strategic priorities, management control systems, and
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STRATEGIC PRIORITIES, MANAGEMENT CONTROL SYSTEMS, AND MANAGERIAL PERFORMANCE: AN EMPIRICAL STUDY
Submitted by
John Stephen Sands, B.Bus GCUCGU, B. Bus USQ, M. Phil Grif
A thesis submitted in total fulfilment
of the requirement for the degree of Doctor of Philosophy
Centre for Organisational Governance and Performance Management (COGAP)
Department of Accounting, Finance and Economics
Griffith Business School
Griffith University
Queensland, Australia
June 2006
i
Abstract
Literature questioned the accuracy and appropriateness of the description and prediction
propositions underlying the elements of Porter’s theory of generic competitive
strategies. Two common conclusions evolved from these criticisms. Firstly, future
strategy research should develop a more accurate and more relevant description of
strategic priorities for today’s business environment. Secondly, an examination of a
range of strategic and organisational variables within a contingency framework may
provide more powerful insight into what contributes to an effective competitive
strategy. However, the dominating emphasis on accounting controls and accounting
information in past management accounting contingency-based research has been
criticised. This criticism occurs because the focus of the research is not broad enough to
capture modern approaches needed to achieve effective control and to cope with
increased competition and market globalisation. For example, evidence suggests that
middle management are involved in activities of strategic significance and the new
styles of strategic decision making rely on middle management participation beyond the
budgetary setting process.
Modern management systems, such as the balanced scorecard (BSC), place an emphasis
on administrative and personal controls so that the objectives of the chosen strategy can
be communicated and reinforced. Therefore, the involvement and psychological
empowerment of middle management in the strategic decision process are elements of
the control mechanism needed to develop emergent competitive strategies for timely
implementation in today’s dynamic business environment. This contemporary view
sees management control systems (MCS) as a more active set of control elements so
that it can provide individual managers with information and power to achieve their
goals. Therefore, academic commentators have concluded that future research needs to
focus on contemporary dimensions of MCS and behavioural outcomes to maintain the
relevance of MCS contingency-based research.
Consequently, there were four objectives for this study. The first objective of this
research aimed to provide a more accurate description of the dimensions of the
differentiation strategy. This has been achieved by adopting competitive methods that
prior studies derived from a number of strategy theories (e.g., Miles and Snow [1978],
Hofer and Schendel [1978], and Porter [1980]). Competitive methods have been
ii
described as the composition of different strategic dimensions that might be used to
characterise a particular generic strategy. These more specific descriptions of strategy
have been labelled strategic priorities by other researchers. The first aim of the second
objective was to establish a more accurate description of organisations’ strategic
orientations that have greater generalisability than Porter’s notion about the mutually
exclusive implementation of his broadly described typologies. For the second aim of
the second objective, the research aimed to provide a better prediction about an
organisation’s performance ability compared to Porter’s financial performance
proposition that requires the selection of a single priority as an organisation’s strategic
orientation. The results of the confirmatory factor analysis, within a structural equation
modelling (SEM) technique, support the description of more specific dimensions of the
differentiation strategy. Similarly, the cluster analysis indicates organisations adopt a
single strategic priority, no strategic priority, or different combinations of these strategic
priorities as their strategic orientations. Furthermore, the ANOVA and post hoc tests
results show no significant difference in above-average performance when organisations
place an emphasis on one or more of the four strategic priorities. Such results suggest
that a more accurate prediction of organisations’ performance may be based on one
strategic priority or multiple strategic priorities in an organisation’s strategic orientation.
Additionally, the results are consistent with prior findings that do not support the
accuracy of Porter’s descriptions or prediction propositions.
The third and fourth objectives examine the relationships that require path analysis to
identify the direct and indirect effect of variables on relationships examined in this
study. The third objective concerns the set of relationships between four strategic
priorities and managerial performance. The regression analysis produced two
significant positive (Product & Service Quality and Cost Leadership) and one
significant negative (Product Innovation) relationship results. The use of the more
descriptive dimensions of differentiation strategy provides new evidence that adds to the
body of knowledge for a direct relationship between Product & Service Quality and
managerial performance.
Finally, the fourth objective of this study examined the mediating effects of control
elements, middle management involvement and empowerment, on the relationships
between each of these specific strategic priorities and managerial performance. To
achieve this objective, this research investigated, firstly, the four strategic priorities-
iii
involvement relationships and the four strategic priorities-empowerment relationships.
Separate relationships between involvement and managerial performance as well as
empowerment and managerial performance are examined.
Results suggest significant different relationships exist between Product & Service
Quality, Marketing/Brand Image, and Product Innovation strategic priorities and
involvement as well as between these strategic priorities and empowerment. These
significant different relationships results would not be available for researchers who
examined differentiation or prospector strategy as a single variable. Furthermore, all
relationships between involvement and managerial performance or empowerment
dimensions and managerial performance were found to be significant and extend the
scope of the findings by prior management accounting studies.
Finally, significant or meaningful indirect (mediating) effects for each relationship were
calculated using the results of the path analysis. Indirect effect calculations suggest that
the mediating effects of middle management involvement as well as their influence and
competence (two dimensions of empowerment) depend upon the selected strategic
priority. The indirect effects for involvement, influence, and competence intimate they
have a mediating effect on the separate relationships between Product & Service
Quality, Marketing/Brand Image, and Product Innovation strategic priorities and
managerial performance. However, involvement and influence do not have a mediating
effect on the Cost Leadership strategic priority-managerial performance relationship.
Additionally, the calculations suggest that only middle management’s competence
mediates the relationship between the Cost Leadership strategic priority and managerial
performance. Also, the computations intimate that while autonomy does not mediate
the relationship between Product Innovation and Marketing/Brand Image strategic
priorities and managerial performance, autonomy does have a negative mediating effect
on the Product & Service Quality-managerial performance and Cost Leadership-
managerial performance relationships.
iv
Statement of Authorship This work has not previously been submitted for a degree or diploma in any university. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made in the thesis itself.
John Stephen Sands
v
Table of Contents
PageAbstract i
Statement of Authorship iv
Table of Contents v
List of Figures xi
List of Graphs xii
List of Tables xiii
Acknowledgements xv
CHAPTER 1 Introduction 1
1.1 Motivation for the Study 3
1.2 An Overview of the Study 9
1.2.1 An overview of Stage 1: Porter’s competitive strategy-financial performance relationship
9
1.2.2 An overview of Stage 2: Relationship between each strategic priority and performance and mediating effects of involvement and empowerment on each strategic priority-performance relationship
12
1.2.2.1 An overview: Strategic priorities–managerial performance relationship 12
1.2.2.2 An overview: Mediating effects of involvement and empowerment on each strategic priority-performance relationship
12
1.3 Objectives of the Study 14
1.4 Research Questions 16
1.5 Contributions of the Study 16
1.6 Organisation of the Study 19
CHAPTER 2 Literature Review 21
2.1 Definitions of Strategy in Strategy Research 23
2.2 The Theory of Business (Competitive) Strategy 24
2.2.1 Scope of competitive strategies and source of competitive advantage propositions
26
2.2.2 Performance outcomes of singular strategy source adoption proposition 28
2.2.3 Attempts to integrate strategy typologies into alternative theoretical models 30
2.2.4 Identifying competitive characteristics similarities among strategy typologies 36
2.2.5 Strategic priorities within the competitive differentiation strategy 39
2.2.5.1 First method used to identify strategic priority dimensions of differentiation 40
2.2.5.2 Second method used to identify strategic priority dimensions of differentiation 41
2.2.5.2.1 Unquestioned adoption of established differentiation strategy attributes 43
vi
Page 2.2.5.2.2 Adopting established differentiation strategy attributes after further
analysis 45
2.2.6 Strategic priority dimensions, strategic orientation clusters, and performance 50
2.2.7 Summary of strategic priorities, strategic orientation, and performance findings 56
2.3 Strategic and Organisational Variables within a Contingency Framework 59
2.3.1 Strategy and managerial performance 62
2.3.2 Strategy and organisational controls 63
2.3.2.1 Structure: An organisational macro control of MCS 64
2.3.2.2 Elements of the macro control — Organic-Mechanistic structural forms of MCS
66
2.3.2.2.1 Strategy and involvement of middle management in the strategic decision process
69
2.3.2.2.2 Strategy and psychological empowerment of middle management in the strategic decision process
72
2.3.3 Effects of elements of the control mechanism on managerial performance 82
2.3.3.1 Involvement of middle management and managerial performance 83
2.3.3.2 Psychological empowerment of middle management and managerial performance
85
2.3.4 Summary of elements of the control mechanism on managerial performance 87
2.4 Chapter Overview 88
CHAPTER 3 Theoretical Model and Hypotheses Development 92
3.1 Research Problems 92
3.2 Research Problem One: Two elements of Porter’s Theory of Generic Competitive Strategy
100
3.2.1 Theoretical model of strategic priorities and hypothesis development 101
3.2.2 Theoretical model of strategic orientations and hypothesis development 107
3.2.3 Theoretical model for above-average performance and hypothesis development 114
3.2.4 Summary of discussions for research problem one 120
3.3 Research Problem Two: Strategy and Elements of the Control Mechanism within a Contingency Framework
120
3.3.1 Strategic priorities definition 125
3.3.2 Middle management involvement in the strategic decision process definition 125
3.3.3 Middle management’s psychological empowerment in the strategic decision process
129
3.3.3.1 Autonomy dimension of empowerment definition 131
3.3.3.2 Influence dimension of empowerment definition 131
3.3.3.3 Competence dimension of empowerment definition 132
vii
Page 3.3.4 Strategic priority—Elements of the Control mechanism relationships 136
3.3.4.1 Strategic priority—Middle management involvement relationship hypotheses 137
3.3.4.1.1 Innovation-Involvement relationship hypothesis 138
3.3.4.1.2 Product and Service Quality-Involvement relationship hypothesis 139
3.3.4.1.3 Marketing/Brand Image-Involvement relationship hypothesis 141
3.3.4.1.4 Cost Leadership-Involvement relationship hypothesis 141
3.3.4.2 Strategic priority— Psychological Empowerment relationship hypotheses 143
3.3.4.2.1 Innovation-Empowerment relationship hypothesis 145
3.3.4.2.2 Product and Service Quality-Empowerment relationship hypothesis 147
3.3.4.2.3 Marketing/Brand Image-Empowerment relationship hypothesis 148
3.3.4.2.4 Cost Leadership-Empowerment relationship hypothesis 149
3.4 Research Problem Two: Relationships between Strategic Priorities and Managerial Performance and Relationships between Control Elements and Managerial Performance
141
3.4.1 Managerial performance definition 153
3.4.2 Strategic priority—Managerial performance relationship hypotheses 156
3.4.2.1 Innovation—Managerial performance relationship hypothesis 158
3.4.2.2 Product and Service Quality—Managerial performance relationship hypothesis
160
3.4.2.3 Marketing/Brand Image—Managerial performance relationship hypothesis 162
3.4.2.4 Cost Leadership—Managerial performance relationship hypothesis 163
3.4.3 Middle management involvement and their performance relationship 164
3.4.4 Middle management psychological empowerment and their performance relationship
166
3.4.4.1 Middle management’s autonomy and their performance 166
3.4.4.2 Middle management’s influence and their performance 167
3.4.4.3 Middle management’s competence and their performance 168
3.5 Research Problem Two: Mediating Effect of Control Elements on each Specific Strategic Priority-Managerial Performance Relationship
168
3.5.1 Mediating effect of middle management involvement hypotheses 170
3.5.2 Mediating effect of middle management’s psychological empowerment hypotheses
172
3.6 Chapter Summary 175
CHAPTER 4 Theoretical Model and Hypotheses Development 177
4.1 Rationale for the Research Method 178
4.2 Sample Selection 179
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Page4.3 Participants 181
4.3.1 Descriptive statistics of demographic data 183
4.4 Administration of Survey 186
4.5 Survey Design 191
4.5.1 Pilot study of printed survey 191
4.5.2 Web-based survey design and data integrity verification 192
4.5.3 Pilot study of Web-based survey 194
4.6 Instrument Components 195
4.6.1 Descriptive statistics 197
4.6.2 Strategic priorities measures 198
4.6.3 Involvement measure 201
4.6.4 Measures for three dimensions of empowerment 204
4.6.4.1 Autonomy and influence measures 205
4.6.4.2 Competence measure 208
4.6.5 Managerial performance measure 212
4.6.6 Financial performance measure for Strategic Business Units (SBUs) 219
4.7 Summary 222
CHAPTER 5 Results 224
5.1 Confirmatory Factor Analysis (CFA) Techniques and Results using Structural Equation Modelling
225
5.2 Cluster Analysis and ANOVA Techniques and Results 230
5.2.1 Cluster analysis and results 231
5.2.2 ANOVA and results 235
5.3 Path Analysis Technique: Advantages, Limitations, and Assumptions 239
5.3.1 Sample Size: Ratio of Cases to Independent Variables (IVs) 246
5.3.2 Absence of Outliers among Variables 247
5.3.3 Absence of Multicollinearity and Singularity among Variables 248
5.3.4 The Existence of Normality, Linearity, Homoscedasticity and Independence of Residuals of the Variables
251
5.4 Path Analysis Results 258
5.4.1 The Relationship between Four Strategic Priorities (Product Innovation, Product & Service Quality, Marketing Brand Image and Cost Leadership) and Middle Management Involvement in the Decision Process: Testing Hypotheses H3.1 to H3.4
259
ix
Page 5.4.2 The Relationship between Four Strategic Priorities (Product Innovation, Product
& Service Quality, Marketing Brand Image and Cost Leadership) and Three Dimensions of Middle Management’s Psychological Empowerment (Autonomy, Influence, and Competence) in the Decision Process: Testing Hypotheses H4.1 to H4.4
263
5.4.2.1 Testing the Relationship between Four Strategic Priorities (Product Innovation, Product & Service Quality, Marketing Brand Image and Cost Leadership) and Middle Management’s Autonomy in the Decision Process
265
5.4.2.2 Testing the Relationship between Four Strategic Priorities (Product Innovation, Product & Service Quality, Marketing Brand Image and Cost Leadership) and Middle Management’s Influence in the Decision Process
268
5.4.2.3 Testing the Relationship between Four Strategic Priorities (Product Innovation, Product & Service Quality, Marketing Brand Image and Cost Leadership) and Middle Management’s Competence in the Decision Process
271
5.4.3 The Relationship between Four Strategic Priorities (Product Innovation, Product & Service Quality, Marketing Brand Image and Cost Leadership) and Managerial Performance: Testing Hypotheses H5.1 to H5.4
274
5.4.4 The Relationship between Involvement and Three Dimensions of Middle Management’s Psychological Empowerment (Autonomy, Influence, and Competence) in the Decision Process and Managerial Performance: Testing Hypotheses H6a to H6b.3
277
5.5 Calculations and Discussions on the Direct, Indirect and Total Effects of the Four Strategic Priorities on Managerial Performance
279
5.6 Results Summary 288
5.7 Chapter Summary 289
CHAPTER 6 Discussion of Results, Limitations, and Conclusions 292
6.1 Discussion about the Results 294
6.1.1 Results for Strategic Priorities, Strategic Orientations and Financial Performance
296
6.1.1.1 Hypothesis H1 296
6.1.1.2 Hypotheses H2.1 and H2.2 297
6.1.2 Results for Strategic Priorities, Involvement, Psychological Empowerment and Managerial Performance
300
6.1.2.1 Hypotheses H3.1 to H3.4 300
6.1.2.2 Hypotheses H4.1 to H4.4 303
6.1.2.3 Hypotheses H5.1 to H5.4 310
6.1.3 Results for the Relationship between both Involvement and Psychological Empowerment and Managerial Performance
312
6.1.3.1 Hypothesis H6a 312
6.1.3.2 Hypotheses H6b.1 to H6b.3 313
x
Page 6.1.4 Results for the Mediating effect of both Involvement and Psychological
Empowerment on the Relationships between the Four Strategic Priorities and Managerial Performance
314
6.1.4.1 Hypotheses H7.1 to H7.4 315
6.1.4.2 Hypotheses H8.1a, to H8.2d 318
6.1.4.2.1 Hypotheses H8.1a, H8.1b, H8.1c, and H8.1d 318
6.1.4.2.2 Hypotheses H8.2a, H8.2b, H8.2c, and H8.2d 321
6.1.5 Summary for Sections 6.1.2 to 6.1.4 322
6.2 Implications of the Results of the Study 323
6.2.1 Research Implications 323
6.2.2 Implications for Practice 326
6.3 Limitations of the Study 328
6.4 Chapter Summary and Conclusions 332
Appendices
Appendix A: Critiques of Two Elements of Porter’s Theory of Generic Business Strategies
339
Appendix B: Critiques of Alternative Theory of Generic Business Strategies 350Appendix C: Strategy-Performance (Level) Relationship examined by Prior Research
and Discussion about interpretation of Maloney and Mia [1998] Strategy variable’s β2
356
Appendix D: Extract from pages 5 and 7 of Year Book Australia Industry structure and performance Article - 100 years of change in Australian industry, Australian Bureau of Statistics Web site
363
Appendix E: Administration Processes for Confidential Web-based Survey 364Appendix F: Screen Print of Web-based Survey Screens 372Appendix G: Web-based Survey Testing Sub-section 4.5.2 ― Screen prints of
Outcomes 385
Appendix H: Survey Document: Multi-dimensional strategic priorities, decision process and performance Measures used for PhD from Electronic Web-based survey
391
Appendix I: Complete Organisational Performance Factor Analsyis 398Appendix J: Goodness of Fit Statistics for Each Involvement, Empowerment, and
Managerial Performance Factor 400
Appendix K: Computation of Path Co-efficients 401Appendix L: Results of Skewness and Kurtosis Statistical Methods with Associated
Histograms 416
Appendix M: Composite Path Analysis Model Summary between (AI) Four Strategic priorities, (B) Involvement & Three Dimensions of Psychological Empowerment, & (C) Managerial Performance
418
Appendix N: Path analysis DE and IE calculations 419References 420
xi
List of Figures
Figure Description Page1.1 Flow Chart of Thesis 10
2.1 Miller and Dess’ [1993] Three-Dimensional View of Porter’s Framework 31
2.2 Langfield-Smith’s [1997] Three-Dimensional View of Integrating Strategy Variables
32
2.3 Kald et al’s [2000] Hypothetical Relationship between Strategic Pattern, Strategic Mission, Strategic Position, and Use of Management Control
34
2.4 Contingency Control Framework 64
2.5 Strategic Decision Processes: An Integrative Contingency Control Framework 81
3.1 An Overall View of the Conceptual Model for Research Questions 1a and 1b 94
3.2 An Overall View of the Conceptual Model for Research Questions 2a and 2b 99
3.3 Theoretical Model of Strategic Priority Description 103
3.4 Theoretical Model of Multi-Dimensional Strategic Priorities and Strategic Orientations
110
3.5 Theoretical Model for Long Term Above-Average Performance 114
3.6 The Relationships between Strategic Priorities and Control Mechanism Variables
136
3.7 Relationships between Strategic Priorities and Managerial Performance, as well as Relationships between Control Elements and Managerial Performance
152
3.8 The Mediating Effect of Control Elements on Specific Strategic Priority-Managerial Performance Relationships
169
3.9 The Model between (AI) Four Strategic priorities, (B) Involvement & Three Dimensions of Psychological Empowerment, & (C) Managerial Performance
176
5.1 Confirmatory Factor Analysis Measurement Model for Product Innovation Strategic Priority
226
5.2 Confirmatory Factor Analysis Measurement Model for Product & Service Quality Strategic Priority
227
5.3 Confirmatory Factor Analysis Measurement Model for Marketing/ Brand Image Strategic Priority
227
5.4 Confirmatory Factor Analysis Measurement Model for Cost Leadership Strategic Priority
228
5.5 Statistical Model of Multi-Dimensional Strategic Priorities and Strategic Orientations
234
5.6 Path Analysis Model between (AI) Four Strategic priorities, (B) Involvement & Three Dimensions of Psychological Empowerment, & (C) Managerial Performance
243
5.7 Path Analysis Model between (AI) Four Strategic priorities, (B) Involvement & (C) Managerial Performance
261
5.8 Path Analysis Model between (AI) Four Strategic priorities, (B) Autonomy (Dimension of Psychological Empowerment), & (C) Managerial Performance
