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Strategy Type and Performance: The Influence of Sales Force ManagementAuthor(s): Stanley F. Slater and Eric M. OlsonSource: Strategic Management Journal, Vol. 21, No. 8 (Aug., 2000), pp. 813-829Published by: John Wiley & SonsStable URL: http://www.jstor.org/stable/3094398

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Strategic Management JournalStrat. Mgmt. J., 21: 813-829 (2000)

STRATEGYTYPE AND PERFORMANCE: HEINFLUENCEOF SALES FORCEMANAGEMENT

STANLEYF. SLATER'*and ERICM. OLSON2'University of Washington, Bothell, Washington, U.S.A.2College of Business Administration, University of Colorado, Colorado Springs,Colorado, U.S.A.

The basic premise of the strategy implementation literature is that different business strategies

require different configurations of organizational practices to achieve optimal performance.

Sales force management is a key functional activity and should contribute to the successful

implementation of business strategy. In this study, we examine the relationship between multiple

sales force management practices and performance within each of Miles and Snow's (1978)

strategy types. The explanatory power of the eight models tested is quite high (incrementaladjusted R2 > 0.25 for six of the eight models). Thus, we find substantial support for the

general proposition that the different strategy types require individualized profiles of sales force

management practices for optimal effectiveness and that sales force management is important

to the successful implementation of business strategy. Copyright ? 2000 John Wiley & Sons, Ltd.

INTRODUCTION

Business strategy implementation is concernedwith the fit between the organization's business-or competitive-strategy and its internal processes(Galbraith and Kazanjian, 1986). An appropriatematch should contribute to enhanced effectivenessand superior performance. Over the past 15 yearsa substantial body of empirical research has

emerged that considers the match between busi-ness strategy and: (1) managerial characteristics

(Gupta and Govindarajan, 1984; Slater, 1989), (2)strategic planning system characteristics(Veliyath, 1993), (3) human resource managementpractices (Balkin and Gomez-Mejia, 1990; Rajag-

opalan, 1997), (4) technology strategy (Dvir,

Segev, and Shenhar, 1993), (5) organizationalstructure (Powell, 1992), (6) control systems(Govindarajan and Fisher, 1990, (7) corporate-

Key words: strategy implementation; strategy types;

marketing strategy; sales force management* Correspondence to: Stanley F. Slater, University of Wash-ington, 22011 26th Avenue SE, Bothell, WA 98021, U.S.A.

Copyright ? 2000 John Wiley & Sons, Ltd.

SBU relations (Golden, 1992), (8) middle man-agement involvement (Floyd and Wooldridge,1992), and (9) managerial consensus (Homburg,Krohmer, and Workman, 1999).

An additional area that seems to hold promisefor contributing to the understanding of strategyimplementation is the match between businessstrategy and marketing policy. We focus on mar-keting because of its prominent role in the cre-ation of customer value (Day, 1992; Porter,1985). We specifically consider the sales man-agement element of the marketing mix becausesales management, the primaryform of promotionfor business-to-business marketers, is the activitythat most uniquely belongs to marketing. Webegin with a brief overview of the relevant litera-

ture on business strategy and marketing practice.

BUSINESS STRATEGY

Business strategy is concerned with how busi-nesses achieve competitive advantage. The Milesand Snow (1978) and Porter (1980) typologies

Received 2 February 1999Final revision received 14 March 2000



814 S. F. Slater and E. M. Olson

are the two dominant frameworks of businessstrategy in the strategic management and strategic

marketing literatures. Miles and Snow (1978)developed a comprehensive framework that

addresses the alternative ways in which organi-

zations define and approach their product-market

domains (the entrepreneurial problem) and con-struct structures and processes (the administrativeand technical problems) to achieve success in

those domains.Prospectors continuously seek to locate and

exploit new product and market opportunitieswhile Defenders attempt to seal off a portion of

the total market to create a stable set of products

and customers. Analyzers occupy an intermediate

position between the two extremes by combiningthe strengths of both the Prospector and Defender

to cautiously follow Prospectors into new prod-

uct-market domains while protecting a stable setof products and customers. A fourth type, the

Reactor, does not have a consistent response to

the entrepreneurialproblem.

Miles and Snow (hereafter M&S) also proposedthat Prospectors, Analyzers, and Defenders would

achieve, on average, equal performance (seeZahra and Pearce, 1990, for a review of support-ing studies). The implication of this proposition is

that there is greater performance variation within

strategy types than there is between strategy typeswhich leads again to an emphasis on strategyimplementation.

Porter (1980) proposed that the entrepreneurial

problem should be viewed as a product of how

the firm creates value (i.e., differentiation or low

cost) and how it defines its scope of market

coverage (i.e., focused or market-wide). Walker

and Ruekert (1987) synthesized these typologies

of entrepreneurial behavior by discriminatingbetween Low Cost Defenders and Differentiated

Defenders. We conducted a pilot study to assessthe appropriatenessof considering the alternative

types of Defender strategies. Interviews withmanagers who characterized their businesses asDefenders revealed that they could also readilyarticulate whether differentiation or low cost wasthe basis for their value proposition.

Although Walker and Ruekert dropped theAnalyzer strategy type from their hybrid typology,we believe that the evidence (e.g., James andHatten, 1995; Slater and Narver, 1993; Zahra andPearce, 1990) does not warrant this alteration.Thus, the remainder of this study will be con-


cerned with four strategy types-the Prospector,the Analyzer, the Differentiated Defender, and

the Low Cost Defender-and how sales force

management practices contribute to their success-ful execution. We do not offer hypotheses for theReactor type because they seem to represent a

small segment of the total population, a findingthat was confirmed in this sample.

MATCHING MARKETING PRACTICETO BUSINESS STRATEGY

Walker and Ruekert (1987) developed a theory,embodied in a set of propositions, of how market-ing policies and activities may contribute to the

effective implementation of different business

strategies. Viswanathan and Olson (1992)

developed a conceptual model of the sales man-agement function's role in the implementation of

competitive strategy. Empirical research on the

business strategy-marketing competency relation-

ship has found that prospector and analyzerorganizations place greater emphasis on marketingactivities than do defender organizations and that

prospector organizations emphasize marketingactivities more than analyzer organizations

(Conant, Mokwa, and Varadarajan,1990; McDan-

iel and Kolari, 1987; McKee, Varadarajan,and

Pride, 1989). However, the performance impli-

cations of matching marketing practices to differ-

ent strategy types have not been examined. The

objective of this study is to address that issue.

