyvariables(n = 113).FullsizetableDescriptivestatisticsDescriptivedataareminimum,maximum,mean,andstandarddeviation,forallindependentvariablesanddependentvariablethatarepartofthisresearch.A“Cronbach’salpha”testwasusedtoevaluatethereliabilityofthefactorsassuggestedbyNunnally[74]citedby[75].Cronbach’salphacanbeconsideredanadequateindexoftheinter-itemconsistencyreliabilityofindependentanddependentvariables[76]citedby[75].Nunnally[74]suggeststhatconstructsshouldhavereliabilityvalues0.7orgreater.Table 5showstherelationshipbetweentheitemsthataremeasured,deliberatelytoseewhichfactorshavethehighestrelationship,andthatcanberepresentedbyasinglevariable.ThereliabilitiesforeachofthefourconstructswereadequatesincetheCronbach’salphavaluesforeachweresignificantlygreaterthantheprescribed0.7threshold.So,inthisstudythevaluesvariedfrom0.734(focusstrategy)to0.894(firmperformance),showingthattheinstrumentsaresufficientlyreliable.VariablesLCS2,LCS4,FS1,andFS3aremovedfromfurtheranalysesbecausetheyhavereliabilityvaluelowerthan(