267
5.9 Path Analysis Model between (AI) Four Strategic priorities, (B) Influence (Dimension of Psychological Empowerment), & (C) Managerial Performance
270
5.10 Path Analysis Model between (AI) Four Strategic priorities, (B) Competence (Dimension of Psychological Empowerment), & (C) Managerial Performance
273
xii
List of Graphs
Graph Description Page
4.1 Contribution of the Service Industry Group to the Australian GDP 180
5.1 Normality Test for the Regression of the Four Strategic Priorities and Middle Management Involvement in the Strategic Decision Process (Equation 5.1)
252
5.2 Normality Test for the Regression of the Four Strategic Priorities and Middle Management’s Autonomy in the Strategic Decision Process (Equation 5.2)
253
5.3 Normality Test for the Regression of the Four Strategic Priorities and Middle Management’s Influence in the Strategic Decision Process (Equation 5.3)
253
5.4 Normality Test for the Regression of the Four Strategic Priorities and Middle Management’s Competence in the Strategic Decision Process (Equation 5.4)
254
5.5 Normality Test for the Regression of the Four Strategic Priorities, Middle Management’s Involvement, Autonomy, Influence as well as Competence in the Strategic Decision Process and Managerial Performance (Equation 5.5)
254
5.6 Linearity, Homoscedasticity, & Independence of Residuals of The Variables Test for the Regression of the Four Strategic Priorities and Middle Management’s Involvement in the Strategy Decision Process (Equation 5.1)
255
5.7 Linearity, Homoscedasticity, & Independence of Residuals of The Variables Test for the Regression of the Four Strategic Priorities and Middle Management’s Autonomy in the Strategy Decision Process (Equation 5.2)
255
5.8 Linearity, Homoscedasticity, & Independence of Residuals of The Variables Test for the Regression of the Four Strategic Priorities and Middle Management’s Influence in the Strategy Decision Process (Equation 5.3)
256
5.9 Linearity, Homoscedasticity, & Independence of Residuals of The Variables Test for the Regression of the Four Strategic Priorities and Middle Management’s Competence in the Strategy Decision Process (Equation 5.4)
256
5.10 Linearity, Homoscedasticity, & Independence of Residuals of the Variables Test for the Regression of the Four Strategic Priorities, Middle Management’s Involvement, Autonomy, Influence as well as Competence in the Strategy Decision Process and Managerial Performance (Equation 5.5)
257
xiii
List of Tables
Table Description Page2.1 Integration of Strategies based on Similarities in Competitive Characteristics 37
2.2 Strategic Priority Dimensions of Competitive Strategy Source Approaches 42
2.3 Strategic Priorities and Strategic Orientations (Clusters of Strategic Priorities) 52
4.1 Summary of Demographic Data 184
4.2 Summary of Five Business Sub-Unit Categories 185
4.3 Response Rate Details 189
4.4 Strategic Priorities Factors (including Reliability and Construct Validity Tests) 199
4.5a Inter-Item Correlation Matrix for Innovation Factor 200
4.5b Inter-Item Correlation Matrix for Product & Service Quality Factor 200
4.5c Inter-Item Correlation Matrix for Marketing/ Brand Image Factor 200
4.5d Inter-Item Correlation Matrix for Cost Factor 200
4.6 Involvement Factor (including Reliability and Construct Validity Tests) 203
4.7 Inter-Item Correlation Matrix for Involvement Factor 203
4.8 Autonomy and Influence Dimensions of Empowerment (including Reliability and Construct Validity Tests)
206
4.9a Inter-Item Correlation Matrix for Autonomy Factor 208
4.9b Inter-Item Correlation Matrix for Influence Factor 208
4.10 Competence Dimension of Empowerment (including Reliability and Construct Validity Tests)
209
4.11 Inter-Item Correlation Matrix for Competence Factor 211
4.12 Descriptive Statistics for Managerial Performance 215
4.13 Matrix of Intercorrelations among the Nine Dimensions and the Overall Rating of the Mahoney et al [1963] Managerial Performance Instrument
216
4.14 Rotated Component Matrix(a) Loadings for Nine Dimensions of Managerial Performance Instrument
218
4.15 Three-Item Financial Performance Factor (including Reliability and Construct Validity Tests)
221
5.1 Goodness of Fit Statistics for each Strategic Priority 228
5.2 K-Means Cluster Analysis Results 233
5.3 Description of Strategic Priority(ies) Emphasis for each Strategic Orientation 234
5.4 Tests of Between-Subjects Effects 236
5.5 Post Hoc Tests: Strategic Orientation 4 Clusters Multiple Comparisons 236
5.6 Homogeneous Subsets Mean: Financial Performance Factor 237
5.7 Correlation matrix between Four Strategic Priorities; Involvement, Psychological Empowerment Dimensions; and Managerial Performance
249
5.8 Collinearity Diagnostics 250
5.9 AI to B Regression Analysis Hypotheses H3.1 to H3.4, Equation (5.1) Four AI (four IVs) Coefficients & Dependent Variable: Involvement (Bi)
262
xiv
Table Description Page
5.10 AI to B Regression Analysis Hypotheses H4.1a, H4.2a, H4.3a, & H4.4a, Equation (5.2) Four AI (four IVs) Coefficients & Dependent Variable: Autonomy (Bii)
266
5.11 AI to B Regression Analysis Hypotheses H4.1b, H4.2b, H4.3b, & H4.4b, Equation (5.3) Four AI (four IVs) Coefficients & Dependent Variable: Influence (Biii)
268
5.12 AI to B Regression Analysis Hypotheses H4.1c, H4.2c, H4.3c, & H4.4c, Equation (5.4) Four AI (four IVs) Coefficients & Dependent Variable: Competence (Biv)
271
5.13 AI to B to C Regression Analysis Hypotheses H5.1, H5.2, H5.3, H5.4, H6a, H 6b.1, H6b.2, & H6b.3 using Equation (5.5) consisting of Four AI , Bi, Bii, Biii, & Biv (Eight IVs) on Dependent Variable: Managerial Performance (C)
276
5.14 Statistics Summary of Path Coefficients 282
5.15 Calculations of IE, DE, and TE for Hypotheses H7.1 to H7.4 283
5.16 Calculations of IE, DE, and TE for Hypotheses H8.1a to H8.2d 285
5.17 Summary of Results for Testing Hypotheses H1 to H6 290
5.18 Summary of Calculation Results for Hypotheses H7 to H8 291
6.1 Summary of Relationships and Results for Hypotheses H1 to H8.2d 295
xv
Acknowledgements To my current supervisors, Professor Lokman Mia and Dr Liz Jones, I would like to
express my gratitude for their guidance and support with my PhD programme. I also
wish to thank my original principal supervisor Professor Iselin for his valuable support
and encouragement until his retirement from Griffith University in 2004. Furthermore,
I am grateful to Professor Mia and Dr Jones for their willingness to accept these
supervisory roles and, despite their heavy workload, the hours they devoted to provide
me with constructive and invaluable comments for my PhD project.
The successful completion of this doctoral research has been possible with the help of
many individuals and organisations. Firstly, I wish to thank middle management of
organisations who voluntarily provided their important responses to my Web-based
survey. Secondly, I am grateful to Professor Chew Ng for her support as the Head of
Department with my application for Academic Studies Program leave during semester 1
2004, which enabled the collection of the data for this thesis. Thirdly, I am thankful to
Professor Liz Fulop as Dean of Research within Griffith Business School for providing
financial support through a ‘Research Fellowship Scholarship (RFS) for PhD
Completion’. This research fellowship provided the opportunity to buy out teaching
time in semester 2 2005 so that I could finalise my PhD project.
The thesis also benefited from the constructive comments of Associate Professor
Carolyn Windsor, Associate Professor John Campbell, Dr Lanita Winata, Dr Nava
Subramaniam, Dr Mohammad Tahir, Dr Peta Stevenson-Clarke and Dr Anoop Patiar
who were participants at the research days in June 2005 and November 2005, which
were organised by the Centre for Organisational Governance and Performance
Management (COGAP). The assistance provided Dr Craig Zimitat with the design of
my Web-based survey was greatly appreciated. I also wish to thank my colleagues Dr
Lisa McManus, Ms Robyn Cameron, Dr Graham Bornholt, Dr Bryan Morgan, Mr
Zoltan Murgulov, Dr Ratnam Algiah, Ms Svetlana Vlady, Professor Saroja Selvanathan,
Professor Antony Selvanathan, Professor Zahriul Hoque, Dr Patti Cybinski, and Dr
Hume Winzar for their time to discuss statistical and academic aspects of my thesis.
Finally, I wish to thank my wife, Desley. Her help, unfailing support, sacrifices, and
continuing love have provided me with the strength to complete this thesis.
1 Introduction
1
Chapter 1
Introduction
Modern strategic management systems, such as the balanced scorecard (BSC)
developed by Kaplan and Norton [1992], place great emphasis on developing
management control systems (MCS) that reinforce and support the strategic priorities
adopted by organisations. Evidence provided by Kaplan and Norton [2001a] showed
several organisations achieving performance breakthroughs by implementing a new
strategic management system. According to Kaplan and Norton [2001b], the magnitude
and speed of such results indicates that companies’ successes are due to not only the
strategies adopted by companies but also companies’ use of new strategic management
systems to capitalise on existing (previously hidden) capabilities.
They argued that the ability of modern management systems to unleash these hidden
capabilities reveals the power of a management system “to focus the entire organisation
on strategy” Kaplan and Norton [2001b, p. 102]. Administrative and personal controls
used to achieve this focus of organisational and personal goal congruency among
middle management include their involvement and psychological empowerment in the
strategic decisions in the management processes. Kaplan and Norton [1996a&b, 2001c]
suggest that these administrative and personal controls should lead to improvements in
employee capabilities, empowerment, and motivation that form part of the learning and
growth perspective of the organisation.
Traditional theories of generic strategy developed over a quarter of century ago (e.g.,
Porter [1980]) emerged from the classical school of strategic thinking where the focus
has been on the strategy and the performance outcome. Porter’s dominant paradigm
1 Introduction
2
during this period was based on two elements each with an underlying fundamental
proposition. The accuracy and appropriateness of these two propositions for today’s
business environment has been questioned (e.g., Kotha & Vadlamani [1995], Chenhall
[2003]). Campbell-Hunt [2000] suggested that a more powerful insight into effective
competitive strategy might be achieved through a contingency theory of performance,
which he concluded may be achieved by expanding the range of strategic and
organisational variables within a contingency framework. Gerdin and Greve [2004]
developed a classificatory framework for different forms of contingency fit used in
strategy-control-performance research. The Cartesian contingency mediating approach1
they identified was adopted for the current study. From their literature review, Gerdin
and Greve [2004] identified Chong and Chong [1997] as the only study that has adopted
this form of contingency fit framework.
This dissertation documents a research project that investigated the existence of three
sets of relationships. The first set of these relationships examined was between each of
the more specifically described strategic priorities and managerial performance.
Separate relationships between each of the more specifically described strategic
priorities and two control elements (involvement and empowerment) formed the second
set of direct relationships examined in this study. Finally, the study investigated a third
set of relationships between involvement and their performance as well as between
management’s empowerment in the strategic decision process and their performance.2
1 Gerdin and Greve [2004] described the theoretical form of fit for a mediating model as appropriate where control mechanism MAS design may be not only a contributor to performance but also dependent on the strategy selected. That is, the “fit exists with the impact of X1 (e.g., strategy) on Y (e.g., performance) operates through X2 (e.g., MAS created by strategy)” [Gerdin and Greve, 2004, p. 310]. 2 The focus of this study is limited to two control elements of a MCS. These two control elements are middle management’s involvement in the strategic decision process and middle management’s psychological empowerment in the strategic decision process. The terms involvement and empowerment or management involvement and management’s psychological empowerment are used in discussions and arguments developed throughout this dissertation to represent these two control elements. However, the use of the complete description of these two control elements will occur in chapters 2 and 3 where a more detailed discussion warrants such usage.
1 Introduction
3
The second and third sets of relationships mentioned in the preceding paragraph were
the relationships examined by the current study, which adopted the Cartesian
contingency mediating approach. These relationships were used to establish the
mediating effects of these control elements (involvement and empowerment) on the
relationship between each of the more specifically described strategic priorities and
managerial performance. Consequently, this project investigated whether, and to what
extent, these control elements have a mediating effect on the relationship between each
strategic priority and managerial performance.
This chapter has six sections. In the first section, the primary issues that motivated
the study are discussed. An overview of the discussion and evidence about the accuracy
and generalisability of Porter’s [1980] propositions related to gaining a competitive
advantage are addressed in the second section. A summary of research into the three
sets of relationships mentioned earlier in this section is also provided in the second
section. Objectives of this study are contained in the third section and the research
questions are presented in the fourth section. The contributions of this study’s findings
and the organisation of this dissertation are explained, respectively, in the fifth and sixth
sections.
1.1 Motivation for the Study
Many organisations operated in a stable business environment prior to and during
the early 1980s. However, during the past two decades, improvements in technology
have caused increased competition and globalisation of the market for most
organisations. Therefore, authors and researchers have questioned the accuracy and
appropriateness of description and prediction propositions underlying either the theory
1 Introduction
4
of generic strategy developed by Porter [1980, 1985] (e.g., Hill [1988], Kotha &
Vadlamani [1995], Chenhall [2003], Campbell-Hunt [2000]) or the pure forms of firms’
innovation emphasis described by Miles and Snow [1978] (e.g., Dent [1990], Langfield-
Smith [1997], Abernethy & Lillis [1998]).3 Chenhall [2003] concluded that future
management accounting strategy research should develop a more accurate and more
relevant description of strategic priorities for today’s business environment. He
suggested that researchers should consider including additional competitive methods
similar to Dess and Davis [1984], Robinson and Pearce [1988] or Kotha and Vadlamani
[1995]. These prior studies adopted competitive methods that were initially extracted
from the competitive dimensions associated with Miles and Snow [1978], Hofer and
Schendel [1978], and Porter [1980]. These more specific descriptions of strategy have
been labelled strategic priorities by prior researchers (e.g., Miller [1992b], Wagner &
Digman [1997], Chenhall & Langfield-Smith [1998], Chenhall [2005]).4
Furthermore, unlike Porter’s proposition of successful organisations selecting a
single strategy, literature and research findings have identified circumstances where
successful organisations select both a differentiation and a cost leadership strategy (e.g.,
Dess & Davis [1984], Schuler & Jackson [1987], Campbell-Hunt [2000]). Campbell-
Hunt [2000] conducted a meta-analysis of 16 generic strategy-based studies that
spanned approximately 20 years of research into this relationship. Furthermore, these
16 studies were conducted in a number of different countries or for different product
3 Kotha and Vadlamani [1995] offered two reasons for the differences in their results compared to the studies during the 1980s (e.g., Dess & Davis [1984], Robinson & Pearce [1988]). Changes in the competitive nature of the current business environment caused by “increased global competition (especially in the manufacturing sector)” was the first reason, while “the introduction of new manufacturing technologies (e.g., JIT, continuous improvement)” is cited as the second reason for their different results [Kotha & Vadlamani, 1995, p. 82]. 4 The term strategic priority and its plural strategic priorities are used throughout this dissertation and where these terms are used they refer to the more specific descriptions of the differentiation strategy and cost leadership strategy. The term strategy and its plural strategies are used to describe the broader description of strategy, such as, the decision process or for prior studies that investigated the strategy variable by using the broader description of strategy.
1 Introduction
5
markets. Campbell-Hunt [2000] used the findings of these 16 studies to investigate
whether there was universal support for Porter’s [1980, 1985] prediction that only
organisations selecting a single strategy as their source of competitive advantage would
achieve above-average financial performance.5 He did not find any association between
a single strategy selection and above-average financial performance from the results of
the 16 prior studies he included in his meta-analysis. Additionally, he concluded that an
examination of a range of strategic and organisational variables within a contingency
framework may provide more powerful insight into what contributes to an effective
competitive strategy.
In keeping with the stable business environment in which many organisations
operated prior to increased competition and market globalisation, organisations relied
on traditional management accounting information (financial data) as a means of
controlling and measuring performance of the organisation’s strategic plan and
objectives. Core competencies for management accountants up until the early 1980s
were purely technical in nature, with information gathering and analysing functions
focused on data generated internally by the organisation for use by management
[Birkett, 1993; 1998]. Consequently, past management accounting research has
reflected this internal and limited focus of middle management and examined their
involvement in the budgetary decision process (e.g., Ezzamel [1989], Maloney [1996]).
However, Mia [1998, p. 2] acknowledged that it is “no longer simply a matter of getting
the technical aspects right”.
5 Although Porter [1980] comments that the selection of one generic strategy in some instances “may be necessary to obtain acceptable returns in an absolute sense” (p. 35), he also states that selection of one generic strategy may lead to “…outperforming competitors in the industry…” and this success is rarely possible when a firm pursues simultaneously more than one generic strategy. Furthermore, Porter [1985, pp. 19-20] identified only three conditions where a firm can successfully pursue simultaneously both cost leadership and differentiation strategies. However, he provided arguments to support his claim that such success is usually temporary (short-term) under all three conditions. Consequently, he argued that “usually a firm must make a choice among them (strategies)” [Porter, 1985, p. 17, parenthesis added].
1 Introduction
6
Similarly to the traditional theories of generic strategy, management accounting
contingency-based research also has been criticised for its focus being limited to
accounting controls because such controls form only part of the broader MCS [Otley,
1994; Chapman, 1998]. One reason for this criticism is that with increased competition
and market globalisation, new styles of strategic decision making have emerged from
organisations that rely on employee participation beyond the budgetary setting process
[Macy & Arunachalam, 1995].
Furthermore, there is evidence to suggest that involvement of middle management
in activities of strategic significance has reduced the relevance of using senior
management as study subjects; a practice that has been dominating control systems
research [Otley, 1994; Simons, 1995]. For this reason, Langfield-Smith [1997]
concluded, “…the artificial boundaries between operational, managerial and strategic
control as described initially by Anthony [1965], may no longer hold” (p. 209). This
conclusion is consistent with comments by Emmanuel, Otley and Merchant [1990, p.
36] that the emphasis on accounting controls and accounting information dominating
past research is not broad enough to capture modern approaches to effective control.
Evidence also exists that suggests middle management’s psychological empowerment
(their experience with such delegation of power and influence as well as competence) in
the decision process has an impact on performance [Spreitzer, Kizilos, & Nason,
1997].6
6 Three dimensions of psychological empowerment (autonomy, influence, and competence) are examined in this study because these dimensions have been identified in prior studies as having a relationship with performance [Spreitzer, Kizilos & Nason, 1997]. For this dissertation, unless specific reference is made to autonomy, influence, and competence, the terms empowerment and psychological empowerment shall refer to these three dimensions collectively.
1 Introduction
7
These comments are supported by Floyd and Wooldridge [1992, 1994, 1997] who
have provided empirical evidence that links middle management’s mediating role,
through their strategic involvement, on the relationship between strategy and
organisational performance. Involvement and empowerment of middle management in
the strategic decision process is needed to develop emergent competitive strategies for
timely implementation in today’s dynamic business environment.7 Involvement and
empowerment should, therefore, impact on the management accounting information
gathering and analysing function.