SALES FORCE MANAGEMENT ASMARKETING PRACTICE

Sales force management is subsumed in theM&S administrative problem as it is concernedwith the development of selling strategy and sales

force structure, control, and compensation. Inorder to test whether or not linkages betweencompetitive strategy and sales force managementactually exist-and, if so, how strong they are-we focus on five key sales managementpractices.These practices are representative of the threebroad critical sales management issues identifiedby Churchill, Ford and Walker (1990) (i.e.,sales plan formulation, implementation, andevaluation). The practices include: (1) sellingstrategy (e.g., Dwyer, Schurr and Oh, 1987;

Strat. Mgmt. J., 21: 813-829 (2000)



Ganesan, 1994; Morgan and Hunt, 1994), (2)internalizationof selling activities (Anderson andWeitz, 1986), (3) extent of managerial supervision(Anderson and Oliver, 1987; Oliver and Ander-son, 1994), (4) focus of salesperson control (e.g.,Anderson and Oliver, 1987; Cravens et al., 1993;

Jaworski, 1988), and (5) salesperson compen-sation plans (e.g., Anderson and Oliver, 1987;Cravens et al., 1993; Jaworski, 1988; Oliver andAnderson, 1994). In this section we describe therange of alternatives within these practices andoffer hypotheses for which alternatives shouldlead to superior performance for the Prospector,Analyzer, Low Cost Defender, and DifferentiatedDefender strategy types.

Selling strategy

Over the past two decades the development ofstrong and enduring relationships with key cus-tomers has become accepted as a foundation forcompetitive advantage. Relationship selling isbased on interdependence between sellers andbuyers, sharing of critical information that isbased on trust between the two parties, and lon-gevity of the relationship that enables both partiesto enjoy financial rewards from coordinated stra-tegic investments (Ganesan, 1994; Morgan andHunt 1994; Shapiro, 1988). This relationshipgives the seller greater insight into the buyer'slatent needs, enabling the seller to develop newofferings before the competition or to augmentcommodity-like products with high value-addedservices (Levitt, 1980).

However, relationship selling is an intensiveand expensive activity. At the opposite end ofthe continuum of selling strategies is transactionselling, a discrete activity with the transactionbeing the near-termoutcome of the selling effort.Transaction selling is most appropriatefor fairlysimple products that require little service or sales

support (Shapiro, 1988). Thus, transaction sellingtends to be more efficient for standardizedprod-ucts while relationship selling is more effectivefor complex products or products that have adegree of risk associated with them.

Prospectors, with their emphasis on productand market development, should work closelywith lead-users to identify problems and definesolutions (Moore, 1995; Slater and Narver, 1998).Analyzers also work closely with customers tounderstand the shortcomings of Prospectors'

Copyright ?D 2000 John Wiley & Sons, Ltd.

Strategy Type and Performance 815

efforts and develop an enhanced version of theproduct that corrects deficiencies or targets neg-lected market segments. On the other hand, LowCost Defenders compete primarily on price. Theirquest for efficiency diminishes their ability tomake substantial investments in long-term

relationships. The preceding propositions are con-sistent with Slater and Narver's (1993) findingthat Prospectors and Analyzers benefited frombeing market oriented, which we believe is aprerequisite to having a relationship strategy,while Low Cost Defenders did not. Finally, theobjective of Differentiated Defenders is to protectkey customers or markets by continuously provid-ing superior value that is based on product bene-fits or services. This strategy indicates a need forclose customer ties. Thus:

Hypothesis la: Prospectors achieve superiorperformance when utilizing a relationship sell-ing strategy.

Hypothesis lb: Analyzers achieve superior per-formance when utilizing a relationship sellingstrategy.

Hypothesis Ic: Low Cost Defenders achievesuperior performance when utilizing a trans-action selling strategy.

Hypothesis Id: Differentiated Defendersachieve superior performance when utilizing arelationship selling strategy.

Contracting of selling activities

Transaction cost theory tells us that markets(contracting) and hierarchies (firms) are alterna-tive mechanisms for coordinating transactions,and that the choice of one or the other is basedon the respective costs associated with the trans-

action (Williamson, 1975). A transaction occurswhen a good or service is transferred across aseparable interface, such as when a firm contractswith independent sales representatives to facilitatetransactions. The alternative is for the firm tointegrate forward and add the selling activity toits activities in product development and pro-duction (Anderson and Weitz, 1986).

The attributes of transactions that are of specialinterest are ones in which potential for a contrac-tor to act opportunistically is significant and

Strat. Mgmt. J., 21: 813-829 (2000)




include dependence on the owner of a specificasset, small numbers of potential contractors, andimperfect information. The theory predicts thatfirms will expand the scope of their activitieswhen opportunistic potential is significant and

will transact with contractors when threats due to

asset specificity, small numbers, and imperfectinformation are not significant (cf. Teece, 1984).

Prospectors and Analyzers both seek opportuni-ties in turbulent markets where market infor-mation is a critical asset (e.g., Dickson, 1992;Slater and Narver, 1995). Organizational com-petencies are embedded in key personnel such assales people and marketers (Miles and Snow,1978). Contracting with independent distributors

could seriously hinder the rapid transferof market

knowledge. Furthermore, independent distributorswould not be likely to invest in activity-specific

assets.Conversely, Low Cost Defenders are typically

sellers of commodity products and, as such, arenot as vulnerable to asset specificity or to rapidly

changing market information. Differentiated

Defenders, though, create customer value by pro-viding superior customer service. This service

capability is an asset that must be built and

protected. Thus:

Hypothesis 2a: Prospectors achieve superiorperformance when employing an internalsales force.

Hypothesis 2b: Analyzers achieve superior per-formance when employing an internal salesforce.

Hypothesis 2c: Low Cost Defenders achievesuperior performance when contracting withan external sales force.

Hypothesis 2d: Differentiated Defenders

achieve superior performance when employingan internal sales force.

Extent of supervision

The extent of supervision required is concernedwith the degree to which sales people are moni-tored and directed. Low supervision requirementsimply that sales people are knowledgeable and arebest able to determine the appropriateactivities toachieve the firm's goals and/or that the impor-

Copyright ?D2000 John Wiley & Sons, Ltd.

tance of retaining an individual account is rela-tively low. High supervision implies that sales

people require substantial guidance to selectactivities that will lead to the accomplishment oftheir goals and/or that the retention of a specific

account is of high importance (Anderson and

Oliver, 1987; Oliver and Anderson, 1994; Ander-son and Weitz, 1986).

The need for responsiveness to emerging mar-ket opportunities by Prospector organizationsrequires flexibility, decentralized decision making,and rapid communication from the field to mar-keting or to R&D. Salespersons in Prospectorfirms must be able to explain and demonstratethe benefits of New-to-the-World products to theirprimary customer group, early adopters. Because

many of these products are technology driven,salespersons in Prospector businesses must have

a strong grasp of the physical knowledgeassociated with the product's technology. These

conditions suggest that Prospectorbusinesses will

benefit from comparatively low levels of super-vision. This must be balanced with the objectiveof maintaining strong relationships with key cus-

tomers, which requires some managerial over-

sight. Thus, we expect that high-performingPros-

pector businesses will practice neither of theextremes of low or high levels of sales force

supervision and, instead, practice moderate

salesperson supervision.Miles and Snow note that the entrepreneurial

problem faced by Analyzer businesses is

determining how to locate and exploit new prod-uct and market opportunities while retaining abase of traditional customers. To accomplish this,Analyzers must be able to quickly follow thelead of key Prospectors. At the level of the salesfunction this means salespersons must be able torespond quickly to threats as well as to opportuni-ties created by Prospector organizations. Theseconditions call for salespersons with considerable

technical and customer knowledge, thus requiringrelatively little oversight. However, the need tomaintain a substantial base of traditional cus-tomers argues in favor of more extensive levelsof supervision to ensure that routine transactionsare handled expeditiously and with the degree ofservice required by key accounts. The dual natureof the sales job in Analyzer firms also suggeststhat a moderate level of supervision is most effec-tive.

Porter (1980) argues that cost minimization in

Strat. Mgmt. J., 21: 813-829 (2000)



areas like R&D, service, and marketing is the

hallmarkof overall cost leaders. Walker and Rue-

kert also suggest that high sales force expendi-

tures could negatively impact firm performance

as they could be inefficient uses of resources.

Given this lesser emphasis on personal selling and

our expectation that Low Cost Defenders will relyheavily on outside sales reps to sell their products,

we predict that high performers will engage in

comparatively low levels of supervision.

In direct contrast, Differentiated Defenders are

predicted to benefit from high levels of supervis-

ory control over their sales forces. Walker and

Ruekert (1987) predict that Differentiated

Defenders will have relatively high sales force

expenditures. Maintaining the loyalty of estab-

lished customers is essential, as the cost of replac-

ing a lost customer will be very high. We predict

that high-performing Differentiated Defenderswill engage in extensive sales force oversight to

prevent the loss of long-term customers because

of the substantial profit stream associated with

them and because of the considerable costsincurred in trying to replace them. Thus:

Hypothesis 3a: Prospectors achieve superior

performance when utilizing moderate supervis-

ory control.

Hypothesis 3b: Analyzers achieve superior per-

formance when utilizing moderate supervisorycontrol.

Hypothesis 3c: Low Cost Defenders achieve

superiorperformance when utilizing low super-

visory control.

Hypothesis 3d: Differentiated Defendersachieve superior performance when utilizing

high supervisory control.

Salesperson control

Regardless of the extent of supervision imposedon individual salespersons or independent reps,managers must articulate the expectations of the

salesperson or the sales force, and monitor per-formance compared to expectations. While differ-

ent competitive strategies require different and

varied selling behaviors, ultimately the sales force

must achieve certain outcomes related to revenue

or profit targets.



Drawing from organization theory (e.g., Eisen-

hardt, 1985), Anderson and Oliver (1987) classi-

fied sales force control systems into two types:

outcome-based and behavior-based. Outcome-

based control focuses on the results that a sales-

person achieves. Sales people are allowed to

determine the most appropriatemeans to achievetheir objectives. Sales people must be sufficientlyknowledgeable to understand and respond to sig-

nals from a changing marketplace and be suf-

ficiently entrepreneurial o take the risk associatedwith independent action.

Behavior-based control systems ensure consis-

tency of action by prescribing and monitoring the

activities of the sales force. Management pre-

sumes to understandwhich behaviors will achieve

the desired results. In this environment, man-

agement assumes risk to gain control of sales

force behavior. In behavior-based control systems,managerial direction is substituted for salesperson

autonomy (Anderson and Oliver, 1987).As predicted in Hypothesis 1, high-performing

Prospectors, Analyzers, and Differentiated

Defenders are all expected to utilize a relationship

selling strategy. However, the nature of these

relationships cannot be characterized as identical.

Prospectors seek customers who are willing to

buy new products that utilize cutting-edge

technologies. To accomplish this, Prospectors

require a sophisticated and knowledgeable sales

force. Superior performance will be achieved

when outcomes, both short-term and long-term,

are collaboratively set and the salesperson is

given the autonomy to determine the most appro-

priate behaviors. Thus, Prospector firms should

adopt outcome-based control systems for their

sales forces.