Another criticism of management accounting contingency-based research has been
the use of terms interchangeably (e.g., Fisher [1995], Covaleski, Dirsmith & Samuel
[1996], Chapman [1997]). Chenhall [2003] provides distinctions between these terms
previously used interchangeably and demonstrates the broadness of the definition for
MCS as guidance for the expanded range of controls that may be investigated by future
research.8 He acknowledged that his definition for MCS has evolved from a more
conventional view of MCS as a passive set of tools used to provide information to assist
managers to a more contemporary view. This contemporary view sees MCS as more
active so that it can provide individual managers with information and power to achieve
their goals. Past studies have provided evidence that strategy is an influencing factor on
both performance and the evolution of broader scope management accounting systems
(MAS) in many organisations (e.g., Chong [1996], Chong & Chong [1997]) towards a
MCS as described by Chenhall [2003].
7 Further to footnote 2, unless specific reference requires otherwise, the terms involvement and empowerment will also refer to the involvement and empowerment of middle management in the strategic decision process for this dissertation. 8 Chenhall [2003] identified the terms used interchangeably in prior studies as management accounting (MA), management accounting systems (MAS), and management control systems (MCS). He described MA as a collection of practices (such as budgeting), MAS as the systematic use of MA to achieve some goals, and MCS as encompassing MAS as well as other controls, such as personal or clan controls.
1 Introduction
8
Modern management systems such as BSC place an emphasis on administrative
and personal controls so that the objectives of the chosen strategy can be communicated
and reinforced. The aim of such controls is to achieve support for strategic priorities
adopted by organisations through congruency of managers’ and organisational goals.
Therefore to maintain the relevance of MCS contingency-based research, Chenhall
[2003] concluded that future research needs to focus on contemporary dimensions of
MCS and behavioural outcomes in addition to organisational outcomes. Chenhall
[2003] suggests that important links between strategy, control elements of MCS, and
performance represent the most important new stream of literature.
An investigation, therefore, into the appropriateness of the description proposition
and accuracy of the prediction proposition underlying Porter’s [1980, 1985] theories of
generic strategy appeared warranted. Additionally, it appeared warranted and timely to
undertake an examination of three sets of relationships involving each strategic priority,
the two elements of control (involvement and empowerment) and managerial
performance. The first set of relationships is between each strategic priority and
managerial performance. Combinations of the second and third sets of relationships are
used to identify the separate mediating effects of each control element (either
involvement or empowerment) on the relationship between each strategic priority and
managerial performance. Establishment of these separate mediating effects requires,
firstly, an examination of the second set of relationships between each strategic priority
and involvement as well as each strategic priority and empowerment. Completion of
the analysis for these separate mediating effects necessitates an examination of the third
set of relationships between involvement and managerial performance as well as
empowerment and managerial performance.
1 Introduction
9
In section 1.2 an overview of the study is presented.
1.2 An Overview of the Study
There are two stages to this study, which are described and illustrated in Figure 1.1.
There are two subsections contained in this section. Each sub-section contains an
overview discussion about one of the two stages of this study that are illustrated in
Figure 1.1.
1.2.1 An overview of Stage 1: Porter’s competitive strategy-financial
performance relationship
Authors and researchers have criticised the accuracy and appropriateness of
Porter’s [1980, 1985] strategy description and performance prediction propositions.
The current study has used three steps in stage one to examine the accuracy and
appropriateness of these two propositions. The first step of stage one of this study
followed Chenhall’s [2003] suggestion to include more competitive methods in an
endeavour to develop a more accurate and more relevant description of strategic
priorities for today’s business environment.
1 Introduction
10
Figure 1.1: Flow Chart of Thesis
Porter’s Competitive Strategy-Financial Performance Relationship: Stage 1
Test alternative to Step 1 of Stage 1 Porter’s broad description of
differentiation strategy
Step 2 of Stage 1 Test alternative to Porter’s single strategy orientation only
Test alternative to Porter’s Step 3 of Stage 1 above-average performance prediction
for single strategy orientation only
Strategic Priorities-Performance Direct Relationships & Indirect Relationships [Mediating Effects of Involvement and Empowerment in the Strategic Decision
Process (Control Elements)] of Each Strategic Priority and Managerial Performance: Stage 2
Test each Strategic Priority’s
relationship with 2nd Set of Relationships
Middle Management Involvement &
Psychological Empowerment in the Strategic Decision Process
(control elements). Test each control element’s
relationship with
Managerial Performance
3rd Set of Relationships
1st Set of Relationships
1 Introduction
11
The second step of stage one of this study related to the accuracy and
appropriateness of Porter’s [1980, 1985] description that organisations select only a
single source of competitive advantage (i.e., either differentiation or cost leadership
strategy). This analysis involved a combination of factor and cluster analyses of
numerous competitive methods that followed the methodology adopted by prior studies
(e.g., Robinson & Pearce [1988], Wagner & Digman [1997]). This procedure involves
grouping organisations based on similarities in strategic orientations. Strategic
orientations relate to the patterns of emphasis organisations place on a single strategic
priority, a combination of these strategic priorities or no emphasis on any of the
strategic priorities.9 The third step of stage one of this study examined Porter’s [1980,
1985] prediction that only organisations that selected a single source of competitive
advantage will achieve long-term above-average financial performance. This was
achieved by performing an analysis used in prior studies (e.g., Robinson & Pearce
[1988]) that compared the long-term above-average financial performance of
organisations in each of the strategic orientations groups identified in step two of stage
one.
The strategic priorities identified from step one of stage one were used in two sets
of relationships analysed in stage two. These strategic priorities were selected because
they represent a more specific and more relevant description for today’s business
environment [Chenhall, 2003]. An overview of these three sets of relationships is
contained in the following sub-sections.
9 Strategic orientations for this dissertation shall refer to such patterns of emphasis (or lack of emphasis) adopted for strategic priorities by organisations.
1 Introduction
12
1.2.2 An overview of Stage 2: Relationship between each strategic priority and
performance and mediating effects of involvement and empowerment on
each strategic priority-performance relationship
In the following two sub-sections, an overview is provided for three separate sets of
relationships illustrated in Figure 1.1 under the second stage of this study.
1.2.2.1 An overview: Strategic priorities–managerial performance relationships
The relationship between strategic priorities and managerial performance remains
relatively unexplored according to prior researchers [Shields & Shields, 1998;
Langfield-Smith, 1997; Maloney & Mia, 1998]. Studies that have examined this
relationship [Subramaniam, 1991; Maloney, 1996; Maloney & Mia, 1998] have focused
on prospector and defender firms as defined in the model developed by Miles and Snow
[1978]. Consequently, there is a paucity of evidence for this relationship as support for
the more recent suggestion by Chenhall [2003] that future research needs to focus on
behavioural outcomes such as achievement of their goals, i.e., managerial performance.
Therefore, the first set of relationships illustrated in Figure 1.1 located under the second
stage in this flow chart is examined by the current study.
1.2.2.2 An overview: Mediating effects of involvement and empowerment on each
strategic priority-performance relationship
This study focused on two specific elements of MCS control mechanisms, namely
involvement and empowerment. These control elements are consistent with the
emphasis of modern management systems (such as BSC) and are supported by
empirical evidence that links middle management’s mediating role, through their
1 Introduction
13
strategic involvement, with organisational performance [Floyd & Wooldridge, 1992,
1994, 1997]. Robinson and Pearce [1988] reviewed the findings from prior strategic
management studies and concluded that an interesting insight would be provided by an
examination of the mediating effect of elements of the strategic decision process on the
strategic priorities-performance relationship. Rajagopalan, Rasheed and Datta [1993]
recognised that strategy is an antecedent variable that has a direct effect on the
involvement and empowerment elements in the strategic decision process. Each
indirect effect (IE) that represents the mediating effect for each of these control
elements is incorporated into the second and third sets of relationships illustrated in the
second stage of Figure 1.1.
Interest in the relationship between strategy and management control systems
(MCS) has been growing since the late 1980s [Langfield-Smith, 1997].10 Prior research
has shown that firms exhibiting different competitive characteristics may be associated
with different MCS (e.g., Miles & Snow [1978], Dess & Davis [1984], Miller & Freisen
[1986]). Middle management involvement and their empowerment represent the
implementation of high-involvement practices that distribute to middle management
influence, information and knowledge with more personal control. Such a flexible
structure enabled involvement and empowerment to be two elements of the MCS (e.g.,
Floyd & Wooldridge [1992, 1994, 1997], Fisher [1995], Bowen & Lawler [1995]).
10 Dent [1990] based this conclusion on evidence provided by past studies [Dent, 1986; Govindarajan & Gupta, 1985; Govindarajan, 1988; Simons, 1987] that supported the importance of research into the relationship between a firm’s strategy and its control systems.
1 Introduction
14
The separate relationships between involvement and managerial performance as
well as between empowerment and managerial performance represent the third set of
relationships illustrated in Figure 1.1. This third set of relationships complete the
relationships necessary to examine the mediating effect of these two control elements on
each strategic priority-performance relationship. An association has been established
between involvement and performance by prior studies [Black & Gregersen, 1997;
Spreitzer & Mishra, 1999; Lau & Lim, 2002]. Spreitzer et al [1997] stated that each
dimension of psychological empowerment (autonomy, influence, and competence)
made a different contribution to work outcomes. Consequently, the relationships
between involvement and managerial performance as well as between empowerment
and managerial performance were examined.
1.3 Objectives of the Study
Criticism by authors and researchers about the accuracy and appropriateness of
Porter’s [1980, 1985] description and prediction propositions as well as actions taken by
researchers in subsequent management studies suggest similar actions are needed by
researchers in the management accounting discipline. Therefore the first objective of
this study is to provide evidence that represents a more accurate description of the
dimensions of the differentiation strategy, which are called strategic priorities for this
study. This objective required the completion of step one of stage one as illustrated in
Figure 1.1.
There are two aims to the second objective. The first aim of the second objective is
to provide a more accurate and appropriate description of organisations’ strategic
orientations for today’s business environment than Porter’s [1980, 1985] notion about
the mutually exclusive implementation of his broadly described strategy typologies. A
1 Introduction
15
more accurate and appropriate description of organisations’ strategic orientations has
been suggested by evidence produced from empirical research (e.g., Wagner & Digman
[1997]) and case studies (e.g., Schuler & Jackson [1987]). This objective requires the
completion of step two of stage one as illustrated in Figure 1.1. To achieve this aim, the
study uses strategic priorities available upon completion of the first objective of the
study. The second aim of the second objective of the study is to provide a better
prediction about an organisation’s performance ability compared to Porter’s financial
performance proposition that requires the selection of a single priority as an
organisation’s strategic orientation. This aim is illustrated as step three of stage one in
Figure 1.1.
The third objective of this research is to investigate the first set of relationships (as
illustrated in Figure 1.1) that, previously, have not been examined or have been only
partially examined. This first set contains relationships between each of the strategic
priorities and managerial performance, which relates to not only cost leadership
strategic priority but also more accurately described differentiation strategic priorities
that are available upon completion of the first objective.
Finally, the fourth objective of this study is to examine the mediating effects of
control elements, involvement and empowerment, on the relationships between each of
these specific strategic priorities and managerial performance. To achieve this
objective, this research investigates the second and third sets of relationships in Figure
1.1. Therefore the second set of these relationships to be examined is between the
strategic priorities and both involvement and empowerment. Separate relationships
between involvement and managerial performance as well as empowerment and
managerial performance represent the third set of relationships.
1 Introduction
16
1.4 Research Questions
From the discussion in sections 1.1 and 1.2 as well as the objectives identified in
section 1.3, two (2) research questions have been developed for examination in this
study.
The first research question has two parts:
1a. Does the broad nature of the differentiation strategy typology adequately
capture the strategic priority dimensions of the differentiation strategy or do
different strategic priorities (based on innovation, quality, and marketing)
emerge as dimensions of the differentiation strategy?
1b. Do organisations with above-average long-term performance pursue,
simultaneously, any of the strategic priority dimensions of the
differentiation strategy and the cost leadership strategic priority?
The second research question also contains two parts:
2a. Are there direct relationships between each of the strategic priorities and
managerial performance?
2b. Do the levels of both involvement and psychological empowerment of
middle-management in the strategic decision process mediate relationships
between each of the strategic priorities and managerial performance?
1.5 Contributions of the Study
This study makes six contributions to management accounting research. The first
contribution is the provision of new evidence to the body of knowledge for management
accounting research about a more accurate description of the dimensions of
differentiation strategy (called strategic priorities). Further new evidence will make the
second contribution to the body of knowledge for a more accurate description of the
strategic orientations in today’s business environment, which includes organisations that
1 Introduction
17
place, simultaneously, an emphasis on multiple strategic priorities. Additional new
evidence will also add to the body of knowledge for a more accurate financial
performance prediction of the strategic orientations in today’s business environment.
This third contribution will occur when these organisations that adopt strategic
orientations with multiple strategic priorities are shown to have the ability to achieve
similar above-average financial performance as organisations that select a single
strategic priority.
The fourth contribution arises from the current study using more accurate
descriptions of strategic priorities (the first contribution of the study) when examining
the relationships between strategic priorities and managerial performance. There are
two aspects to this fourth contribution. Firstly, the study extends the scope of prior
management accounting studies for strategic priority relationships by using more
specific descriptions of the differentiation strategic priorities examining the
relationships between strategic priorities and managerial performance. Therefore, this
first aspect of the fourth contribution for the first sets of relationships (described in
sections 1.2 and 1.3 as well as illustrated in Figure 1.1) provides new evidence for the
body of knowledge about the strategic priorities-performance relationships.
The second aspect of the fourth contribution occurs because the current study used
the competitive methods that were extracted by prior studies from earlier models
including Porter [1980, 1985] and Miles and Snow [1978] (as explained in sub-section
1.2.2.1) to establish the strategic priorities. Consequently, the current study replicates
the limited investigations of prior management accounting studies that have examined
some relationships between broader descriptions of strategy or firm’s perspectives (e.g.,
cost leadership strategy/defender firms or differentiation strategy/prospector firms) and
1 Introduction
18
managerial performance.11 This study, therefore, provides evidence to help overcome
the paucity of results for the relationships between strategic priorities and managerial
performance. The fourth contribution’s second aspect contributes further evidence to
the body of knowledge about these relationships contained in the first set of
relationships discussed in section 1.2 and illustrated in Figure 1.1.
The second sets of relationships (described in sections 1.2 and 1.3 as well as
illustrated in Figure 1.1) will provide new evidence by extending the body of
knowledge about the strategic priorities-control element relationships. This new
evidence is a fifth contribution because this study investigates the relationship between
strategic priorities and involvement as well as empowerment, which is beyond the
budgetary decision process examined in prior management accounting studies.
The sixth contribution of the study involves the calculation of the indirect effects (IE)
of strategic priorities on managerial performance firstly, via involvement and then
empowerment. These computations provide the mediating effects of both involvement
as well as empowerment on the strategic priorities-managerial performance
relationships, which have not been examined previously within the management
accounting literature. Accordingly, computation of the results for the second and third
sets of relationships discussed in section 1.3 and illustrated in Figure 1.1 will provide
new evidence about the mediating effect of these relationships. These results also will
extend the existing body of knowledge about the strategic priorities-control elements
and control elements-performance relationships.
11 Therefore the strategic priorities-managerial performance relationships examined in the current study should contain strategic priorities that reflect the characteristics of cost leadership strategy (or defender firm types) or one specific differentiation strategic priority (i.e., innovation or prospector firm types).
1 Introduction
19
The findings of this study also provide a practical contribution. The mediating effect
of involvement as well as empowerment on the strategic priorities-managerial
performance relationship will provide organisations with some guidance. This guidance
relates to the human resource management (HRM) policy and practices needed when
organisations embrace the philosophy of modern strategic management systems, such as
BSC. Additionally, the practical contribution relates to the adoption of administration
and personal controls to help achieve a better strategic priority-control ‘fit’ that extends
the design of the management accounting systems (MAS) within the organisation’s
MCS as suggested by Chenhall [2003].
1.6 Organisation of the Study
This chapter provided an introduction to the current study. The remainder of this
dissertation is organised in the following manner. Chapter two reviews literature related
to strategy and involvement and empowerment as control elements of MCS and
managerial performance. In chapter three, the research problems and questions are used
to develop theoretical models within the contingency framework. Variables are defined,
relevant literature reviewed and discussions provided to support the hypothesised
relationships among the variables, which are constructed in chapter 3.
Chapter 4 provides the rationale for the selection of a Web-based survey for the
study. Furthermore, this chapter provides a discussion about the method used to select a
random sample of Australian companies and a justification for choosing the targeted
respondents. This is followed by a description of the development and administration
of the survey. The source of the measures selected to operationalise the variables and a
justification for their choice also is discussed in this chapter. The chapter concludes
1 Introduction
20
with the presentation and discussion of results that tested the reliability and validity for
each instrument used to measure variables in this research.
Confirmatory factor analysis (CFA) using structural equation modelling, cluster
analysis, an ANOVA and the path analysis technique are used to analyse data obtained
in this research. Discussions are provided in Chapter 5 about these techniques, their
underlying assumptions, as well as the advantages and limitations of the path analysis.
Additionally, results are provided for each analysis and the findings for each hypothesis
are summarised.
Finally, chapter six discusses the results reported in chapter 5. Implications for
future research and practice and the limitations of the study are then presented.
Conclusions about the current research are compiled and comments are provided about
the success of this study to achieve the objectives and the contribution of the outcomes.
21
Chapter 2
Literature Review
The first set of objectives of this chapter is to review and analyse evidence that
questions the accuracy and generalisability of competitive strategy source and above-
average financial performance prediction propositions that form the basis for the two
elements of Porter’s [1980,1985] theory of generic business (competitive) strategy. An
additional set of objectives involves providing a critique of contingency-based literature
related to studies that investigated the relationship between strategy, control
mechanisms of a management control system (MCS), and managerial performance,
which is consistent with the emphasis of modern management systems, such as BSC,
and research findings by Floyd and Wooldridge [1992, 1994, 1997]. The critique is
based on a literature review of studies into the direct relationship between strategy and
managerial performance, strategy-MCS control contingency fit, as well as cognitive
issues in psychology research, to help provide possible strategy-MCS control-
managerial performance contingency relationships. The objective of this review is to
identify some of the reasons that may help to explain the lack of universal empirical
support for Porter’s proposition, where he predicts above-average financial performance
will result only for organisations that adopt a single strategic priority source for its
competitive advantage.
Due to the abstract nature of the term strategy, the first section of this chapter
reviews literature to identify both narrow and broad definitions of strategy relevant to
this dissertation. In the second section, Porter’s theory of generic business
(competitive) strategy will be discussed as a narrow definition of strategy, together with
a discussion of criticisms about the inappropriateness of the propositions that form the
2 Literature Review
22
basis for the two elements of his theory of strategy.12 Also to be reviewed and analysed
critically in section 2, are several different attempts in prior literature to overcome some
of the identified criticisms. These attempts try either to integrate different authors’
strategy typologies,13 or to examine different dimensions of differentiation strategy, or
to establish different clusters of organisations grouped due to their focus on either a
single specific strategic priority or a specific combination of strategic priorities, which
have been called strategic orientations in past management literature.
Based on this critical analysis in the second section, the discussion in the third
section will review strategy-performance and strategy-control fit contingency-based
research, strategy decision making process studies and psychology literature. Elements
of the macro control, structure, will be identified from the literature and the level of
decentralisation of the strategy decision making process will be examined from a
middle management level perspective. It will be recognised from the literature
reviewed that variations in the level of decentralisation affect the level of involvement
and psychological empowerment of middle management in a firm’s strategy decision
making process. Various dimensions of psychological empowerment will be identified
from the organisational psychology and management accounting literature.