Because Analyzers place great emphasis on

maintaining a base of traditional customers while

simultaneously exploiting new market opportuni-

ties, they must utilize a control system that

defines expectations for results in some situationsand prescribes behaviors in others. Thus, we pre-dict that these firms will adopt a mixed control

system.Low Cost Defenders are characterized by hav-

ing comparatively low prices as well as lower

levels of service (Walker and Ruekert, 1987). As

their customers tend to base purchase decisions

primarily on price, there are few behaviors a

salesperson or rep could be measured on other

than the ability to close deals. Consequently,

Strat. Mgmt. J., 21: 813-829 (2000)




high-performing Low Cost Defenders are thegroup most likely to adopt pure outcome-based

control systems (Govindarajanand Fisher, 1990).In contrast, the competitive advantage of Dif-

ferentiated Defenders lies in their ability to create

customer value in a way that is perceived as

unique. The development of close customerrelationships provides essential information

regarding unique value creation opportunities.Key success factors for Differentiated Defenders

include effective communication of this infor-

mation between the sales force and R&D or

between the sale force and production, and highlevels of service before and after the sale. As

effectiveness in accomplishing these factors is

very difficult to measure in the short term, a

behavior-based control system is most appropriatefor Differentiated Defenders (Govindarajan and

Fisher, 1990). Thus:

Hypothesis 4a: Prospectors achieve superiorperformance when utilizing an outcome-basedcontrol system.

Hypothesis 4b: Analyzers achieve superior per-

formance when utilizing a mixed control system.

Hypothesis 4c: Low Cost Defenders achievesuperior performance when utilizing an out-come-based control system.

Hypothesis 4d: Differentiated Defendersachieve superior performance when utilizing abehavior-based control system.

Compensation

Compensation systems span a spectrum fromstraight salary or 'fixed' to straight commissionor 'incentive-based.' Fixed compensation systemsoffer greater protection from risk to the salesper-

son. Sales people are more likely to place theorganization's needs above their own in this situ-ation. Sales people tend to be more loyal to theorganizationand are willing to follow managementdirectives more closely. Incentive-oriented com-pensation systems shift risk from the firm to thesalesperson. They require entrepreneurial salespeople who tend to place their personal goalsabove those of the organization. These sales peopleoften have low loyalty to the organization andmay be easily enticed to switch employers.


Between these two extremes lie hybrid systemsthat provide both a base salary and some form

of commission or bonus as an incentive. These

hybrid systems are used in over 80 percent of

businesses (Churchillet al., 1990: 535). Thus, theissue is the proportionof fixed compensation (i.e.,

salary) to incentive-based compensation (i.e.,commission)in the overallcompensationplan ratherthan the adoptionof one extreme or the other.

Prospector organizations succeed by beinginnovative and entrepreneurial. [T]he salespersonis made an entrepreneur,responsible for his or her

own performancebut free to select the methods of

achievement' (Anderson and Oliver, 1987: 77).While Anderson and Oliver are describing the

environment of an incentive-based compensationsystem, they could easily be describing a Prospec-tor organization.

Because of their dual emphasis on change andstability, Analyzers should provide a balancebetween salary and commission. The risk of pur-suing new technologies must be rewarded, butnot to such an extent that the stable base ofcustomers is ignored.

Conventionalwisdom tells us that a salary-basedcompensation system is not appropriatewhen con-

tracting with an independentsales force, as wehypothesized would be the case for Low CostDefenders.When efficiency is the dominantobjective,an incentive-oriented ompensationsystem is con-sidered most effective (Andersonand Weitz, 1986).

Sales people in Differentiated Defender organi-zations generally should be motivated by salary toencourage conformity and ensure a standardizedproduct-service offering. Of course cash flowsare still an importantelement for keeping Differ-entiated Defender businesses healthy, so someincentive to generate sales must be a componentof the compensation system. Thus:

Hypothesis 5a: Prospectors achieve superior

performance when utilizing a predominantlyincentive-oriented compensation system.

Hypothesis Sb: Analyzers achieve superior per-formance when utilizing a balanced compen-sation system.

Hypothesis Sc: Low Cost Defenders achievesuperior performance when utilizing a pre-dominantly incentive-oriented compensationsystem.

Strat. Mgmt. J., 21: 813-829 (2000)



Hypothesis Sd: Differentiated Defenders

achieve superior performance when utilizing a

predominantly salary-based compensation sys-

tem.

SAMPLE

We purchased a commercial mailing list of 1000

sales executives in manufacturing firms operating

in 24 different 2-digit SIC codes primarily from

the 20 and 30 series to serve as our sampling

frame. We mailed each executive a letter

explaining the general purpose of the study, a

copy of the questionnaire, and a return envelope.

The questionnaire defined the meaning of busi-

ness unit and asked respondents to refer either to

the largest SBU in their organization or the one

they were most familiar with. Two weeks afterthe first mailing we sent a follow-up letter with

a duplicate copy of the questionnaire and another

return envelope. We received 278 usable

responses that, after accounting for undeliver-

ables, constituted a 28 percent response rate.

Although nonresponse bias is always a concern

in survey research, this response rate is within

the range of typical response rates for studies of

this type. Furthermore, Armstrong and Overton

(1977) found that late responders more closely

resemble nonresponders than do early responders.

Significant differences between late responders

and early responders would indicate the presence

of nonresponse bias. We found no difference

between early and late responders on key mea-

sures.

Measures'

We compute values for the multi-item scales as

simple averages of the scores for those items

since the number of items in each scale varies.

Performance is a complex multidimensionalconstruct (e.g., Chakravarthy, 1986; Kaplan and

Norton, 1996; Walker and Ruekert, 1987) that is

influenced by both the level of analysis (e.g.,functional vs. business strategy) and strategy type

(e.g., Prospector vs. Defender). We focus on prof-itability and market performance (i.e., sales and

market share effectiveness) because they are

1 All of the measures are contained in the Appendix.

Copyright ?) 2000 John Wiley & Sons, Ltd.


widely recognized as two of the most important

indicators of financial performance (e.g., Capon,Farley, and Hoenig, 1990; Kaplan and Norton,1996; Varaiya, Kerin, and Weeks, 1987) and

because of their relevance regardless of strategylevel or strategy type. We use Babakus et al.'s

(1996) 7-point measures of profitability and mar-ket performance.

We have not discriminated between prof-itability and market performance in our hypo-

theses because managers often make trade-offs

between the two (Kaplan and Norton, 1996; Miles

and Snow, 1978; Walker and Ruekert, 1987).If there is a significant relationship between an

independent variable and both dependent vari-

ables, we characterize this as support for thehypothesis. If there is a significant relationship

between an independent variable and only one

dependent variable, we characterize this as partialsupport for the hypothesis and specify to which

performance measure the independent variableis related.

Strategy Type is assessed using the self-typingparagraph approach that is commonly used in

both strategic management research (e.g., Jamesand Hatten, 1995) and marketing strategy research(McDaniel and Kolari, 1987; McKee et al., 1989).

Several studies (Conant et al., 1990; James and

Hatten, 1995; Shortell and Zajac, 1990) have

demonstrated that this is a valid measurement

approach.In this study, 33 percent of respondents

characterized their businesses as Prospectors, 15

percent as Analyzers, 15 percent as Low Cost

Defenders, 32 percent as Differentiated

Defenders, and 5 percent as Reactors. Although

the numbers of Analyzers and Low Cost

Defenders are considerably smaller than those

for Prospectors and Differentiated Defenders, the

numbers are adequate for hypothesis testing.

Selling Strategy is assessed with Heide and

Miner's (1992) 'Extendedness of Relationship'

scale. This four-item (7-point) scale assesses theseller's orientation towards the development of

long-term relationships with buyers. A high score

indicates a relationship selling strategy.Internalization of Selling Activities is assessed

with a single-item, 11-point scale that asks

respondent to indicate the proportion of sales

revenues generated by members of your own

sales force compared to the proportion generatedby independent sales representatives. The scale

goes from 'O percent by Company Sales

Strat. Mgmt. J., 21: 813-829 (2000)




Force/100 percent by Independent Sales Rep-resentatives' to '100 percent by Company Sales

Force/0 percent by Independent Sales Representa-tives.' A high score indicates extensive use of an

internal sales force.Extent of Supervision/Autonomy is assessed

with Oliver and Anderson's (1994) eight item (7-point) scale. A high score indicates high auton-

omy and low supervisory control.

Salesperson Control System is measured with

Babakus et al.'s (1996) seven-item (7-point)'Reward' scale that assesses whether sales peopleare evaluated and rewarded based on behaviors

or on outcomes. A high score indicates outcome-

based control while a low score indicatesbehavior-based control. Babakus et al. (1996)provided evidence of unidimensionality and

discriminant validity in a confirmatory factor

analysis.Compensation is measured with an 11-point

scale ranging from '0 percent by Commission/100

percent by Salary' to '100 percent byCommission/0 percent by Salary.' This is similarto the two-item measure used by Oliver andAnderson (1994) that asks for the percent of

salary in the compensation plan in both thepresent and last pay period. A high score indicates

a commission-based compensation system.We also control for the following market-level

and firm-level influences:Firm Size often confers performance benefits

such as superior cost position and stronger repu-tation. Smith, Guthrie, and Chen (1989) foundthat firm size is an important moderator of thestrategy-performance relationship. Respondentswere asked to indicate which one of nine catego-ries most closely reflected their business unit'sannual gross sales.

Product Complexityis an element of a differen-tiation strategy. More complex products shouldprovide buyers with additional benefits. The pro-

vision of superior benefits has broad implicationsfor performance, particularly within strategy type.For example, sales force design might be quitedifferent for Prospectors that market relativelysimple products than for those that market com-plex products. We use a two-item (7-point) scaleto assess complexity.

Market Turbulence is primarily concerned withcompetitive hostility, potentially the most influ-ential of Porter's (1980) five forces of industrystructure. Because of this influence, market turbu-


lence should have an impact on both strategyselection and on firmperformance.We use Jawor-ski and Kohli's (1993) five-item (7-point) scale.

ANALYTICAL APPROACH

Table 1 contains a correlation matrix of the con-

tinuously scaled variables and descriptive sta-tistics for each of the variables including Cron-

bach's a, where appropriate.We follow the lead of others who have

assessed the characteristicsof the individual strat-

egy types (e.g., Dvir et al., 1993; McDaniel and

Kolari, 1987; McKee et al., 1989) by conductingour analyses within each strategy type. We con-

duct two OLS regression analyses for each strat-

egy type, the first using market performance as

the dependent variable and the second using prof-itability as the dependent variable. Each

regression equation includes the three control

variables and the five hypothesis-relatedvariables.To test for a U-shaped relationship, we use a

second-order polynomial regression model inwhich the independent variable appears to thefirst and second powers (Neter, Wasserman, andKutner, 1983). We test for U-shaped relationshipsbetween all of the independent variables and per-formance. The key to whether a relationship isU- or inverted U-shaped lies in the second deriva-tive that contains only the coefficient for thesquared term. Thus, for y = a + bx + cx2, thefirst derivative is b + 2cx (meaning a maximumor a minimum at x = bl2c) and the secondderivative is 2c. If the second derivative is posi-tive (c > 0), it is a U-shaped curve. If c < 0, itis an inverted U.

A negative sign for the squared term indicatesthat the U-shaped relationship is inverted. Theregression models contain statistics for both thefirst power form of the independent variable and

for the second power form when it is statisticallysignificant. In Table 2 we report the standardizedregression coefficient (and its significance level)and the associated t-statistic.

We also tested for violations of the assump-tions of independence, normal distributionof errorterms, and homoscedasticity in the OLS analysesthrough the calculation of variance inflation fac-tors, the Kolmogorov-Smirnov one-sample test,and White's test, respectively (Table 3).

We find no evidence of damaging multi-

Strat. Mgmt. J., 21: 813-829 (2000)



Table1.

Descriptive

statistics,

Cronbach's

a,

and

correlation

coefficients

(n=

278)

Mean

S.D.