Also in the third section, the discussion will focus on the direct relationship between
strategic priorities and managerial performance as well as the effect of the level of
involvement and empowerment of middle management on managerial performance. An
12 The terms strategy typology or typologies will be used in this dissertation to refer to different titles given to these different forms of strategy that will be discussed in this chapter. However, the original term will be used during the initial discussion about each of these forms of strategy in sections 2.1 and 2.2 as well as the discussion in section 2.3 about integration attempts by researchers of these strategy typologies. The purpose for using these original terms is to provide readers with a means to identify the linkage between the original terms and the common term used in this dissertation. The terms typology or typologies are used exclusively in section 2.4 onwards in chapter 2 and the remaining chapters in this dissertation. 13 One of these groups of authors has embraced some aspects of the broader definition to describe strategy in the development of their alternate model [Kald, Nilsson & Rapp, 2000].
2 Literature Review
23
explanation is provided in these discussions about the possible indirect (mediating)
effect of middle management involvement and empowerment on the relationship
between strategic priorities and managerial performance. An overview of this chapter
will be presented in the final section, which will summarise the identified research
issues warranting investigation by this study.
2.1 Definitions of Strategy in Strategy Research
Before undertaking an examination of the literature on strategy research, it is
necessary to discuss the definition of the term strategy because of the multiple meanings
and usages of the term that have evolved during the past 40 years of research on this
subject. The term strategy is employed in the literature of numerous disciplines and is
an elusive concept [Pennings, 1985]. Furthermore, Mintzberg [1987] argued that “the
field of strategic management cannot afford to rely on a single definition of strategy” (p.
11). He presented 5 definitions of strategy14 and argued that some interrelationships
exist among activities encaptured by these 5 definitions. A number of these definitions
of strategy will be utilised during the discussion in this chapter.
Dent [1990] explains that the term ‘strategy’ remains ambiguous because it has been
defined both broadly and narrowly. The broad definition of strategy encompasses
objectives, goals and the means of achieving desired ends, including courses of action
and resource allocation [Chandler, 1962; Cleland, 1996].15 In sub-section 2.2.3, some
14 Mintzberg [1987] described strategy as: (1) a plan when it provides a consciously intended course of action as a guideline to deal with a situation, (2) a ploy when it is an intended specific manoeuvre to outwit competitors, (3) resulting patterns in a stream of actions for an intended strategy to be realised, (4) a means of positioning firms within their business environment, and (5) a concept or perspective – an ingrained way of perceiving things which exist only in the minds of interested parties. 15 This broad definition of strategy encompasses Mintzberg’s [1987] 1st, 2nd and 3rd descriptions of strategy.
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of Mintzberg’s broad definitions of strategy have been used by researchers to describe
components of their alternative theoretical strategy models.
For the narrow definition, the concept of strategy is limited to the theory of a
competitive strategy that relates to a favourable and sustainable competitive position
achieved through the creation of unique competitive advantages [Porter 1980, 1985].16
As the main objective of the narrow definition of strategy is to have the firm achieve
and maintain a position of competitive advantage that results in above-average
performance for a period of years, Lord [1996] concludes that business strategy is not
only simply long-term planning but also involves considering the plans of competitors
(p. 347). The theory of a competitive strategy that emerges from this narrow definition
will be the focus of discussion for the next section of this chapter.
2.2 The Theory of Business (Competitive) Strategy
Within this scope of meanings for the narrow definition of strategy, Abernethy and
Guthrie [1994] and Langfield-Smith [1997] identified three levels of strategy and
acknowledged the statement by Johnson [1987] “that strategic decisions occur at many
levels of managerial activity” (p. 209). Corporate strategy is the first level of strategy.
It concerns top management decisions about choosing the type of businesses in which to
operate and allocating resources among those businesses. However, business
(competitive) strategies and operational (functional) strategies (the second and third
levels of strategy) involve decisions and activities at many levels of the firm [Wilson,
1991; Langfield-Smith, 1997].
16 This narrow definition of strategy encompasses Mintzberg’s [1987] 4th description of strategy.
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Business (competitive) strategies focus on how SBUs compete within their business
and the way each SBU positions itself in relation to its competitors. Operational
(functional) strategies address how various functions or patterns of strategic priority
actions of the firm contribute to its competitiveness [Langfield-Smith, 1997].
Langfield-Smith [1997] noted that interest is increasing in research examining
operational strategies. A reason for such interest may be due to the possibility
suggested by Dent [1990] that business strategies may emerge through such operational
strategies. In view of these comments, any discussion about competitive strategy
should consider aspects of operational (functional) strategies.
Campbell-Hunt [2000] conducted a meta-analysis of generic competitive strategy-
based studies spanning approximately 20 years. He acknowledged that Porter’s [1980,
1985] theory on generic business (competitive) strategies is “among the most substantial
and influential contributions…made to the study of strategic behaviour in
organizations” [Campbell-Hunt, 2000, p. 127]. Porter’s model has been a dominant
paradigm in management accounting research literature. Therefore the discussion in the
two following sub-sections will focus on the two elements of Porter’s theory on generic
business (competitive) strategies identified by Campbell-Hunt [2000].
The first element relates to a theoretical proposition that describes the broad or
focused scope of the strategy adopted by organisations as well as cost leadership and
differentiation generic strategies that provide the source of competitive advantage. A
theoretical prediction about above-average long-term financial performance outcomes is
Porter’s second proposition. Porter predicts that firms must adopt either a cost
leadership or differentiation strategy source to achieve above-average long-term
financial performance outcomes because firms that adopt a combination of strategy of
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these sources generally will experience below-average long-term financial performance.
For this study, the term strategic orientations will be used to refer to the individual or
combined strategy selection by organisations, which is consistent with the term used in
current management research literature.
While Porter’s theory has been recognised as the dominant paradigm of competitive
strategy, extensive research findings not supporting Porter’s two elements have been
gathered over approximately 20 years in literature from a number of research disciplines
[Hill, 1988; Murray, 1988; Campbell-Hunt, 2000]. Due to the extensive nature of these
findings, the critique in this chapter is supported by Appendix A of this dissertation,
which contains a detailed critical analysis of these two elements, based on research
findings and assessment by academic commentators from a number of research
disciplines. The detailed critical analysis in Appendix A is based on the four criteria
identified by Miller and Dess [1993, p. 553] to be the most widely accepted criteria for
evaluating a model. A summary of the detailed analysis in Appendix A is incorporated
into the discussion contained in the two following sub-sections
2.2.1 Scope of competitive strategies and source of competitive advantage propositions
Porter [1980, 1985] developed a framework of ‘generic strategies’ that has been
used widely as a basis for numerous follow-up research studies, as well as studies to
develop extensions to the original framework. His theory, therefore, satisfies the fourth
model evaluation criterion identified by Miller and Dess [1993].17 However, exposure
17 Miller and Dess [1993, p. 553] identified the most widely accepted criteria for evaluating a model.
1. its ability to simplify the complex, thereby making it more manageable for researchers 2. its ability to maintain accuracy in predicting and exploring relationships in spite of its simplicity, 3. its generalisability to a variety of settings 4. its fruitfulness in generating interest in follow-up research
Appendix A contains a detailed analysis based on these four model evaluation criteria.
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of Porter’s framework to the second and third criteria of Miller and Dess’ [1993] model
evaluation system does not produce positive outcomes.
One of the two elements of his theory relates to propositions that describe the scope
and source of competitive advantage. Porter described the scope of competitive
positioning as broad (industry-wide) or narrow (focus on a particular market segment or
niche). For the source of competitive advantage, he described either a low-cost strategy
or a differentiation strategy, which he proposed must be adopted singularly for either a
broad or narrow competitive positioning because these generic strategy source
approaches are mutually incompatible.
However, his logic, which underlies a number of his arguments and warnings used
to support his description of scope, have been questioned using deductive and
argumentative theoretical reasoning (e.g., O’Shaughnessy, 1984; Foss, 1996; Yamin,
Gunasekaran & Mavondo, 1999). Furthermore, his source proposition has been
challenged not only by deductive and argumentative theoretical reasoning, including
contradictions made by Porter [1980, 1985, & 1990], (e.g., Hill, 1988; Murray, 1988),
but also by empirical evidence where a more specific larger set of strategic priorities
emerged as a better description for the source of differentiation strategy (e.g., Robinson
& Pearce, 1988; Kotha & Vadlamani, 1995).18
In summary, one of Porter’s contradictions identified by authors in their challenge
to Porter’s source proposition was his recognition of 13 potential more specific strategic
dimensions within his acknowledged broad generic differentiation strategy.19 As
18 Appendix A contains a detailed discussion and analysis of these challenges derived from deductive reasoning and empirical evidence. 19 Appendix A provides a more detailed description of these acknowledgements by Porter [1980].
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empirical findings support his recognition of different dimensions,20 then this combined
evidence suggests that Porter’s sources of generic strategies may not be accurate, and
therefore have limited generalisability, thus not satisfying the second and third model
evaluation criteria. In relation to the issue of description broadness, it therefore may be
deduced that the scope and source propositions that form the first element of Porter’s
[1980] generic competitive strategy model are not suitable as elements of a research
model as they do not satisfy all four model evaluation criteria.21 A similar conclusion
may be reached for the second element of Porter’s theory as discussed in the following
sub-section.
2.2.2 Performance outcomes of singular strategy source adoption proposition
The second of the two elements of Porter’s theory relates to the proposition that
organisations must adopt either a cost leadership strategy source or a differentiation
strategy source to achieve a sustainable competitive advantage and long-term above-
average performance. This proposition emerges from his claim that these two generic
strategy sources are mutually incompatible. As a consequence of this claim, Porter
[1980, 1985] classified organisations as ‘stuck in the middle’ when they either adopt a
combination of cost leadership strategy and differentiation strategy sources or fail to
develop at least one strategy. His performance prediction proposition therefore warned
of lower long-term financial performance being experienced by organisations that Porter
would classify as ‘stuck in the middle’.
Hill [1988] and Murray [1988] are some of the earliest authors to challenge the
deductive and argumentative theoretical reasoning for this proposition in Porter’s
20 Porter [1980] includes brand identification and product quality among these 13 dimensions available to a firm in a given industry. Appendix A contains a detailed discussion. 21 Appendix A contains a description of these four model evaluation criteria.
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model.22 Empirical findings have identified circumstances where adopting a cost
leadership strategy or a differentiation strategy approach had lead to disastrous or fatal
results (e.g., Singe, 1990; Drobis, 1991).
Conversely, other empirical findings show that organisations adopting a
combination of cost leadership strategy and differentiation strategy source approaches
perform significantly higher than organisations that adopt a single strategy source
approach (e.g., White [1986], Wright, Kroll, Kedia & Pringle [1990], Wright, Kroll, Tu
& Helms [1991], Kling & Smith [1995], Yamin et al [1999]). These findings have been
used to support challenges to the singular strategy source adoption proposition.23
Furthermore, Wagner and Digman [1997] argued that Porter’s [1980, 1985] broad
classification of ‘stuck in the middle’ position may have caused researchers to
misclassify organisations as ‘stuck in the middle’ (e.g., Dess & Rasheed [1992]). They
questioned the correctness of grouping organisations adopting multiple strategic
priorities with organisations failing to develop at least one strategy into a single ‘stuck
in the middle’ classification adopted by some prior studies.
In summary, Porter’s [1980] model has been fruitful in generating interest in
follow-up research; thus it has satisfied the fourth model evaluation criteria. However,
22 Hill [1988] stated that homogeneous products could be differentiated because user characteristics are one of the two contingent factors in the differentiation of products. Murray [1988] used normative reasoning to conclude that it is possible for organisations to pursue both strategies simultaneously because principally a viable cost leadership strategy stems from industry’s structural characteristics while a viable differentiation strategy stems from customer tastes, which are two independent exogenous factors. Murray [1988] identified inconsistencies in statements by Porter [1985, p. 13] that a firm which relies on cost leadership for its competitive advantage must achieve parity or proximity as the basis of differentiation and Porter [1985, p. 14] that a firm which relies on differentiation must thus aim at cost parity or proximity relative to its competitors because the firm cannot ignore its cost position. Murray [1988] deduced that Porter’s statements imply firms adopting a cost leadership strategy also must be differentiators when competing with firms following a differentiation strategy and differentiators also must adopt a cost leadership strategy when competing against cost leaders. 23 Appendix A contains a detailed discussion and analysis of these challenges derived from deductive reasoning and empirical evidence.
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based on these counter arguments and the empirical results contained in this discussion
and the critical analysis in Appendix A, Porter’s [1980] above-average performance
outcomes prediction proposition for a singular strategy source adoption does not satisfy
the model evaluation criteria based on accuracy or generalisability. This critical
analysis outcome supports the comment by Murray [1988, p. 390] that Porter’s generic
strategy concept does not satisfy the evaluation for a solid theoretical framework.
In recognition of these limitations, authors and researchers have attempted to
provide alternative models or descriptions to enhance the propositions for the two
elements of Porter’s theory of business (competitive) strategy. As the first proposition
provides the source for competitive advantage, attempts to develop a more accurate
description of generic strategies that would enhance the generalisability of strategic
priorities are discussed in sub-sections 2.2.3 to 2.2.5. Appendix B contains a detailed
discussion of the assessment of these theoretical models (based on the four criteria
identified by Miller and Dess [1993, p. 553]) that supports this assessment of the
models in sub-section 2.2.3. Sub-section 2.2.6 will address the lack of consistent
support for Porter’s performance prediction from the evidence provided by research that
has examined Porter’s proposition for the second element of his theory.
2.2.3 Attempts to integrate strategy typologies into alternative theoretical models
One of the methods used by researchers in an attempt to enhance Porter’s
proposition, that describes the source of generic strategies, involves attempts to develop
alternative theoretical models of generic strategy. Miller and Dess [1993] adapted
Porter’s model and developed a three-dimensional model based on relative cost, relative
differentiation, and relative focus. This three-dimensional model, illustrated in Figure
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2.1, resulted in 27 possible combinations of attributes. However, their study was
limited to the seven most plausible possible combinations of attributes.
Even though this three-dimensional model may be subjected to validity criticisms
because Miller and Dess [1993] did not use a continuum to represent cost leadership
and differentiation, the study provided important findings. Its findings assert that
“research which explores relationships between only one or two of Porter’s dimensions
of strategic positioning and …outcome (e.g. performance) may produce misleading
results” [Miller & Dess, 1993, p. 577]. This assertion was based on the finding that
combined forms of competitive strategy are not only feasible but also profitable.
Figure 2.1 Miller and Dess’ [1993] Three-Dimensional View of Porter’s
Framework Source: Miller and Dess [1993, p. 565, Figure 2]
In summary, Miller and Dess [1993] developed a model that merely provides
different levels of the existing two sources of competitive advantage described in
Porter’s proposition regarding the strategy source. According to the arguments
presented in sub-section 2.2.1 and 2.2.2, a more accurate description of strategy source
is needed than the broad description of strategy source proposed by Porter [1980, 1985].
Relative Cost High
Medium
Relative Differentiation
High
Medium
Low
Relative Focus Broad Medium Narrow
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It is also argued in these sub-sections that specific dimensions of strategy priorities
underlying the differentiation strategy are needed to provide a more accurate description
of strategy source. Therefore Miller and Dess’ [1993] model does not contribute to this
more accurate description objective because it does not identify specific dimensions of
strategy priorities underlying the differentiation strategy. Finally, even though Miller
and Dess [1993] examine a limited extension of Porter’s two sources of competitive
advantage, they provide further evidence to question Porter’s performance outcome
proposition.
Figure 2.2 Langfield-Smith’s [1997] Three-Dimensional View of Integrating Strategy Variables
Source: Langfield-Smith [1997, p. 212, Figure 1]
Attempts by Langfield-Smith [1997] and Kald et al [2000] to develop a new three-
dimensional model concentrated on integrating Porter’s model with the models
developed by Miles and Snow [1978] and Gupta and Govindarajan [1984]. In her
model, Langfield-Smith [1997] used a dichotomy for the generic strategy typologies by
Porter [1980], a trichotomy for strategic typologies by Miles and Snow [1978] plus
another trichotomy for strategic missions by Gupta and Govindarajan [1984]. There are
Strategic Positioning
Harvest Hold
Build
Cost leadership
Differentiation Strategic Mission
Strategic Typologies
Prospector Analyzer Defender
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18 possible cells in her three-dimensional model and there are cells that appear to be
less plausible, which Langfield-Smith [1997] identified as inconsistent combinations.
The use of these discrete typologies and missions (i.e., categories) has been established
previously by researchers as appropriate (e.g., [Karnani, 1984], Govindarajan [1986],
Simons [1987], Abernethy & Guthrie [1994]).
Finally, this model attempts to integrate what Govindarajan [1986, p. 847]
identified as two independent dimensions of strategy when he confirmed that each of
Gupta and Govindarajan’s [1984] ‘build’, ‘hold’, or ‘harvest’ missions only indicate the
intended outcome and does not describe how the SBUs are to compete to achieve these
goals.24 This confirmation suggests that limitations exist for the accuracy and
generalisability of Gupta and Govindarajan’s [1984] model and such limitations will
transfer to any model that attempts to integrate their mission types with other
approaches used to describe how organisations compete.
For their model, Kald et al [2000] acknowledged integration attempts by
Govindarajan and Shank [1992] and Langfield-Smith [1997] as commendable.
However, they indicated that these earlier efforts “did not provide a more detailed
discussion on how the strategic variables are interrelated and how they may jointly
effect the classification of business strategy” [Kald et al, 2000, p. 205]. These
commentators chose Miles and Snow’s [1978] strategic typologies as the means for
firms to establish their domain, which is used as the basis for their market, products and
technologies (e.g., defenders operate in a highly stable domain). Furthermore, Kald et
al [2000, p. 205] state that they believe “Miles and Snow consider more organizational
24 Govindarajan [1986] argued that Gupta and Govindarajan’s [1984] missions only addressed SBUs’ goals not how SBUs compete to achieve these goals. Appendix B section 1.2 contains a detailed discussion of such criticisms of Gupta and Govindarajan’s [1984] model.
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features than either Porter (1980) or Gupta and Govindarajan (1984), who focus
primarily on products.”
The model they developed is re-produced in Figure 2.3 and includes the terms
‘patterns’ to describe Miles and Snow’s [1978] strategic typologies, ‘missions’ to
describe Gupta and Govindarajan’s (1984) missions, and ‘positions’ to describe Porter’s
(1980) strategy approaches, which they use in their model.25
Figure 2.3
Kald et al’s [2000] Hypothetical Relationship between Strategic Pattern, Strategic Mission, Strategic Position, and Use of Management Control
Strategic Pattern Defender Prospector
Strategic Mission Harvest Hold Build
Strategic Position Cost-
Leadership Differentiation Cost-
Leadership Differentiation
Loose Control
Effect on MCS Tight Control Tight Control Loose Control
Source: Reproduced from Kald et al [2000, Figure 2, p. 207]
Kald et al [2000], therefore, hypothesised that Miles and Snow’s [1978] strategic
typology (patterns), adopted by a firm because of the domain conditions, affects the
generic strategies of the firm depending upon the life cycle phase of most of its
products. However, the following four limitations appear to exist in Kald et al’s [2000]
new model. These limitations are identified from the discussions in the two preceding
sub-sections, as well as in Appendices A and B.
25 The terms pattern and positions reflect Mintzberg’s [1987] 3rd and 4th descriptions of strategy listed in footnote 14.
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The first limitation is related to the hierarchy of these typologies. As the strategic
mission is positioned higher on the hierarchical ladder than strategy, the use of the
prospector-defender strategy typologies as the basis for this relationship with the
strategic mission and position defies the natural order of their development. Secondly,
the hierarchy of these typologies is inconsistent with the comments by Porter [1980, p.