1

2

3

4

5

6

7

8

9

10

Market

4.96

1.04

a=

0.874

performance

Profitability

5.02

1.18

0.490b

a=

0.809

Selling

Strategy

4.11

1.10

0.3

9b

0.316b

a=

0.785

Internalization

of

8.06

2.37

0.248b

0.131a

0.214

NA

selling

activity

Extent

of

2.63

0.80

-0.279b

-0.289b

-0.241l

-0.021

a

=

0.768

supervisionSalesperson

4.59

0.94

0.241b

0.159a

0.167b

0.043

-0.306b

a=

0.697

control

system

Compensation

4.93

3.07

0.104

0.040

-0.025

-0.105

0.000

0.286b

NA

Firm

Size

2.35*

1.11

0.168b

0.074

0.015

0.075

0.005

0.032

-0.031

NA

Market

4.81

1.17

-0.083

-0.179b

-0.054

0.046

-0.046

0.131a

-0.095

0.124a

a

=

0.749

turbulence

Product

4.41

1.77

-0.064

-0.101

0.025

-0.081

0.011

-0.031

-0.142

0.010

0.201b

a=

0.853

complexity

ap

c

0.05;

bp

-

0.01

*Average

business

unit

size

is

in

the

$10-15

million

range



Strat. Mgmt. J., 21: 813-829 (2000)




Table2.

Results

of

multiple

regression

analysis

within

strategy

type:

Standardized

regression

coefficient/t-statistic

Prospectors

(n=

93)

Analyzers

(n=

42)

Low

Cost

Defenders

(n=

43)

Differentiated

Defenders

(n=

89)

Market

Profitability

Market

Profitability

Market

Profitability

Market

Profitability

performance

performance

performance

performance

HI:

Selling

strategy

0.031/0.35

0.216b/2.02

0.241/1.61

0.286b/2.17

0.004/0.02

1.02/0.73

-0.623/-1.56

0.

142a/1.94

0.957b/2.42

H2:

Internalization

1.28c/2.74

0.050/0.46

0.465c/3.08

0.594c/5.03

-0.049/-0.31

-0.334c/-2.67

0.209b/2.50

1.067c/2.80

of

selling

activity

-l.Olb/-2.

15

-0.906b/_2.38

H3:

Extent

of

2.39c/4.72

1.41b/2.32

-1.63a/-1.92

-0.013/-0.097

-0.161/-0.96

0.012/0.071

-1.27c/-3.23

-1.74c/-4.74

supervision

-2.37c/-4.66

-1.4b/-2.30

1.93b/2.15

0.874b/2.21

1.29c/3.54

H4:

Salesperson

0.235b/2.34

0.231a/1.92

0.317b/2.08

0.373c/2.84

0.268/1.43

0.480c/3.19

0.062/0.861

-0.290c/4.39

control

system

H5:

Compensation

0.120/1.35

0.045/0.42

1.75c/3.32

-0.051/-0.44

0.269a/1.69

-0.032/-0.27

-0.726c/-2.62

0.252c/-3.57

-1.68c/-3.12

0.612b/2.25

Firm

size

0.183b/2.11

-0.069/-0.67

-0.375b/-2.26

0.202/1.56

0.507c/3.62

-0.179/-1.26

0.1

16a/1.71

0.022/0.33

Market

turbulence

-0.117/-1.20

-0.032/-0.27

-0.289b/_1.98

-0.250b/_1.99

0.199/1.28

-0.121/-0.84

-0.186c/-2.71

-0.238c/-3.66

Prod.

Complexity

0.106/1.17

0.033/0.31

0.172/1.10

0.080/0.65

0.008/0.05

-0.165/-1.42

-0.156b/-2.05

-0.128a/-1.88

A

Adjusted

R2

0.365

0.155

0.436

0.606

0.147

0.248

0.615

0.583

Adjusted

R2

for

full

0.400

0.124

0.436

0.559

0.355

0.611

0.623

0.664

model

F-Statistic

7.12c

2.45b

4.17c

7.50c

3.89c

8.33c

14.21c

18.36c

ap

C

0.10;

bp

<

0.05;

cpc

0.01

(2-tailed

tests)

A

Adjusted

R2is

the

reduction

in

the

variation

of

the

dependent

variable

thatis

gained

by

adding

the

hypothesis-related

variables

to

the

model

with

only

the

control

variables.

Itis

possible

for

theA

adjusted

R2to

be

greater

than

the

adjusted

R2

for

the

full

modelif

the

decreasein

SSEis

more

than

offset

by

the

loss

ofa

degree

of

freedom

from

adding

an

additional

independent

variable

(Neter

et

al.,

1983).

The

F-statistic

is

for

the

full

model.

Copyright ? 2000 John Wiley & Sons, Ltd. Strat. Mgmt. J., 21: 813-829 (2000)



Strategy Type and Perfformance 823

Table 3. Regression diagnostics

Prospectors (n = 93) Analyzers (n = 42) Low Cost Defenders Differentiated

(n = 43) Defenders (n = 89)

Market ProfitabilityMarket ProfitabilityMarket ProfitabilityMarket Profitabilityperformance performance performance performance

Maximum 1.524 1.524 1.845 1.845 2.058 2.058 1.382 1.382varianceinflationfactora

Kolmogorov- 0.77 0.74 0.66 0.68 0.87 0.46 0.61 1.40Smirnovone-sampletestb

White testc 11.85 11.59 12.99 8.39 23.84 21.16 15.65 9.53

aA maximum variance inflation factor in excess of 10.0 indicates that multicollinearity may be unduly influencing the least-

squares estimates. VIFs are not calculated for the second-order factors.

"The Kolmogorov-Smirnov one-sample test indicates how well the residuals fit a normal distribution. A value below 1.28

indicates that the null hypothesis of normal distribution cannot be rejected.cThe value calculated with the White test is compared with the critical value of chi-square with (# of IVs) degrees of

freedom. If the value from the White test < the critical value of chi-square (typically at the p = 0.05 level), the null

hypothesis of homoscedasticity cannot be rejected. In the case of Low Cost Defenders, the null hypothesis of homoscedasticity

is rejected at the p = 0.05 level but not at the p = 0.01 level.

collinearity, evidence of a skewed distribution of

residuals for Differentiated Defenders with prof-

itability as the dependent variable, and evidence

of moderate heteroscedasticity (the null hypothesis

of homoscedasticity cannot be rejected at p '

0.01 instead of the common standardof p' 0.05)

for the Low Cost Defender subsample. Weighted

least squares should be used when heteroscedastic-

ity is present to derive efficient parameterestimates

(Neter et al., 1983; Pindyck and Rubinfeld, 1991).

Thus, results for Low Cost Defenders in Table 2

are obtained by weighted least squares.

RESULTS

In the following paragraphswe discuss the results

in the context of each of the strategy types. Thisallows us to develop a profile of the sales forcemanagement practices that are associated withincreased performance within each strategy type.If there is a significant relationship between an

independent variable and both dependent vari-

ables, we characterize the strategy type as highperforming and the hypothesis as supported. If

there is a significant relationshipbetween an inde-

pendent variable and only one dependent variable,we specify which dependent variable is in the


relationship and characterize the hypothesis as

partially supported.For Prospectors, relationship selling tends to

be associated with increased profitability

(indicating that Hypothesis la is partially

supported). Moderate levels of supervision

(Hypothesis 3a supported) and outcome control

systems (Hypothesis 4a supported) also seem to

be associated with increased performance for

Prospectors. Instead of relying primarily on an

internal sales force, higher market performance

Prospectors seem to strike a balance between

using an internal sales force and independentsales representatives (Hypothesis 2a rejected).

Outcome control systems may reduce the risk

associated with the higher than expected reliance

on independent sales reps. Although the relation-

ship between compensation system and both per-formance measures is in the hypothesized direc-tion, the relationshipis not significant (Hypothesis5a rejected).

To summarize, higher-performing Prospectors

appearto build strong relationships with customerorganizations to develop a clear understanding of

their latent needs, which provides the foundation

for the Prospector's product development efforts.

Because they motivate the sales force by focusingon what is produced (outcome), Prospectors allow

Strat. Mgmt. J., 21: 813-829 (2000)




their sales forces, whether internal or independent,to work with moderate levels of supervision.

For Analyzer organizations relationship selling,which gives them insight into opportunities that

Prospectors may have overlooked, also seems to

be associated with increased profitability

(indicating that Hypothesis lb is partiallysupported). Because of their fluid orientations,

Analyzer organizations require the clear com-

munication channels that come from having pri-

marily internal sales forces (Hypothesis 2b

supported). Surprisingly, either high or low levels

of sales manager supervision tend to be associated

with increased market performance in Analyzer

organizations (Hypothesis 3b rejected). This find-

ing may be due to the dual nature of the entrepre-

neurial and administrativechallenges which could

lead to organizational instability and requirelesser

or greater management direction as they shiftbetween exploiting new opportunitiesand protect-ing part of their domain. Instead of having a

balance between outcome and behavior-based

control systems, higher-performing Analyzersseem to place the greatest emphasis on outcome

(Hypothesis 4b rejected). To reduce some of the

risk associated with the dual nature of the entre-

preneurial and administrative challenges, a bal-

ance between salary-based compensation and

commission-based compensation in their reward

structures appears to be associated with increased

marketperformancefor Analyzers (indicating par-

tial support for Hypothesis 5b).Thus, higher-performing Analyzers seem to

pursue a relationship selling strategy and use an

internal sales force to accomplish this and to deal

with the instability in their strategic focus. Theyutilize an outcome-based control system, and

reduce risk to the firm by using moderately highlevels of supervision to provide clear direction tosales force members and seem to reduce risk tothe salesperson by balancing commission-based

compensation with a salaried foundation.Counter to our prediction, Low Cost Defendersdo not seem to benefit from either selling strategy(Hypothesis Ic rejected). For Low Cost Defendersan external sales force is associated withincreased profitability (indicating that Hypothesis2c is partially supported). With regard to thelevel of management supervision we failed tofind support for the TCA model that suggestedlow levels of hierarchical control would be

associated with higher performance (Hypothesis

Copyright C 2000 John Wiley & Sons, Ltd.

3c rejected). Consistent with our predictions, forLow Cost Defenders outcome-based control sys-tems tend to be associated with increased prof-itability (indicating that Hypothesis 4c is partiallysupported) and incentive-based compensation sys-tems are associated with increased market per-

formance (indicating partial support for Hypoth-esis 5c). These findings are consistent with theuse of independent contractors.

Consistent with Porter's (1980) theory, the pic-ture of the successful Low Cost Defender thatemerges is an organization that outsources its

selling function to concentrate on its core com-petency, which is production. To obtain desiredresults, more profitable Low Cost Defenders seem

to use an outcome-based control system and

superiormarketperformanceLow Cost Defenders

seem to utilize commission-based compensation.

For Differentiated Defenders, a relationshipselling strategy is associated with increased prof-itability. This enables them to understand how

they should differentiate in order to create

superior customer value. However, higher market

performingDifferentiated Defenders may also use

a transaction-based selling strategy to maximize

selling opportunities, at least in the short run

(thus indicating that Hypothesis Id is partially

supported). Consistent with Hypothesis 2d,higher-performing Differentiated Defenders relyon an internal sales force. However, somewhatcounter to Hypothesis 2d, the most profitableDifferentiated Defenders seem to utilize someindependent representatives to keep their costslow (indicating partial supportfor Hypothesis 2d).For Differentiated Defenders, either high orlow levels of supervision seem to be associatedwith increased performance (Hypothesis 3d par-tially supported). For Differentiated Defendersbehavior-based control systems and salary-oriented compensation systems are associatedwith increased profitability (indicating partial sup-

port for Hypotheses 4d and 5d).Our findings are consistent with Walker andRuekert's (1987) proposition that DifferentiatedDefenders will benefit from greater oversight bysales management than will Low Cost Defendersbecause of the critical role that the sales functionplays in maintaining a differentiated position inthe market. This is supported by the greaterreliance on an internal sales force and the use ofmoderate levels of supervision coupled with agreater emphasis on developing and maintaining

Strat. Mgmt. J., 21: 813-829 (2000)




Is the internal competition inherent to brand man-agement systems more beneficial for some strat-egy types than for others?

Another key decision area is pricing. There are,of course, several pricing philosophies. Is value-based pricing appropriateregardless of strategy?

Within a value-basedpricing framework,managersmust still determine how much of an inducementto give to customers to switch suppliersor to switchfrom solution to their generic problem to anothersolution. Is there a level of inducementthatis mostappropriate for Prospectors and another for LowCost Defenders? This is a question thathas receivedlittle or no attention.