25] that “build, hold and harvest are the result of a generic strategy…” (as outlined in
section 1.1.2 of Appendix A). Thirdly, the strategic (pattern) variables for Miles and
Snow [1978] as well as the strategic (positioning) variables for Porter [1980] are
described as dichotomies and Gupta and Govindarajan’s (1984) mission as a
trichotomy. Because none of these variables have been measured as continuums, Kald
et al’s [2000] suffers from the same limitations as the model developed by Langfield-
Smith [1997].26 Finally, the model assumes that the SBU’s competitive position depend
on its mission (e.g., only a differentiation competitive position is adopted when SBUs
have a build mission). However, Govindarajan [1986, p. 47] states that mission and
competitive positions are independent dimensions of competitive strategy because “a
build mission,…, could be achieved through either low cost or differentiation”.27
In summary, the current literature reviewed in this sub-section provides three
parsimonious models of generic strategies [Miller & Dess, 1993; Langfield-Smith,
26 Otley [1980], Hopwood [1989], and Dent [1990] outlined accurate problems in Miles and Snow [1978] description of strategic behaviour. Other researchers have abandoned this discrete dichotomy by selecting either a prospector and defender archetypes continuum [Merchant, 1985; Simons, 1987b; Govindarajan, 1986, 1988; Abernethy & Guthrie, 1994] or an “extent a prospector-type strategy pursued” continuum [Abernethy & Lillis, 1998]. A detailed discussion about the accuracy problem and the reasons for the alternate continuums are contained in the Criticisms sub-section of section 1.1 in Appendix B. 27 Furthermore, Govindarajan [1986] description of these missions as a build-harvest continuum implies that the ‘build’, ‘hold’, or ‘harvest’ discrete trichotomy description does not provide an accurate set of measures to predict and explore the relationship of strategy with variables. Also he did not hypothesise any direct relationship between a mission type of Gupta and Govindarajan [1984] and either a strategy typology of Miles and Snow [1978] or generic strategy approach of Porter [1980]. Appendix B section 1.2 contains a detailed discussion of these matters and other criticisms of Gupta and Govindarajan’s [1984] model.
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1997; Kald et al, 2000]. While each of the models incorporated into these two
alternative integrated models has been considered valuable due to its simplicity,
researchers and commentators [Miller & Dess, 1993; Chapman, 1997] have
acknowledged that the key models by Porter [1980, 1985] and Miles and Snow [1987]
lack specific accuracy. Langfield-Smith [1997] and Kald et al [2000] have used a
dichotomy for Porter’s [1980] strategic position in their models, which caused these
models to suffer from the same accuracy and generalisability problems as Porter’s
source proposition (identified in section 2.2.1 as well as Appendices A and B).
2.2.4 Identifying competitive characteristics similarities among strategy typologies
Empirical evidence discussed in the previous sub-sections, and Appendices A and
B, supports the view that these three parsimonious models of generic strategies are
lacking in specific accuracy. Therefore, any attempt to integrate these models is fraught
with danger because it will mean these limitations will be transferred to new alternative
models, while losing the advantage of simplicity that these models currently possess
individually. As simplicity must be a trade off against accuracy [Chapman, 1997],
patterns of strategic priorities must be identified that meet the accuracy criterion.
The second form of integration undertaken in past studies involves comparing
strategic variables across typologies and combining those variables considered to
possess similar competitive characteristics (e.g., Simons [1990], Govindarajan & Shank
[1992], Kumar & Subramanian [1997/98]). Govindarajan and Shank [1992] linked the
firm’s strategic mission (Gupta & Govindarajan’s [1984] build-harvest continuum) and
the firm’s competitive advantage strategic positioning (Porter’s cost leadership-
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differentiation). This is consistent with the two dimensional view of strategy suggested
by Govindarajan [1986].28
Table 2.1
Integration of Strategies based on Similarities in Competitive Characteristics
Strategy Typologies with Similar Characteristics according to Simons [1990]
Strategy Typologies with Similar Characteristics
according to Simons [1990]
Mintzberg [1973] Entrepreneurial Mintzberg [1973] Adapter
Miles & Snow [1978] Prospector Miles & Snow [1978] Defender
Miller & Friesen [1982] Entrepreneurial Miller & Friesen [1982] Conservatives
Utterback & Abernathy [1975]
Performance-Maximising Firms
Utterback & Abernathy [1975]
Cost-Minimisation Firms
Porter [1980] Differentiator Porter [1980] Cost Leader
Strategy Typologies with Similar Characteristics according to Kumar & Subramanian [1997/98]
Strategy Typologies with Similar Characteristics according to Kumar & Subramanian [1997/98]
Miles & Snow [1978] Prospector Miles & Snow [1978] Defender
Porter [1980] Differentiator Porter [1980] Cost Leader
Miller & Friesen [1986] Innovators Hambrick [1985] Efficient Misers
Table 2.1 provides a summary of the similarities among the specific typologies
from different strategy models and form the basis for the following discussion. In his
study, Simons [1990] compared a number of typologies within different studies. He
concluded that typologies labelled entrepreneurial by Miller and Friesen [1982] and
prospector by Miles and Snow [1978] are similar to Mintzberg’s [1973] entrepreneurial
strategy type.29 He also stated that these typologies share commonalties in the
competitive characteristics to Porter’s [1980] differentiator firms and Utterback and
Abernathy’s [1975] performance-maximising firms. Similarly, he suggested that Miller
28 A discussion about these 2 dimensions of strategy and their apparent lack of direct relationship is provided in section 2.2.3 as well as in section 1.2 of Appendix B. 29 In Table 2.1, typologies from different studies that Simons [1990] compared and concluded to be similar are grouped within dotted boxes.
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and Friesen’s conservative firms, Mintzberg’s adapter types, Miles and Snow’s
defender firms, Porter’s overall cost leader firms, and Utterback and Abernathy’s cost-
minimising firms have similar competitive characteristics.
Kumar & Subramanian [1997/98] noted that Porter’s [1980] differentiators are
comparable to Miles and Snow’s [1978] prospectors as well as Miller and Friesen’s
[1986] innovators. Furthermore, they acknowledged that Porter’s cost leadership is
similar to Miles and Snow’s [1978] defenders and Hambrick’s [1985] efficient misers.
While prior research appears to have identified similarities in the characteristics of
these typologies, a study by Austin, Trimm and Sobczak [1995] has compared the
information needs for each typology within the Miles and Snow [1978] and Porter
[1980] models. The comparison shows that there are a number of similarities in the
information needs of cost leaders compared to defenders, and differentiators compared
to prospectors. However, Austin et al [1995] also found that there are differences in the
information required by those typologies identified as having similar characteristics.
These findings would suggest that a direct overall comparison of typologies of different
models would not remove any of the confusion caused by prior empirical results and
indeed is not appropriate as they are conceptually distinct.30
In summary, findings from past studies into this integration of different strategy
typologies, the second form of integration, suggest that while some combination is
warranted, different elements of these strategy typologies should be considered to
30 In Austin et al [1995], a comparison of their Table 3 (p. 29) to their Table 4 (p. 30) shows that while the cost leadership strategy needs cost accounting, productivity analysis, and market share information, defender firms need only the first two information types as well as information about quality factors. When examining the information needs for the differentiation strategy (customer satisfaction, demographic changes, and quality factors) only demographic change information is relevant for prospector firms with the other information needs for prospectors shared by cost leadership and focus strategy types.
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reflect the different strategic priority dimensions of these models. Miller and Dess
[1993] state that their findings of combined forms of strategy typologies, contrary to
Porter’s guidelines, imply that future research would be of value if it focuses on factors,
which facilitate the achievement of such combined competitive advantage.
Furthermore, Govindarajan [1986] concluded that because SBUs can differentiate
themselves in many diverse ways, each of these approaches to differentiation should be
examined in future research. A number of these approaches will be examined in the
following sub-section.
2.2.5 Strategic priorities within the competitive differentiation strategy
Prior research has identified dimensions of differentiation using different research
methods. These prior studies have established that the differentiation generic strategy
may contain a varying number of strategic priority dimensions. Two of these more
frequently used methods will be the basis of discussions in the following two sub-
sections. The discussion in each sub-section will relate to how that method identifies
the sources of the strategic dimensions and the attributes of these strategic priority
dimensions. Within each method, the discussion will identify the level of statistical
rigour used to establish these strategic priority dimensions. These studies are reviewed
to assist with the identification of research that provide evidence to support step one of
stage one of this study as illustrated in Figure 1.1.
Table 2.2, which is separated into three columns, contains the outcomes of these
studies. Porter’s [1980] sources of strategy as well as the authors of subsequent
strategy-based studies are identified in the first column. The headings for the other two
columns represent Porter’s [1980] descriptions of his two sources of strategy for
competitive advantage. Different dimensions of differentiation strategy identified in
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prior studies are grouped under the strategy source heading ‘Differentiation’ while the
‘Cost Leadership’ column contains a description of the various terms adopted by
previous studies for this Cost Leadership strategic priority.
2.2.5.1 First method used to identify strategic priority dimensions of differentiation
The first method has been to develop more refined and reconciled sets of strategic
priority dimensions within the differentiation generic strategy typology using actual
company examples, which is similar to the approach taken by Porter [1980] and did not
involve any confirmatory statistical analysis. Authors who followed this approach
include Mintzberg [1988] and Miller [1990].
When developing his six strategic priority dimensions of differentiation,
Mintzberg [1988] used the broader meaning of differentiation and not the narrower
meaning adopted in economics and marketing literature.31 He therefore considered
price differentiation strategy to be a more appropriate title than cost leadership as used
by Porter [1980]. Mintzberg’s has another five differentiation strategy typologies,32
31 Mintzberg, Quinn, and Voyer [1995] recognised that in strategic management literature there is a general agreement that a firm is differentiating its offerings “by acting to distinguish its products and services from those of its competitors” (p. 99). This meaning is broader than the non-price mechanism, tool or approach used by other disciplines to distinguish product offerings. However, the broader meaning is reflected in the definition of differentiation contained in the Oxford Universal Dictionary (p. 507). 32 Mintzberg [1988] described these 5 typologies in the following manner: typology 1 relates to differentiation by marketing an image or perceptions of intrinsic characteristics without any difference in fact to the product; typology 2 relates to strategic actions taken to differentiate firms by support services, such as a range of products, credit facilities, speedy delivery, and/or after sales service; typology 3 relates to the strategy for differentiation by quality concerning the product’s greater reliability, durability, and superior performance compared to competitors’ products; typology 4 focuses on design as the extrinsic product feature used as a strategy to differentiate and which is an unique enhancement feature of the product; and typology 5 relates to an undifferentiated strategy because the organisation either has no basis for differentiation or deliberately pursues a ‘copycat’/‘imitation’ position.
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which are shown in Table 2.2, although it may be argued that Mintzberg’s final strategy
type is more a strategic position (scope) taken than a type of specific differentiation
strategy (source).
Miller [1990] argued that Porter [1980] used an insufficient description of the
differentiation strategy in his strategy source proposition. Miller [1990] based his
argument on the claim that differentiation strategy source encompasses novelty, quality
and image as bases for differentiation. He also argued that similar classification
insufficiencies existed in Miles and Snow’s [1978] typology.
2.2.5.2 Second method used to identify strategic priority dimensions of differentiation
The second method adopted by researchers to develop dimensions of the
differentiation strategy was to use ‘strategic choice’ attributes identified or established
in different ways. One of the ways these ‘strategic choice’ attributes were identified
involved researchers following an unquestioned adoption of established attributes from
either prior studies or the Profit Impact of Market Strategy (PIMS) research database.
Alternatively, some researchers established their own ‘strategic choice’ attributes by
designing questionnaires to contain questions developed by the PIMS research group.
Irrespective of the way these ‘strategic choice’ attributes were identified or established,
only a few of these studies have conducted any further analysis on these ‘strategic
choice’ attributes to establish their association with a specific strategic priority
dimension.
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Table 2.2 Strategic Priority Dimensions of Competitive Strategy Source Approaches
Porter’s Sources
Differentiation
Cost Leadership
Subsequent Studies
Strategic Priority Dimensions of Differentiation
Cost/Price
Archer & Otley [1991]
— Technical Expertise
— Marketing
Production Costs
Chenhall & Langfield-Smith [1998] ## (FA)
Innovative Product Design & Flexibility
Superior Quality, Customer Service & Prompt & Reliable
Delivery
—
Low Price due to Lower Cost
Chenhall [2005] ## (FA)
Innovative Product Design & Flexibility
Superior Quality, Customer Service & Prompt & Reliable
Delivery
—
Low Price/ Cost
Kotha & Vadlamani [1995] (FA)
Product Design Product Quality Support Services
Image
Price
LeCornu & Luckett [2004] (FA)
Manufacturing Excellence/ Innovation
Full-Line Producer
Customer Service
Specialisation Brand Development
Cost leader
Miller & Dess [1993] *
— Product Quality including Delivery Quality
Advertising, Image & Reputation
Relative Costs
Miller & Friesen [1986] *
Product Innovation, Product Quality including Customer Service Quality
Marketing/ Image
Cost Leadership #
Miller [1988] ** Product Innovation — — Marketing/ Image of Quality
Cost Leadership
Miller [1990] Novelty/Product Innovation (Pioneers)
Product Quality (Craftsmen B)
— Brand Image (Salesmanship)
Cost Leadership (Craftsmen A)
Miller [1992b] ** (FA)
Product Innovation (Pioneering)
Product Quality including Service Quality (Craftsmen B)
Marketing (Salesmanship)
Cost Leadership (Craftsmen A)
Mintzberg [1988] Product Design Product Quality
Support Services
Image
Price
Robinson & Pearce [1988] (FA)
Product Innovation & Development
— Service Brand & Channel Influence
Efficiency
Wagner & Digman [1997] ** (FA)
Product Innovation Process Innovation Marketing/ Image
Relative Direct Costs & Prices#
* Studies have used PIMS Research Data ** Studies have used questionnaires based on PIMS Research Instrument # ‘Price Difference’ or ‘Relative Price’ variable included with ‘Cost Leadership’ and/or ‘Differentiation through Marketing’
variables ## Recognised the various sources of differentiation but operationalised as a dichotomy; Product Differentiation and Low
Price. (FA) Studies have used factor analysis to establish associations for ‘strategic choice’ attributes with specific strategic
priority dimensions.
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Table 2.2 provides details of each study and source for these dimensions
reviewed, summarises the dimensions of differentiation strategy, and identifies the
studies that used further analysis to test these attributes’ associations with specific
strategic priority dimensions.33 Many of the studies in Table 2.2 were achieved by
integrating Porter’s [1980] differentiation strategy source approach with other strategy
typology classifications mentioned in this chapter, after identifying the existence of
some relationship among these strategy typologies. While they have developed sub-
dimensions of Porter’s differentiation strategy typology, they still retain the overall cost
leadership typology.34
The extent to which studies tested these attributes’ associations with specific
strategic priority dimensions will be the basis for the discussion in the following two
sub-sections about past research that used this second method.
2.2.5.2.1 Unquestioned adoption of established differentiation strategy attributes
From these details about the studies used as examples in Table 2.2, past
research has sub-divided the differentiation strategy into a variety of two or three sub-
dimensions.35 However, similar underlying elements for strategic priority dimensions
in one study have been used to measure different strategic priority dimensions in other
33 The cost strategic priority dimension has been included because some researchers (e.g., Mintzberg, 1988) labelled this priority as price differentiation. Additionally, for reasons explained in this section, some studies are not included in Table 2.2 because the research produced up to 13 dimensions. 34 Although Miller and Friesen [1986] used cost leadership variables in this typology, they also included the variable ‘Price Difference’ which they defined as “- cost leaders can charge lower prices than competitors” (Table 1, p. 40). Also, Phillips Chang and Buzzell l [1983] as well as Wagner and Digman [1997] have examined separately ‘relative direct costs’ and ‘relative prices’, the latter operationalised as the average annual selling price of business’ products and services relative to its competitors. 35 The number of strategic priorities of differentiation in other studies varied; including (1) two dimensions of product/service and marketing differentiation strategies [Miller & Friesen, 1986], (2) two dimensions of innovation and marketing differentiation strategies in Miller’s 1988 study, (3) three dimensions of innovation, marketing, and quality differentiation strategies used by Miller [1992b], and (4) three dimensions of product innovation, process innovation, and marketing differentiation strategies found by Wagner and Digman [1997].
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studies.36 One possible reason for this inconsistent association of underlying elements
for strategic priority dimensions may be that studies have used some of the elements
identified in different prior studies without testing for the association among these
elements. Miller and Friesen [1986] and Miller [1989] may be used as examples of the
absence of such confirmatory factor analysis.37
Another reason for this inconsistent association of underlying elements for
differentiation strategic priority dimensions may be due to researchers of the majority of
these studies using sub-divided differentiation strategy contained in the PIMS research
database or designing questionnaires to contain questions developed by the PIMS
research group. As a very broad definition is given to quality in the PIMS
questionnaire,38 many of these PIMS based studies identified in Table 2.2 have
examined more than extrinsic product quality features identified in their product/quality
strategic priority dimensions.39
To investigate the validity of these two reasons, the discussion in the following
sub-section reviews studies that have conducted further analysis to test suggested
36 For example, the items under Miller and Friesen’s [1986] product/service differentiation strategy relate to attributes that contribute to product uniqueness, such as, the level of product/service quality and the level of new product innovation. Such items are separated into two sub-dimensions (innovation and quality strategies) in Miller’s [1992b] study. 37 Miller & Friesen [1986] chose only 13 of the 18 ‘strategic choice’ variables used by Hambrick [1983b] when he investigated Porter’s strategy types and then included additional variables “to obtain a broader assessment of the business…strategies” [Miller & Friesen, 1986, p. 42]. Similarly, Miller [1988] combined some measures of differentiation from Hambrick [1983b], Dess & Davis [1984], and Miller [1986] without conducting a factor analysis to test the association of these elements to either product or marketing innovation strategic priority dimensions. 38 Miller and Dess [1993] explained that quality was viewed not only in terms of extrinsic product features but also all intrinsic product characteristics (e.g. delivery and financial packages) as well as any “customer-perceived differences due to advertising or reputation” (p. 568). 39 Irrespective of the title given to the strategic priority sub-dimension, similarities in the underlying items as well as the extrinsic and intrinsic nature of the data collected (due to the very broad definition in the PIMS questionnaire) relate to a pattern of strategic priority activities used to differentiate products and services. These strategic priority activities may be categorised using a basis of product extrinsic features (whether in quality or design innovativeness) or intrinsic product characteristics (such as auxiliary services) or the image created in the customer’s mind that differentiates the product.
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strategic priority attributes’ association with specific differentiation strategic priority
dimensions.
2.2.5.2.2 Adopting established differentiation strategy attributes after further analysis
While acknowledging that Porter [1980] as well as Miles and Snow [1978]
have provided a useful starting point, Miller and Dess [1993] recognised that such
strategy typologies may benefit from some refinement and reconciliation. A number of
researchers (e.g., Galbraith & Schendel, 1983; Hambrick, 1983b; Dess & Davis, 1984)
have developed more detailed and elaborate sets of typologies “in reaction to the
simplicity of the earlier schemes and … to give them a more solid empirical basis”
[Miller, 1992b, p. 392]. However, he commented that these studies were neither as
intuitively appealing as the earlier schemes “nor did they reconcile the more
parsimonious and popular taxonomies” [Miller, 1992b, p. 392].
These comments made by Miller [1992b] may be due to two reasons. Firstly,
some studies developing more detailed and elaborate sets of typologies are not
reconciling the more parsimonious typologies because these studies have resulted in
rather complex classification framework [Galbraith & Schendel, 1983; Hambrick,
1983b].40 Secondly, the converse has occurred where the study has ignored significant
factors [Dess & Davis, 1984], which had the effect of not extending the empirical base
40 Galbraith and Schendel [1983] and Hambrick [1983a] are examples of complex classification framework developed as argued by Miller [1992b]. While Galbraith and Schendel [1983] developed an extensive set of recurring patterns of strategic priority activities using two bases (strategy posture and strategy change), 11 factors emerged for customer goods and 9 factors emerged for industrial products from separate factor analyses of these bases. However, many of the factors shared common strategic priority elements (items) across the two products as well as within each of the two product categories. Hambrick [1983] also conducted separate factor analyses using two attribute bases (strategy position and strategy choice) with 6 factors emerging from strategy position attributes and 11 factors emerging from strategy choice attribute base. These factor analysis outcomes suggest rather complex classification framework. Such example studies provide typologies too detailed and elaborate for the purpose of Table 2.2 and therefore are included in Table 2.3 because the procedures followed and findings are more relevant to the purpose of Table 2.3 and the discussion in section 2.6.
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and therefore are less intuitively appealing. For example, Dess and Davis [1984]
developed 21 strategic priority elements (items) after interviewing management but only
used three of the five significant factors that emerged from their factor analysis, based
on the reason that “the other two factors were dropped in the interest of parsimony”
[Dess & Davis, 1984, p. 472].
Dess and Davis [1984] further presented arguments about some measures in
earlier studies inhibiting the central thread and underlying logic of a strategy. They,
therefore, used only three factors to reduce the number of strategic priorities in their
study compared to the number found in certain previous studies.41 However, the three
retained factors were allocated titles of differentiation, cost leadership, and focus which
reflected the strategy scope and source proposition of Porter’s theoretical model. Based
on their arguments and the apparent selective use of significant factors that emerged
from their analysis, it may be deduced that one of the motivations for their study was to
reduce the complexity of the measures without extending the empirical base beyond
Porter’s broadly described typologies.
Subsequent strategic management studies (e.g., Robinson & Pearce, 1988;
Miller, 1992b; Kotha & Vadlamani 1995; Wagner & Digman, 1997) have extracted
items from these earlier studies, previously labelled ‘strategic choice’ attributes, to
41 These researchers referred to certain studies, including Hambrick [1983b], as producing strategic groups that provide a useful intermediate frame of reference but raised concerns about reliance upon multivariate measurements of strategy, especially measures of implemented strategy and resource allocation. They argued that these inferred allocation patterns might inhibit the central thread or underlying logic of an organisation’s strategy. They also suggested that elements of strategic choice are inherent within the concept of strategy thus presenting further limitations to prior studies [Dess & Davis, 1984, p. 468-469].
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compile elements of strategic priority dimensions.42 Factors (strategic priority
dimensions) are presented in Table 2.2 that emerged from the factor analysis conducted
by each of these four example studies.
Three of these four example studies identified in the previous paragraph
produced four factor results but with some elements loading onto different factors.43
Kotha and Vadlamani [1995] is the exception because six factors were produced from
their confirmatory factor analysis, similar to Mintzberg’s [1988] six forms of
differentiation mentioned in section 2.4.1. This different result occurred even though
Kotha and Vadlamani [1995] used the same 22 competitive methods in their study as
did Robinson and Pearce [1988]. The following observations may provide reasons for
the difference in results between these two studies. Firstly, a number of the items
loaded onto more than one of these six factors with a relatively low loading for some
factors in Kotha and Vadlamani’s [1995] study. Secondly, seven factors emerged from
the factor analysis conducted by Robinson and Pearce [1988] but they reduced their
findings to four factors after adopting procedures with a high level of statistical rigor.44
Therefore, these differences in identification procedures raise doubts about the
statistical rigour of the six-factor result that emerged from Kotha and Vadlamani’s
42 Robinson and Pearce [1998] used questionnaire items used by previous studies (e.g., Dess & Davis, 1984; Hambrick [1983a]) as well as dimensions associated with strategy typologies including those used by Porter [1980] as well as Miles and Snow [1978]. Kotha and Vadlamani 1995 used items from Dess and Davis [1984] as well as Robinson and Pearce [1998], while Miller [1992b] adopted items from Miller [1990] with Wagner and Digman [1997] subsequently using items from Miller [1992b]. 43 Although Wagner and Digman [1997] used items from Miller [1992b], quality strategy was absent from their four factors. This factor was replaced by their process innovation factor, which they argued occurred because of “increased awareness of, and sensitivity to, quality…and it is a multidimensional concept.” [Wagner & Digman, 1997, p. 342]. 44 Robinson and Pearce [1988] acknowledged in their footnote 6 that seven factors emerged from their factor analysis with an eigenvalue greater than one. They state that these “three additional factors were viewed as ‘consistent check’ factors because each included only two significant items…that individually loaded on an earlier factor with an eigenvalue greater than two.” (p. 50). The procedure adopted by Robinson and Pearce [1988] is appropriate for a rotated loading matrix because it is consistent with suggestions by Tabachnick and Fidel [2001] that the “interpretation of factors defined by one or two variables is hazardous…under even the most exploratory factor analysis.” [Tabachnick & Fidel, 2001, p. 622].
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[1995] study compared to the four factors reported in the study by Robinson and Pearce
[1988].
Wagner and Digman [1997] argued that research has produced extreme
examples of typology classifications. They identified Porter’s [1980] classification
framework that lumps all forms of differentiation into one category at one end of this
extreme. At the other end of this extreme they provided Mintzberg’s [1988] model as
their example because he argues there are six strategic priority dimensions of
differentiation including cost. Wagner and Digman [1997] therefore adopted a mid-
point position between these extremes and selected measures for three distinct strategic
priorities of differentiation used by Miller [1992b]. However, the factor analysis did not
replicate Miller’s three differentiation strategic priority dimensions.
Only limited attention has been directed to this important issue in the
accounting literature and the factors that have emerged from factor analysis in these
accounting related studies are provided in Table 2.2 [Chenhall & Langfield-Smith,
1998, LeCornu & Luckett, 2004, Chenhall, 2005]. Two of the three factors found by
Chenhall and Langfield-Smith [1998] and Chenhall [2005] are differentiation strategic
priorities while the other factor relates to low price/cost strategic priority. The
emergence of only two differentiation strategic priorities in both these studies may be
attributed to these studies including only 11 strategic attributes in their measure.45 This
deduction appears to be supported by Chenhall’s [2003] conclusion that future strategy
research should consider using other strategy measures containing more items, such as,
45 Chenhall and Langfield-Smith [1998] as well as Chenhall [2005] extracted and adopted the 11 strategic priority items (attributes) used by Miller, Meyer, and Nakane [1992] compared to over 20 items included by strategic management studies (e.g., Dess & Davis, 1984; Robinson & Pearce, 1988; Kotha & Vadlamani, 1995). This analysis approach demonstrates the change in focus in management accounting studies compared to Simons’ [1987] study a decade earlier, which used a simply prospector-defender dichotomy from Miles and Snow’s [1978] model.
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Kotha and Vadlamani [1995]. Further evidence to support such a deduction may be
drawn from the six factors that emerged from the factor analysis conducted by LeCornu
and Luckett [2004] who adopted 19 items used by Dess and Davis [1984].
From the discussion in the sub-sections of 2.2.5, it appears that in more recent
studies the broadness of Porter’s [1980] differentiation typology has been replaced with
sets of differentiation strategic priority dimensions. Furthermore, these identified
studies have sub-divided the differentiation strategy into strategic priority dimensions
that take into consideration other typologies, including Miles and Snow’s [1978]
typologies. While the generalisation made by Miller [1992b] about lack of
reconciliation does apply to some research discussed in this section,46 more succinct
strategic priority dimensions have evolved from more recent studies. However, the
inconsistencies in the number of differentiation strategic priority dimensions that exist
in the findings of recent studies warrant further investigation to refine the description of
these strategic priority dimensions of the differentiation strategy.
The literature review in the sub-sections of 2.2.4 has identified research that
has attempted to identify competitive characteristics similarities among strategy
typologies. Research has been identified in Table 2.2 that developed a number of
strategic priorities as dimensions of differentiation strategy. The findings of these
studies provide for future research with a direction that may overcome accuracy and
generalisability limitations identified in propositions for the first element of Porter’s
theory of competitive strategy.47
46 These generalisations apply particularly to the detailed and elaborate dimensions of differentiation developed by Galbraith and Schendel [1983], Hambrick [1983b], and Mintzberg [1988]. 47 Refer to the discussion in section 2.2.1 and Appendix A.
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In sub-section 2.2.6, the discussion will focus on a number of issues related to
Porter’s source and above-average long-term performance propositions that emerged
from the findings of prior studies. These issues relate to findings that support the
existence of a multidimensional differentiation strategy, the combinations of strategic
priorities adopted by organisations, and the achievement of above-average long-term
performance by organisations that adopted combinations of strategic priorities. Figure
1.1 provides an illustration of the three steps in stage one of this study that are discussed
in the following sub-section.
2.2.6 Strategic priority dimensions, strategic orientation clusters, and performance
Empirical evidence presented in sub-sections 2.2.1 and sub-sections of 2.2.5
supports the proposition that a more specific larger set of strategic priorities has
emerged as a better description than Porter’s broad differentiation strategy (e.g.,
Robinson & Pearce, 1988; Kotha & Vadlamani, 1995).
Most of the example studies in Table 2.3 produced a range from three to six
factors. However, many studies in Table 2.3 also examined how organisations selected
combinations of these strategic priorities, which are described by prior research as
clusters of “organisations’ strategic orientations”. Therefore studies that appear in
Table 2.3 provide information about three issues. Firstly, further evidence is provided
to the findings about specific strategic priorities of the differentiation strategy as
discussed in sub-section 2.2.5.2.2. Secondly, results are discussed that relate to the
combinations of strategic priorities adopted by organisations. Finally, an examination
of findings is undertaken to ascertain whether above-average long-term performance has
been achieved by organisations that adopted combinations of strategic priorities.
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Most of the studies that appear in Table 2.3 reported factors (strategic priorities)
that are similar to the strategic priorities identified by the studies in Table 2.2 and
therefore provide further evidence to the findings discussed under sub-section 2.2.5.2.2.
The variation in the number of strategic priorities found by prior studies may be
attributed to a number of reasons. In sub-sections 2.2.5.2.1 and 2.2.5.2.2, the discussion
provides reasons for variations related to the number of factors in different studies.
Additional reasons for variations among the studies are provided at the bottom of Table
2.3 with notated references to particular studies in that table.
Some studies listed in Table 2.3 have found these multiple strategic priority
dimensions of differentiation in a number of countries or for different product
markets.48 Furthermore, four factors emerged from the Varimax-rotated factor analysis
conducted by Kim and Lim [1988] in their Korean based study. Their results support a
multidimensional differentiation strategy. These findings not only support the accuracy
of a multidimensional differentiation strategy proposition but also its generalisability.
However, the mere existence of these multiple differentiation strategic priorities
does not support the proposition that organisations will adopt multiple strategic priority
selection patterns. Prior research findings therefore will be reviewed to establish
whether organisations adopt multiple strategic priorities as their organisations’ strategic
orientations.
48 The details about the countries and product types are provided, where applicable, beside the relevant studies in Table 2.3. Also, notated references are placed next to some studies which link these studies to particular comments provided at the bottom of Table 2.3.
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Table 2.3 Strategic Priorities and Strategic Orientations (Clusters of Strategic Priorities)
Study Number of Strategic Priority
Factors (Dimensions)
Strategic Orientation: Number of Strategic Priority Clusters with different selection patterns (individual versus combinations
of Priorities) Carter, Stearns, Reynolds & Miller [1994] 6 6 Chenhall & Langfield-Smith [1998] 3 6 Chenhall [2005] 3 — Dess & Davis [1984] 3 4 Davis & Schul [1993] 6 3
Douglas & Rhee [1989] USA Europe
7 7
6 6
Galbraith & Schendel [1983] ** customer goods industrial products
13 9
6 4
Green, Lisboa, & Yasin [1993] (Portugal) *** 4 —
Hambrick [1983b] **** 17 10 Kim & Lim [1998] (Korea) 4 4 Kotha & Vadlamani [1995] 6 — LeCornu & Luckett [2004] 6 — Miller & Friesen [1986] — 5 Miller [1992b] # 4 5
Morrison & Roth [1992] ## 5 4
Nayyar [1993] ### 3 —
Parker & Helms [1992] ### 3 8 #### Robinson & Pearce [1988] 4 5 Wagner & Digman [1997] 4 6 Wright, Hotard, Kroll, Chan, & Tanner [1990] 3 4 Wright et al [1991] — 3
Source: Extraction from and expansion on Campbell-Hunt [2000] * * The number of clusters appearing in Table 2 provided by Campbell-Hunt [2000] may differ from the number of clusters
shown in Table 2.3 above. These differences occur due to different purposes for the summaries in these two tables. That is, Campbell-Hunt‘s [2000] Table 2 notes the number of clusters identified whereas Table 2.3 above provides the number of different strategic priority patterns selected for the strategic orientation.
** Two factor analyses were conducted for this study. Some factors are related to strategy posture (1st factor analysis) and other factors to strategy change (2nd factor analysis). If all the items were combined into a single factor analysis, many of the items probably would load onto a lower number of factors because of the similarity of items under the same titled factor for both the strategy posture and strategy change analyses. Perhaps emerging factors may be similar to the number of factors identified in Table 2 by Campbell-Hunt [2000].
*** Although the results of a Varimax rotation produced 6 factors with an eigenvalue of > 1, only 4 factors were retained aided “by the predetermined existence of an identifiable number of factors.” [Green et al, 1993, p. 6]
**** There were 6 strategy position factors and 11 strategy choice factors in this study. # Miller [1992b] found 5 clusters of strategic priority patterns for each of the 2 categories (30 most- and 30 least-
successful firms) which total the 10 clusters identified in Table 2 by Campbell-Hunt [2000]. ## A 5th cluster emerged from this analysis but was not included in the article’s findings because it was interpreted to be an
“unfocused strategy cluster.” [Morrison & Roth, 1992, p. 406] ### These studies have recognised only 3 factors without (1) acknowledging the exact number of factors that emerged with
an eigenvalue of > 1 [Nayyar, 1993], (2) conducting a Varimax rotation [Nayyar, 1993; Parker & Helms, 1992], or (3) discussing the possibility of additional factors even though the 3 factors explained only 47.7% of the variance [Parker & Helms, 1992].
#### These researchers have classified firms into one of 8 strategic groups based on each firm’s strategy preference. This preference was established by using “above and below factor scores on each of the generic strategies” [Parker & Helms, 1992, p. 33]. Several combinations of strategic priority dimensions (strategic orientation) formed within these 8 strategic groups.
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Table 2.3 provides a summary of example studies that have conducted not only
factor analysis to help verify the loading of strategic priority attributes onto specific
factors but also cluster analysis to identify strategic priority selection patterns
(organisations’ strategic orientations). From this further analysis, up to 10 clusters of
strategic priority orientations have emerged.
In general, the example studies have identified three or four clusters. However,
some of these studies have acknowledged that up to six clusters would represent a
viable solution but have selected a three-cluster solution because “it provided the best
trade-off between parsimony and detail.” [Davis & Schul, 1993, p.190]. Unfortunately,
such an approach merely identified Porter’s [1980] three generic strategies (cost
leadership, differentiation, and focus) of his scope and source propositions without
producing further evidence that could be used to examine the existence of additional
combination patterns of strategic priorities that form part of organisations’ strategic
orientation. The discussion provided by Dess and Davis [1984] provides further support
for this deduction about the choice of clusters by Davis and Schul [1993].49 These
researchers initially chose “a three cluster solution…in order to facilitate comparison
with Porter’s typology of three generic strategies. However, the three cluster solution
did not adequately distinguish among the clusters.” [Dess & Davis, 1984, p. 478].
Conceptual arguments and empirical evidence presented in sub-section 2.2.2 and
Appendix A, raise doubts about Porter’s [1980] above-average long-term performance
outcomes proposition; which he predicted occurs only when one of his generic strategy
sources is implemented. Based on the findings of the studies summarised in Table 2.3
49 This discussion by Dess and Davis [1984] is particularly relevant because Davis and Schul [1993] used 34 business strategy measurement items “…largely derived from Hambrick (1983) and Dess and Davis (1984)…” [Davis & Schul, 1993, p. 188].
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as well as a meta-analysis study conducted by Campbell-Hunt [2000], the discussion
will assess the accuracy of Porter’s above-average performance outcomes proposition.
Dess and Davis [1984] investigated the accuracy of Porter’s above-average long-
term performance proposition. They found that Porter’s caution against commitment to
multiple generic strategies appeared to be inconsistent with their results where the
highest performance group in their study had an “apparent lack of singularity in
strategic orientation” [Dess & Davis, 1984, p. 484].
Parker and Helms [1992] also formed eight groups with one group containing
organisations that adopted both a differentiation and cost combined strategy orientation
and another group that selected a combined differentiation, focus and cost strategy
orientation. Wright et al [1991] is another study that found only three clusters.
However, they labelled their second cluster ‘combination of strategic profile’ because
that cluster of organisations placed emphasis on differentiation “…through stressing
product R & D, advertising expenditure and charging high prices. On the other hand,
they show their emphasis on low costs by stressing R & D…they have the highest
profitability.” [Wright et al, 1991, p. 62].
Strategic management literature has provided evidence of multidimensional
differentiation strategic priorities as well as organisations having multiple strategic
priority orientations. However, a review of management accounting literature revealed
that only the study by Chenhall and Langfield-Smith [1998] has attempted to cluster
organisations into strategic orientations based on selected strategic priority dimensions.
For reasons mentioned in section 2.2.5.2.2, a ‘low price’ strategic priority and only two
dimensions of differentiation strategic priorities (1. customer service and 2. flexibility)
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emerged from their factor analysis. Their cluster analysis produced clusters of different
strategic orientations; some clusters have a combination of two strategic priorities while
one cluster has a single strategic priority emphasis.50
The final discussion for this sub-section relates to the study by Campbell-Hunt
[2000], which comprised of three studies within his meta-analysis of generic
competitive strategy-based studies spanning approximately 20 years.51 In his third
study, he did not find any association between competitive strategy design52 and above-
average financial performance. From the results of his meta-analysis, Campbell-Hunt
[2000] discussed a number of implications from his findings. From a theoretical
perspective, he states that the failure for Porter’s theory to provide a universal
explanation of performance “based on the presence or absence of specification in
competitive strategies, suggests that contingency theories of performance may now
offer more powerful insight into... effective competitive strategy.” [Campbell-Hunt,
2000, p. 149].
From his analysis, Campbell-Hunt [2000] identified implications that impact on
what should be two objectives of future empirical studies. The first objective relates to
the identification of specific elements of competitive strategy and their use in replicated
principal component solutions so that strategic priority dimensions may emerge. 50 The six clusters they developed embraced these three strategic priorities, plus two other process aspects as well as organisational performance outcomes as cluster criteria variables. Although the purpose of their study did not include the identification of organisations adopting a multiple strategic priority orientation, their ranking within the cluster criteria variables provided information about each cluster’s strategic orientation and emphasis. Based on these rankings Clusters 1 and 2 had a customer service and flexibility strategic priority emphasis (ranked equally 2 and 3 respectively); Cluster 3 had a flexibility and low cost strategic priority emphasis (ranked 1 and 2 respectively); Cluster 4 had a customer service and low cost strategic priority emphasis (ranked 1 and 3 respectively); Cluster 5 had a low price emphasis (ranked 1); and Cluster 6 had no specific strategic priority emphasis. 51 Campbell-Hunt’s [2000] first study examined the meta-dimensions of competitive strategy, his second study looked at the meta-design of competitive strategy, while his third study compared the performance of generic strategies. The majority of the studies contained in Table 2.3 were included in his meta-analysis. 52 Campbell-Hunt [2000] used either cost leadership or differentiation as a single-emphasis strategy type and a combination of these strategy types as a mixed emphasis strategy type.