A final area that we suggest warrantsattentionis channel structure. Channel structureencompasses both number and types of inter-mediaries, as well as relationships with inter-

mediaries. We found that high-performing LowCost Defenders made extensive use of inde-pendent distributors. How do they manage thoserelationships for maximum effectiveness?

CONCLUSION

Marketing does not operate in a vacuum. Market-ing decisions are strongly influenced by both mar-ket-level and organizational forces, and stronglyinfluence a firm's success at achieving competitiveadvantage (Porter, 1985). However, the perceivedimportance of marketing as a strategic disciplinehas been diminished over the past decade (e.g.,Day, 1992). Marketing has much to contribute tothe strategy dialogue, including insights on marketselection, constructionof a customervalue proposi-tion, and business strategy implementation. Weencourage other strategy and marketing scholarsto work at this importantinterface.

ACKNOWLEDGEMENTS

We gratefully acknowledge the helpful sugges-tions of Douglas MacLachlan, Robert Jacobson,and two anonymous SMJ reviewers.

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Appendix

Performance (7 points, from 'Much Worse' to'Much Better'): How has this business unit fared

over the past 24 months? (Based on Babakus et

al., 1996)

Market performance:

Sales growth compared to your major competi-tor.Market share compared to your major competi-tor.

Sales volume compared to sales unit objectives.Market share compared to sales unit objectives.

Profitability:

Profitability compared to your major competitor.Profitability compared to sales unit objectives.

Strategy Types

Prospectors: These businesses are frequentlythe first-to-market with newproduct or service concepts.They do not hesitate to enter

new market segments where

there appears to be an

opportunity. These businessesconcentrate on offeringproducts that push performanceboundaries. Their proposition is

an offer of the most innovativeproduct, whether based ondramatic performanceimprovement or cost reduction.

Analyzers: These businesses are seldom'first-in' with new products orservices or to enter emerging

market segments. However, bycarefully monitoringcompetitors' actions andcustomers' responses to them,they can be 'early-followers'with a better targeting strategy,increased customer benefits, orlower total costs.

Low Cost These businesses attempt toDefenders: maintain a relatively stable

domain by aggressively protecting

Copyright ( 2000 John Wiley & Sons, Ltd.

their product-market position.They rarely are at the forefront ofproduct or service development;instead they focus on producing

goods or services as efficiently aspossible. These businesses

generally focus on increasingshare in existing markets byproviding products at the bestprices.

Differen- These businesses attempt totiated maintain a relatively stableDefenders: domain by aggressively protecting

their product-market position.They rarely are at the forefront ofproduct or service development;instead they focus on providing

superior levels of service and/or

product quality. Their prices aretypically higher than the industryaverage.

Reactors: These businesses do not appear tohave a consistent product-marketorientation. They primarily act torespond to competitive or othermarket pressures in the shortterm.

Selling Strategy (7 points, from 'CompletelyInaccurate' to 'Completely Accurate'): How

accurately do the following statements reflect

your company (or division's) relationships withits customers? (Based on Heide and Miner,1992)

The parties expect relationships to last a lifetime.It is assumed that renewal of agreements inrelationships will generally occur.The parties make plans not only for the terms

of individual purchases but also for the continu-ance of relationships.The relationship with our customers is essen-tially 'evergreen.'

Internalization of Selling Activities (11 points):Please circle the point (x) on the scale that bestrepresents the proportion of sales (U.S. dollars)generated for your business unit by members of

your own sales force as compared with inde-pendent sales representatives.

Strat. Mgmt. J., 21: 813-829 (2000)



% Sales by Independent Sales Representatives

100% 90 80 70 60 50 40 30 20 10 0%

x x x x x x x x x x X

0% 10 20 30 40 50 60 70 80 90 100%

% Sales by Company's Sales Force

Extent of Supervision (7 points, from 'StronglyDisagree' to 'Strongly Agree'): To what extent

do you agree with the following statements?

(Based on Oliver and Anderson, 1994)

Sales supervisors make sure every salespersonknows what to do.

Sales supervisors stay in close contact with

salespersons.Sales supervisors rarely ask salespersons for

information on how they are doing.Sales supervisors don't have much contact withindividual salespersons.

Sales supervisors here stay very well informed

of salespersons' activities.

Salespersons typically feel very isolated from

management.

Salespersons don't have much day-to-day con-

tact with management.

Salespersons are subject to very little direction

from management.

Salesperson Control System (7 points, from

'Strongly Disagree' to 'Strongly Agree'): To what

extent do you agree with the following state-

ments? (Based on Babakus et al., 1996)

We provide performance feedback to sales-

persons on a regular basis.

We compensate salespeople based on the qualityof their sales activities.

We use incentive compensation as the majormeans for motivating salespeople.

We make incentive compensation judgments

Copyright C 2000 John Wiley & Sons, Ltd.


based on the sales results achieved by sales-

people.We reward salespeople based on their results.

We use nonfinancial incentives to reward sales-

people for their achievements.

We compensate salespeople based on the quan-

tity of their sales activities.

Compensation (11 points): Please circle the point(x) on the scale that best reflects the typical

Commission to Salary compensation plan formembers of the sales force in your business unit.

(Based on Oliver and Anderson, 1994)

% Salary

100% 90 80 70 60 50 40 30 20 10 0%x x x x x x X x x x X

Q% 10 20 30 40 50 60 70 80 90 100%

% Commission

Market Turbulence (7 points, from 'Strongly Dis-

agree' to 'Strongly Agree'): To what extent do

you agree with the following statements?

Competition in our industry is cut-throat.

There are many 'promotion wars' in our indus-

try.Anything that one competitor can offer, the

others can readily match.Price competition is a hallmark of our industry.

One hears of new competitive moves very fre-

quently.

Product Complexity (7 points, from 'Strongly

Disagree' to 'Strongly Agree'): To what extent

do you agree with the following statements?

Most buyers would say that we and our competi-tors sell a technically complex product.Our major product is relatively simple for most

buyers to understand.

Strat. Mgmt. J., 21: 813-829 (2000)

influence of sales force management by slater

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