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Expanding the range of strategic and organisational variables within a contingency
framework are suggestions included in his second objective; which he considered to be
the more important objective.53
In summary, the findings of these example studies in Table 2.3 and Campbell-
Hunt [2000] discussed in this sub-section support not only the existence of a
multidimensional differentiation strategy concept but also the occurrence of some
organisations selecting a combination of strategic priorities as these organisations’
strategic orientations. Furthermore, the research findings presented in Table 2.3 are
drawn from a variety of settings. The information derived from this evidence should
provide a more accurate description of not only strategic priorities but also
organisations’ strategic orientations, as well as a greater generalisability. Additionally,
Campbell-Hunt [2000] concluded that there was no universal evidence to support
Porter’s financial performance proposition that organisations adopting a single strategic
priority will perform better long term compared to organisations with multiple strategic
priority orientations. His conclusion led him to suggest future studies should examine
an expanded range of strategic and organisational variables within a contingency
framework as an important objective.
2.2.7 Summary of strategic priorities, strategic orientation, and performance
findings
The information derived from the evidence contained in the six preceding sub-
sections of section 2.2 should provide a more accurate description of not only strategic
priorities but also organisations’ strategy orientations. This more accurate description 53 These implications identified by Campbell-Hunt [2000] about the need to expand the range of strategic variables (elements of strategic priorities) and identify specific elements of competitive strategy are consistent with suggestions by Chenhall [2003].
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should have greater generalisability, as well compared to the broad single differentiation
strategy typology contained in Porter’s source proposition strategy and his notion about
the mutually exclusive implementation of his broadly described typologies. There is
also no universal evidence that supports Porter’s financial performance proposition that
organisations adopting a single strategic priority will perform better long term compared
to organisations with multiple strategic priority orientations. Furthermore, Campbell-
Hunt [2000] suggested that the objective of future studies should be to expand the range
of strategic and organisational variables within a contingency framework to add to the
body of knowledge regarding the strategy-performance relationship.
However, some researchers who investigate strategy-based studies within the
management accounting research discipline (e.g., Chenhall & Langfield-Smith [1998],
LeCornu & Luckett [2004], Chenhall [2003, 2005]) have acknowledged, either
explicitly or implicitly, some limitations with the current measures used for strategic
priorities and strategic orientations. However, there is a paucity of research into these
limitations within the management accounting research discipline. Also, in general,
strategy-based studies within the management accounting research discipline do not
appear to have tested Porter’s prediction of lower long-term financial performance if
organisations select a combination of differentiation and cost leadership strategies.
Therefore, the evidence supports this study examining two issues from an
Australian business environment context. Firstly, the study investigates whether there is
a more accurate description of the source of differentiation strategy compared to the
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broad single differentiation strategy typology contained in Porter’s source proposition.
The study also examines the accuracy of Porter’s above-average long-term financial
performance prediction for singular strategic priority selection within the Australian
business environment. The purpose of the second investigation is to identify whether
Campbell-Hunt’s [2000] findings of results from various countries is relevant to the
Australian business environment and hence support the generalisability of the earlier
findings that do not universally support Porter’s above-average long-term financial
performance prediction.
Due to the results examined in Campbell-Hunt’s [2000] study being drawn from
both studies in different countries and some multi-country comparison studies,54 the
current study should incorporate an expanded range of strategic and organisational
variables within a contingency framework as he suggested. However, the examination
of all such variables is beyond the scope of any single study due to the voluminous
range of these variables.
Chenhall [2003] suggests that important links between strategy, controls of MCS
and performance represent the most important new stream of literature. In response to
critiques of management accounting based prior contingency research (e.g., Fisher
[1995], Covaleski et al [1996], Chapman [1997]), Chenhall [2003] provides distinctions
between terms previously used interchangeably and demonstrates the broadness of the
definition for MCS as guidance for the expanded range of controls that may be
investigated by future research.55 He acknowledged that the definition for MCS has
54 The country of origin of each study or countries included in the cross-country studies are provided in Table 2.3. 55 Chenhall [2003] identified the terms used interchangeably in prior studies as management accounting (MA), management accounting systems (MAS), and management control systems (MCS). He described MA as a collection of practices (such as budgeting), MAS as the systematic use of MA to achieve some goals, and MCS as encompassing MAS as well as other controls, such as personal or clan controls.
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evolved from a more conventional view of MCS as a passive set of tools providing
information to assist managers to a more contemporary view where MCS is more active
so that it can provide individual managers with information and power to achieve their
goals. According to Chenhall [2003], future research needs to focus on contemporary
dimensions of MCS and behavioural outcomes in addition to organisational outcomes to
maintain the relevance of MCS contingency-based research.
Therefore this study focuses on specific MCS control mechanisms, discussed in the
following section, that are consistent with the emphasis of modern management
systems, such as BSC. The purpose of the emphasis on control mechanisms by modern
management systems is to reinforce and support the strategic priorities adopted by
organisations. The control mechanisms are used to communicate the objectives of the
chosen strategy and to achieve goal congruency between managers’ and organisational
goals. Furthermore, Floyd and Wooldridge [1992, 1994, 1997] have provided empirical
evidence that links middle management’s mediating role, through their strategic
involvement, with organisational performance. Consequently, in the next section,
literature will be reviewed related to middle management involvement and
empowerment in the strategic decision process and their performance (as a behavioural
outcome) within a contingency framework.
2.3 Strategic and Organisational Variables within a Contingency
Framework
From the literature reviewed in the sub-sections of section 2.2 that has been
supported by the critical analysis in Appendices A and B, there is evidence that
differentiation strategy is described more accurately through the use of a number of
strategic priority factors and above-average organisational financial success does not
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depend on the selection of a single strategic priority. That is, it does not depend solely
on either a cost leadership or a differentiation single strategic priority. As a
consequence of the lack of universal evidence to support Porter’s above-average
proposition, further analysis within the contingency framework has been suggested.
The basic premise of the contingency approach to management accounting is “that
there is no universally appropriate accounting system applicable to all organisations in
all circumstances” [Otley, 1980, p. 413]. Alternatively stated, “the term contingency
means that something is true only under specific conditions.” [Chenhall, 2003, p. 157].
With such a meaning for the term, there is no ‘contingency theory’ but “rather a variety
of theories may be used to explain and predict the conditions under which particular
MCS will be found or where they will be associated with enhanced performance.”
[Chenhall, 2003, p. 157].56
Examining Campbell-Hunt’s [2000] conclusion, it may be argued that if
organisations’ above-average long-term performances do not differ significantly
irrespective of the strategic orientations that organisations adopt (whether a single
strategic priority or multiple set of strategic priorities) then how organisational controls
are adapted to achieve above-average performance may be contingent upon the selected
strategic priority or strategic priorities.57
As outlined in sub-section 2.2.7, this study focuses on middle management
involvement and psychological empowerment control mechanisms and their
performance (i.e., the specific behavioural outcome). This focus is consistent with the
56 This view is consistent with the underlying view of contingency framework as described by Burrell and Morgan [1979]. 57 The objective of incorporating a contingency framework into future research would appear to be the appropriate suggestion for future research by Campbell-Hunt [2000] following his meta-analysis findings that Porter’s theory failed to provide a universal explanation of performance
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emphasis of modern management systems, such as BSC, especially within the learning
and growth perspective, which has “objectives designed to enhance employee
competencies and strategic awareness so that internal business process are consistent
with desired objectives” [Beasley, Chen, Nunez & Wright, 2006, p. 50]. Further
support for attention to middle management involvement, empowerment, and their
performance is provided by Floyd and Wooldridge [1992, 1996, 1997, 2000].
According to Floyd and Wooldridge [1997], prior research58 has established that middle
management perform co-ordinating, mediating, and interpreting roles that link vertically
related groups within the organisation. Floyd and Wooldridge [1997] identified the
specific upward influence activities that may alter the organisation’s strategic course
and performance. Therefore, the performance of middle management is of importance
to this study because of its link to organisational performance established in these
mentioned studies and its nexus to the emphasis of modern management systems.
The discussion in the next three sub-sections will focus on three sets of relationships.
These three sets of relationships are discussed in the same sequence presented in Figure
1.1. Sub-section 2.3.1 reviews literature regarding the separate relationships between
different strategy types and managerial performance, which is the first set of
relationships illustrated in Figure 1.1. Initially, the discussion in sub-section 2.3.2
relates to relationships between different strategy types and organisational controls.
Middle management involvement and their empowerment in the decision process are
then reviewed for this dissertation as elements of the macro control mechanism,
structure, within a contingency framework. Research findings examined in that sub-
section are related to the second set of relationships illustrated in Figure 1.1. The
58 Floyd and Wooldridge [1997, p. 466] identify (1) Pugh, Hickson, Hinings, and Turner’s [1968] acknowledgement about middle managers’ linkage of related groups, (2) Likert’s [1961] comments that middle management are the ‘linking pins’ connecting the overall direction of members of the organisation, and (3) more than one source that recognised middle managers’ mediating role has an ability to influence significantly organisational strategy [March & Simon, 1958; Thompson, 1967].
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discussion will focus on the set of relationships between different strategy types and
involvement, as well as different strategy types and their empowerment.
In sub-section 2.3.3, a review is provided on literature related to the set of
relationships between middle management involvement and managerial performance as
well as their empowerment and managerial performance, which is the third set of
relationships shown in Figure 1.1. The subsequent discussion in that sub-section
contains comments on the possible separate mediating effect of involvement and their
empowerment on the relationships between different strategic priorities and managerial
performance.
2.3.1 Strategy and managerial performance
An extensive review of the literature found 39 studies that have included an
examination of the relationship between strategy and performance.59 However, only
three of these studies [Subramaniam, 1991; Maloney, 1996; Maloney & Mia, 1998]
have focused on managerial performance. This literature review result is consistent
with the conclusions of Shields and Shields [1998], Langfield-Smith [1997], and
Maloney and Mia [1998] that this relationship remains relatively unexplored.
Additionally, the results provide support for the more recent suggestion by Chenhall
[2003] that future research needs to focus on behavioural outcomes such as achievement
of their goals, i.e., managerial performance.
59 The literature review was conducted through manual and electronic searches of 26 academic journals, which are listed in Appendix C as well as the Google Scholar search engine function. These searches provided approximately 6,800 potentially related articles to the relationships relevant to this study. The three studies found to be relevant to this sub-section are included in Appendix C with other studies that have investigated the participation managerial performance relationship, which are relevant to the discussion in later sub-sections of section 2.3.
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Furthermore, the two studies focused only on prospector and defender firms as
defined in the model developed by Miles and Snow [1978]. The evidence provided in
the sub-sections of section 2.2 and Appendix B would suggest that further investigation
is warranted for this relationship using the more specific description of strategic
priorities as identified in prior studies and discussed in sub-section 2.2.5.
This study therefore will adopt the more specific description of strategic priorities
to investigate the direct relationship between the strategic priorities and managerial
performance.
2.3.2 Strategy and organisational controls
According to Miles and Snow [1978], strategy can impact upon the decision-
making functions of management. Covaleski et al [1996] identified accounting
researchers who have extended the contingency arguments to embrace relationships
between organisations’ strategies and their control systems’ design [Merchant, 1985;
Simons, 1987]. Many prior studies have used a contingent approach to search for
systematic relationships between a particular organisational strategy and specific
elements of MCS (e.g., Simons [1987, 1990], Govindarajan [1988], Govindarajan &
Fisher [1990], Fisher & Govindarajan [1993]).
Fisher [1998] developed a simple contingency control framework, from which an
extract is summarised in Figure 2.4 to illustrate the components to this framework
relevant to this dissertation. He developed his framework to provide an extended list of
organisational control packages and outcomes that were beyond the boundaries
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investigated by past studies into this research stream for the purpose of providing future
research with guidance to strengthen contingency theory results.60
Figure 2.4: Contingency Control Framework Source: Extracted, adapted and summarised from Figure 2 in Fisher [1998, p. 54]
2.3.2.1 Structure: An organisational macro control of MCS
Three early contingency framework studies identified structure as a contingent
variable [Burns and Stalker, 1961; Woodward, 1965; Lawrence and Lorsch, 1967].
They described the strategy formulation process as structural organic or its opposite
mechanistic, with the former involving decentralised decision making and the latter
centralised decision making. Authors of subsequent studies have described these macro
control variables by several titles.61 Otley [1980] observed that research at that time had
tended to rely on a few very general variables to explain organisational structure, which
he argued were ill-defined and measured inconsistently across studies leading to
fragmented results.
60 Fisher [1998] included structure, culture, human resource management and ‘other mechanisms’ in addition to cybernetic systems in organisational control packages and effectiveness, efficiency, satisfaction as well as ‘other outcome variables’ in organisational outcomes. 61 Some examples of these various titles for these macro control variables (e.g., Burns and Stalker [1961] mechanistic (formal bureaucratic) and organic (less formal more flexible); Bruns and Waterhouse [1975] used “administrative” and “interpersonal”; Hopwood [1976] used “administrative” and “social”; Ouchi and Maguire [1975] & Ouchi [1977] “output controls” and “behaviour (input) controls”.
Contingency Variables
Organisational Controls
Organisational Outcomes
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Since Otley’s [1980] review article, Chenhall [2003, p. 129] identified several
commentators (e.g., Fisher [1995, 1998], Covaleski at al [1996], Chapman [1997]) that
“have provided critiques of contingency research in management accounting based on
their perceived shortcomings of the prior studies.” For example, Fisher [1995] listed the
macro control variables used by prior studies to classify and describe control systems.
However, he argued that the attributes for these macro control variables merely
“describe the general orientation of the control system rather than specific control
components” [Fisher, 1995, p. 28]. Chapman [1997] reviewed three early contingency
framework studies,62 and acknowledged structure as an important variable within the
contingency framework to identify a means of encouraging desired actions. However,
he states that “it is the act of adjustment and understanding which drives the success or
otherwise of the approach. Thus structure might be seen as a proxy for communication,
not a solution in its own right” [Chapman, 1997, p. 198]. These comments by Chapman
[1997] would seem consistent with comments by Fisher [1995].
Chenhall [2003] states that a further criticism of management accounting
contingency-based research is the focus on accounting controls, which Otley [1994] and
Chapman [1998] argued form only part of the broader MCS.63 While the results of
research that has an accounting controls focus will build on the existing area of study,
Chenhall [2003] states that identifying and studying the role of emergent aspects of
MCS is necessary for MCS research to remain relevant. Also of concern to Chenhall
[2003] is the limited replication of studies that explored important emergent areas of
MCS, such as personal, strategic interactive and administrative controls.
62 Chapman [1997] reviewed papers by Burns and Stalker [1961], Woodward [1965], and Lawrence and Lorsch [1967]. 63 Chapman [1998] argues that even when organisations employ formal accounting controls, such controls may occur within social network situations involving intense verbal communication.
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According to Chenhall [2003], a way to address these concerns is to identify the
elements of control taxonomies that relate to various aspects of MCS. As an example,
he used the control taxonomy that classifies controls as organic or mechanistic
structural forms of MCS. Chenhall [2003] provides a list of elements of MCS and
control types found in prior studies grouped into either organic or mechanistic forms of
MCS, based on their nature.64 In the following sub-section, elements of these organic-
mechanistic structural forms of MCS will be identified and discussed.
2.3.2.2 Elements of the macro control — Organic-Mechanistic structural forms of
MCS
Some of these elements of structure which have been classified by Chenhall [2003]
as a more organic form of MCS include personnel controls (e.g., Merchant [1985]),
strategic interactive controls (e.g., Simons [1991, 1995]) while others are classified as
more mechanistic including interpersonal controls (e.g., Bruns & Waterhouse [1975]).
While Chenhall [2003] provides an extensive list of elements as an example for his
discussion, it must be recognised that only some elements classified in these prior
studies appear in his list of elements. For example, Bruns and Waterhouse [1975]
include not only interpersonal controls, which they related to lack of autonomy and
pressure inducing actions by superiors through a centralised decision-making structure
to be more mechanistic forms of MCS, but also administrative controls. They related
the administrative controls to a decentralised flexible decision-making structure where
managers perceive they have greater autonomy, control, and influence over behavioural
outcomes through their involvement.
64 These organic to mechanistic dimensions have their foundations in contingency research conducted by Burns and Stalker [1961], Lawrence and Lorsch [1967], and Khandwalla [1977]. There appears to be a typing error in Chenhall’s [2003] Table 1 because the term ‘Interpersonnel’ is used to describe Bruns and Waterhouse’s [1975] more mechanistic form of MCS whereas the original term used by these researchers is ‘Interpersonal’.
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Therefore, personnel, strategic interactive, and administrative controls identified,
respectively, by Merchant [1985], Simons [1991, 1995] and Bruns and Waterhouse
[1975] have common decentralised control elements. Literature links these common
elements to the amount of decision-making authority delegated to middle management,
which leads to their greater autonomy, control, and influence over behavioural
outcomes through their involvement as well as greater communication and information
flow [Burns & Stalker, 1961; Govindarajan, 1988; Drazin & van de Ven, 1985;
Emmanuel et al, 1990; Selto, Renner & Young, 1995]. The impact on middle
management’s level of competency through their learning process from the performance
feedback mechanism may be deduced from supporting discussion by Selto et al [1995]
and the research method they used.65 Such discussions and actions by these researchers
suggest that involvement as a control element and their experience with the selected
performance feedback mechanism should impact on their competency, which is
achieved through their learning process.
Autonomy, influence and competence are dimensions of psychological
empowerment [Sparrowe, 1994; Spreitzer, 1996; Sagie & Koslowsky, 2000; Savery &
Luks, 2001; Ashcroft & Kedrowicz, 2002]. Otley [1999, p. 366] considered that further
MCS research into employee empowerment is needed to provide better information
about the link between this variable and performance management as it is one “of the
central issues of modern management and management accounting practice.”
Therefore, there are two control elements of the strategic decision process over
behavioural outcomes that will be the focus of this study. The first control element will
65 Beasley et al [2006] argued that the objectives of the BSC learning and growth perspective are designed to enhance employee competence, which is a dimension of psychological empowerment.
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be middle management involvement66 in the strategic decision process. Middle
management’s empowerment (through their autonomy, influence, and competence) is
the second control element.
According to Fisher [1995], using the higher level of analysis complexity, such as,
examining the relationship of strategy with more than one control mechanism variable,
will provide a clearer understanding of how organisations use these control mechanisms
to achieve goals.67. When Fisher’s [1998] contingency control framework (as illustrated
in Figure 2.4 within sub-section 2.3.2) is considered in conjunction with the discussion
in this sub-section,68 a more contemporary set of control elements and a specific
outcome should be considered in this study. The inclusion of these control elements
follows Chenhall’s [2003] suggestion to integrate further cognitive aspects of
psychology theory because an understanding of further cognitive issues should be useful
in advancing future contingency-based frameworks.69 The inclusion into the study of
involvement and empowerment as control elements seems warranted by such
conclusions and comments.
66 Langfield-Smith [1997] stated that MCS must be viewed as playing a supportive role within the strategic decision process. She suggested that a choice of interactive MCS, such as developed by Simons [1991,1995], may be useful as guidance with the strategic decision process because it forces management’s personal involvement, their intimacy with issues, and their commitment. 67 Fisher [1995] described the correlation analysis of a single contingent and control variable without considering the relationship with an outcome variable as a level 1 analysis while a level 2 analysis includes the effect of the contingency-control interaction on an outcome variable. According to Fisher [1995, 1998] prior research that has looked at either level 1 or 2 analysis is unlikely to advance an understanding of control mechanisms. He categorised the higher level of analysis complexity into levels 3 and 4, which he differentiated by describing level 3 as involving one contingent variable and more than one control mechanism while level 4 analysis complexity involves more than one contingent and control mechanism variable. 68 The comments by Fisher [1995] and Chenhall [2003] should be considered especially about the use of contemporary controls in future research. Fisher’s [1995] comments were related to the limitation for macro control variables’ attributes that were used in prior studies while Chenhall [2003] elaborated on the numerous elements within each attribute of the organic or mechanistic macro control variables. 69 Chenhall [2003] identified a number of individual characteristics used in prior research, such as personality and cognitive styles that had been relevant and useful to understanding MCS.
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Prior research will be examined in the sub-sections 2.3.2.2.1 and 2.3.2.2.2 that
investigated the relationship between different strategy types and middle management
involvement as well as between different strategy types and their empowerment.
Middle management involvement and their psychological empowerment have been
described by Rajagopalan et al [1993] as two strategic decision process characteristics.
In this dissertation, these two strategic decision process characteristics represent
elements of the macro control mechanism, structure, within a contingency framework.
In sub-section 2.3.3, the discussion will focus on research that has examined the effect
of involvement and their empowerment on managerial performance.
2.3.2.2.1 Strategy and involvement of middle management in the strategic decision
process
The terms employee “involvement” and “participation” are used
interchangeably in the literature reviewed. An example of the use of these two terms in
past management accounting research can be illustrated by the following description of
budgetary participation as relating “to the involvement of managers in the budgetary
process and their influence over the setting of the budget targets” [Subramaniam &
Ashkanasy, 2001, p. 36]. A number of management accounting behavioural researchers
have included budgetary participation in their contingency-based studies.70 However, a
limited number of management accounting studies examined the relationship between
strategy and middle management’s participation in the budgeting decision process only
(e.g., Ezzamel [1989], Maloney [1996]).
70 Studies that have used managerial participation (e.g., Brownell, 1982; Chenhall & Brownell, 1988; Mia 1988; Lai, Dunk & Smith 1996) are examples where this variable has been examined in prior studies, which was described as the middle managers’ degree of perceived involvement in budget setting.
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As a consequence, these studies generally have used Milani’s [1975] six-item
measure of budgetary participation.71 Macy and Arunachalam [1995] stated that new
styles of strategy decision making have emerged from organisations, which rely on
employee participation beyond the budgetary setting process. These comments appear
to be consistent with criticism about the restricted focus of past management accounting
contingency-based research on accounting controls as applied to the budgetary process,
because such controls form only part of the broader MCS; as mentioned in sub-section
2.3.2.1 [Otley, 1994; Chapman, 1998; Chenhall, 2003].
Therefore, while these past studies provide a significant contribution to the
body of knowledge about budgetary participation, their findings do not provide any
information about the involvement of middle management in a broader range of strategy
decisions.72 As a consequence of these comments, an investigation into the relationship
between strategy and involvement in a broader range of strategy decisions appears
warranted because it represents a part of the most important new stream of literature to
maintain the relevance of MCS contingency-based research [Chenhall, 2003].
Management literature has examined the relationship between strategy and
middle management involvement that captures the broader set of middle management
activities within the strategic decision process (e.g., Floyd & Wooldridge [1992],
71 Milani’s [1975] six-item measure of budgetary participation require respondents to indicate their level of (a) activity in setting the budget (all of the budget to none of the budget), (b) consultation in the form of the superior’s reasoning for any budget revisions (very sound/logical to very arbitrary/illogical), (c) frequency they are able to provide to their superior unsolicited opinions or suggestions about the budget (very frequent to never), (d) influence on final budget (very high amount to none), (e) importance of their contribution to the budget (very important to very unimportant), and (f) frequency their superior seeks their opinions or suggestions about the budget when it is being set (very frequent to never) [Brownell, 1979, Appendix 6, p. 122]. 72 For example, in addition to the traditional accounting techniques, Chenhall and Langfield-Smith [1998] examined a range of techniques and management accounting practices relevant in today’s Australian business environment in their study, which included strategic decisions about human resource management policies, integrating systems, quality systems, benchmarking, strategic planning, balanced performance evaluation measures.
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Ashmos & McDaniel [1996]).73 However, these two example studies have adopted
different strategy models and provided inconsistent findings.
Floyd and Wooldridge [1992] adopted three of the four alternative forms of
adaptive behaviour adopted by different organisations described by Miles and Snow
[1978].74 They found that three of their four measures of middle management
involvement differ significantly in prospector firms compared to middle management
involvement in analyser or defender firms. Ashmos and McDaniel [1996] adopted
Porter’s [1980] cost leadership and differentiation dichotomy to investigate the
relationship strategy and involvement of middle managers. They found participation in
decision making to be a function of the organisation’s strategy type with participation
more extensive in organisations adopting a cost leadership strategy compared to
organisations choosing a differentiation strategy.
However, Kumar and Subramanian [1997/1998] aligned prospector from Miles
and Snow [1978] with differentiator from Porter [1980] and aligned defender from
Miles and Snow [1978] with cost leadership from Porter [1980].75 Based on this
alignment argument, Ashmos and McDaniel’s [1996] findings are inconsistent with
those of Floyd and Wooldridge [1992]. The difference between these results may be
due to the following two reasons. Firstly, the method used to establish the cost
leadership and differentiation dichotomy by Ashmos and McDaniel [1996] may, in part,
73 Both studies recognised that middle management’s involvement in strategy decisions includes the following activities: identifying/raising issues, clarifying problems, generating and evaluating alternatives, choosing/implementing an alternative. 74 Floyd and Wooldridge [1992] classified firms as prospectors, analysers or defenders in their study. 75 Kumar and Subramanian [1997/1998] based their alignment of these descriptions of strategy on arguments related to similarities in competitive characteristics. These alignments are presented in Table 2.1 and discussed in sub-section 2.2.4.
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have contributed to the inconsistent results.76 Secondly, the trichotomy of strategy used
by Floyd and Wooldridge [1992] may provide more information than the use of the
prospector-defender dichotomy. Thus, the alignment argument by Kumar and
Subramanian [1997/1998] is based on descriptions of strategy that are too broad. This
deduction is consistent with the evidence provided in the sub-sections of section 2.2, as
well as Appendices A and B. Therefore this discussion of prior results provides further
support for the need to investigate this relationship using the more specific description
of strategic priorities as identified in prior studies and discussed in sub-section 2.2.5.
More recently, Bayo-Moriones and Merino-Diaz de Cerio [2004] found a
statistically significant relationship between a quality strategic priority and employee-
involvement practices.77 This finding provides further support for the evidence in sub-
section 2.2.5 that the use of more descriptive dimensions of a differentiation strategy are
warranted in future studies. This study therefore will adopt the more specific
description of strategic priorities to investigate the relationship between the strategic
priorities and involvement in a broader range of strategy decisions than the budget
setting process.
2.3.2.2.2 Strategy and psychological empowerment of middle management in the
strategic decision process
Early studies that examined the construct empowerment (e.g., Kanter [1983])
considered it to be a management technique to motivate employees by delegating or
76 Although they used the twenty-item instrument developed by Dess & Davis [1984], Ashmos and McDaniel [1996] used an aggregated score to dissect participant organisations into a cost leadership and differentiation dichotomy. The use of this dichotomy with a broad description of the differentiation strategy appears to be inevitable because Ashmos and McDaniel [1996] have followed Dess and Davis [1984], who ignored significant factors in their analysis beyond Porter’s broadly described typologies (see sub-section 2.2.5.2.2). 77 Bayo-Moriones and Merino-Diaz de Cerio [2004] investigated the relationship between the adoption of quality management strategy and employee involvement practices.
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sharing power with these employees.78 However, the implication of receiving power and
control is that those to whom power and control is given should be more likely to
achieve the desired outcomes [Conger & Kanungo, 1988]. Thus, Conger and Kanungo
[1988] identified that shortcomings of earlier studies was the inappropriate focus placed
on power and control as the constructs for empowerment. To overcome these
shortcomings, Conger and Kanungo [1988] expanded the empowerment process to one
of an “enabling” process by defining it in terms of motivational processes in employees.
They achieved this by extending Bandura’s [1986] work with self-efficacy by arguing
that when an employee is empowered then that person’s self-efficacy (or competence)
expectations are strengthened.79
Thomas and Velthouse [1990] extended the work by Conger and Kanungo
[1988] into a psychological model of empowerment by placing “emphasis on
empowering management practices that foster internal (intrinsic) motivation of
employees.” [Philamon, 2003, pp. 17-18, parenthesis added]. Therefore Spreitzer
[1996] described Thomas and Velthouse’s [1990] psychological empowerment as a
multidimensional construct that includes autonomy and influence as well as
78 Menon [2001, p. 157] described Kanter’s [1983] use of the term empowerment to refer to the act of granting power to the employees being empowered. 79 Self-efficacy is a term used interchangeable in research with White’s [1959] ‘competence’ dimension because it refers specifically to work and a belief that one feels capable of performing the activities. The use of the term is based on personal mastery or effort-performance expectancy theory [Lawler, 1973; Bandura, 1989].
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competence.80 The multi-dimensional latent variable psychological empowerment
should be viewed as a separate construct because it has been ascribed a meaning that is
different from the terms “involvement” and “participation”.81
However, psychological empowerment is a relatively new concept with regard
to organisational research [Savery & Luks, 2001]. As a result, the majority of the
management accounting articles reviewed appear to have not considered empowerment
and have limited the scope of studies to the budgetary decision process. Where
management accounting and management articles in the review have considered
empowerment beyond the budgetary decision process, empowerment has been
examined without specifically investigating any of its dimensions (e.g., Johnson [1992],
Simons [1995], de Macedo-Soares & Lucas [1995], Carr, Mak & Needham [1997],
Fullerton & McWatters [2002]). That is, although these theoretical and empirical-based
articles may have used the overall psychological state of empowerment as a construct,
the authors have not identified and analysed, specifically, the autonomy, influence or
competence dimensions of this psychological state of empowerment construct as an
alternative approach.
80 Autonomy reflects how employees consider their level of control over their own work behaviour while influence relates to the degree a staff member can influence strategic, administrative or operating outcomes at work. Different researchers have used the following terms to describe the dimensions of the psychological empowerment concept. The dimension ‘autonomy’ has been used interchangeably with ‘control’ and ‘self-determination’; ‘influence’ has been used interchangeably with ‘power’ and ‘impact’; and ‘competence’ has been used interchangeably with ‘self-efficacy’. Two additional dimensions of psychological empowerment have been suggested by researchers; meaningfulness by Spreitzer [1995] and goal internalisation by Menon [1999, 2001]. Empirical evidence has found that meaningfulness is associated with work satisfaction not work effectiveness (e.g., Spreitzer et al [1997]) and goal internalisation was found by Menon [2001] to be related to organisational commitment. As both these attitudinal outcomes are outside the scope of this study neither dimension has been considered appropriate for this study. 81 According to Menon [2001], the process of granting power to employees (which may be called participation, involvement or Kanter’s [1983] empowerment) leads to employees’ experience of power. The psychological empowerment construct relates to this experience of power and is “a psychological state that manifests itself as cognitions that can be measured (e.g., Spreitzer [1995])” [Menon, 2001, p.157].
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The management accounting and management literature will be reviewed in the
following sequence. Firstly, the discussion will review management accounting studies
that focus on the budgetary decision process. This discussion will be followed by
appraisal of findings from past management accounting articles that have considered the
relationship between strategy and empowerment beyond the budgetary decision process.
Empirical evidence will then be reported from management and applied psychology
literature about the association between strategy and empowerment.
Numerous past management accounting studies have examined participation in
the budgeting decision process (e.g., Brownell [1979, 1982, 1985], Mia [1984], Nouri &
Parker [1998]). Many of these studies have used Milani’s [1975] 6-item measure of
participation, which Brownell [1979] argued included questions that relate to increased
influence and involvement as aspects of autonomy that are key components for
budgetary participation.82 Although Brownell [1979] used Milani’s [1975] 6-item
measure of participation in budgeting and his final rotated factor analysis produced two
factors, many subsequent management accounting studies have treated participation as a
unidimensional variable. As a consequence, the findings of these past management
accounting studies have made a valuable contribution to the body of knowledge about
the overall impact of autonomy and influence of participation within the budgetary
setting process.
However, their use of a unidimensional variable has limited their findings
because they neither provide any information about the separate impact of autonomy,
82 To demonstrate his opinion, Brownell [1979, p. 60] used Hofstede’s definition of autonomy as the “degree to which a person within an organization’s system is able to affect his own actions” [Hofstede, 1967, p. 13]. He argued that such a definition related to actions not influence on decisions and therefore he described autonomy alone as “influence without involvement and should be distinguished from participation” Brownell [1979, p. 61].
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influence, or competence of middle management nor relate such separate impact to a
broader range of strategy decisions. Chenhall [2003] argued that information about
such a broader strategic decision process represents a part of the most important new
stream of literature with which to maintain the relevance of MCS contingency-based
research. As a corollary of this limited information provided by prior management
accounting studies and Chenhall’s [2003] argument, an investigation appears warranted
into the relationship between different strategic priorities and the dimensions of middle
management’s empowerment in a broader range of strategy decisions.
Several management accounting studies have examined different strategy types
and empowerment. For example, Lind [2001] adopted a case study approach for an
examination of an organisation that had a world class manufacturing (WCM)
philosophy.83 He compared his results to both theoretical discussions about the quality
strategy-empowerment relationship previously published by Johnson [1992] and
Simons [1995] as well as results of a case study by Ezzamel and Willmott [1998].
Lind’s [2001] conclusions are important for two reasons. Firstly, he identified from his
results that empowerment is a key element in the new mode of control, which is similar
to arguments by Johnson [1992] and Simons [1995]. Secondly, he used the findings of
Ezzamel and Willmott [1998] to highlight the fact that an emphasis on empowerment is
useful only when employees want to be empowered.84 Lind’s [2001] conclusions
implicitly support the examination of the autonomy, influence or competence
dimensions of psychological empowerment in further research.
83 Lind [2001] recognised WCM as one of the broadest production philosophies that included product innovative-quality strategic priorities. 84 Lind [2001] conducted a comparison between his findings and the results of Ezzamel and Willmott [1998]. He identified from the findings from both his study and prior research the need for employees to be willing to accept empowerment implying that a psychological state of empowerment is required for successful implementation. This is consistent with the comments by Menon [2001, p. 173] that “(a)n empowered employee is one who ‘possesses the attributes of empowerment’, that is, he or she is in a state of empowerment”.
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Other accounting studies have examined a product and service quality strategic
priority and empowerment relationship [Carr et al, 1997; Fullerton & McWatters,
2002]. These studies have produced inconsistent results compared to the theoretical and
empirical results mentioned in the previous paragraph. For example, Carr et al [1997]
found no significant difference between the extent to which empowerment applied to
ISO accredited organisations compared to non-ISO accredited organisations (i.e.,
product and service quality strategic priority organisations to cost strategic priority
organisations). However, they used the International Organisation for Standardisation
(ISO) to dichotomise organisations into either product and service quality strategic
priority or cost strategic priority categories. Therefore in light of the discussions
contained in section 2.2 as well as Appendices A and B, it appears their findings have
been the result of the study selecting an inappropriate quality and cost strategy
dichotomy.85
Furthermore, Fullerton and McWatters [2002] found that empowerment was
not significantly associated with the implementation of a just-in-time (JIT)/product
quality strategy, which they recognise is inconsistent with an earlier study [Wruck &
Jensen, 1994]. While they suggested the results may be due to the top-down nature of
the JIT component of organisations’ practice, their use of a single-item measure for
what appears to be the overall psychological state of empowerment approach may
85 Carr et al [1997] used ISO accredited organisations and non-ISO accredited organisations as proxies for organisations adopting quality strategy and cost-oriented strategy. The use of these proxies is inappropriate not only due to the earlier discussions in this chapter but also because Langfield-Smith Thorne and Hilton [2003, p. 793] argue that ISO accredited organisations do not necessarily practice total quality management (TQM), which for the purposes of this study relate to a product and service quality strategic priority.
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contribute, in part, to this unexpected result.86
Consequently, the results reviewed from these three management accounting
studies [Lind, 2001; Carr et al, 1997; Fullerton & McWatters, 2002] provide support for
the adoption of more descriptive specific strategic priorities, as well as and dimensions
of the psychological state of empowerment as an alternative approach. That is, the
incorporation of more descriptive specific strategic priorities together with the use of the
autonomy, influence or competence dimensions of psychological empowerment to
expand an examination of the strategy-empowerment relationship appears warranted in
further research.
Theoretical discussion and empirical evidence contained in management and
applied psychology literature support an association between strategy and
empowerment [de Macedo-Soares & Lucas, 1995; Sundbo, 1996; Wall, Cordery and
Clegg, 2002]. However, management and applied psychology studies contain similar
limitations identified in these three reviewed management accounting studies [Lind,
2001; Carr et al, 1997; Fullerton & McWatters, 2002]. For instance, Sundbo [1996]
theorised a difference between empowerment and Porter’s cost leadership strategy
relationship compared to an innovation strategy and empowerment association.
However, his analysis of empirical findings of a number of earlier case studies focused
on firms adopting an innovative strategy.
86 The single-item asked participants to indicate on a five-point scale (1 = not an all; 2 = little; 3 = partially; 4 = considerably; 5 = fully) “how much are line managers and non-management personnel empowered to make decisions?” [Fullerton & McWatters, 2002, p. 732]. Also, Menon [2001, p. 155] argues that an “understanding of the empowerment construct would also be advanced by…Multiple measures. Cook and Campbell [1976] called for multiple measures of a given construct to…help in gaining a better understanding of the construct”.
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Another issue is the possible difference in the strategy-empowerment
relationship between countries. In their study, de Macedo-Soares and Lucas [1995]
found the relationship between quality strategy and empowerment existed in both US
and Brazilian firms but the level of empowerment was much lower in Brazilian firms.87
The possibility of different relationships between quality strategy and empowerment in
different countries is an implication from their results. This phenomenon may be due to
a number of reasons including market size. The literature review did not locate any
management accounting research that has examined the relationship between quality
strategy and psychological empowerment within the smaller Australian market.
Therefore the findings by de Macedo-Soares and Lucas [1995] suggest that
investigations are warranted into this relationship for the Australian business
environment.
The discussion in this sub-section identifies management, applied psychology,
and management accounting research that has examined aspects of the strategy-
empowerment relationship. Results identify empowerment as a key element of the new
mode of control mechanism. These management studies have extended the scope of
their investigations to aspects of the strategic decision process, which is beyond the
budgetary setting process examined in prior management accounting research.
However, the discussion in this section related to an extensive literature review which
has found limitations in the scope of the investigations conducted by many of the
management and management accounting journal articles. For example, some studies
have focused on a single strategic priority, specifically the quality strategy, and overall
act of empowerment association. Alternatively, other research has focused on the broad
87 This evidence about the relationship between quality strategy and empowerment is consistent with Wall et al’s [2002] theoretical discussion for an associate between an innovative product and service quality total quality learning (TQL) strategy and empowerment.
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descriptions of strategy and overall act of empowerment association. That is, the
literature review did not locate any management accounting research that has examined
the relationship between each of the more descriptive strategic priorities and dimensions
of psychological empowerment.
The inclusion into the study of psychological empowerment, as an identified
important element of the new mode of control mechanism, seems warranted due to the
limited scope of studies that have examined empowerment, which has been ill defined
in past studies reviewed. Therefore this study will examine the relationship between
each of the strategic priorities identified as dimensions of differentiation strategy as well
as cost leadership strategic priority and dimensions of psychological empowerment.
The three identified dimensions of psychological empowerment in this sub-section are
middle management’s psychological empowerment related to their experience with
influence, autonomy, and competence.
The discussion provided in sub-section 2.3.2 relates to the broad contingency
framework strategy-organisational controls relationship suggested by Fisher [1998] that
is illustrated in Figure 2.4 at the beginning of this sub-section. The discussion
contained in this sub-section concerns middle management involvement and
empowerment, which are identified as two specific elements of structure; an
organisational macro control. This evolution from macro control to specific elements of
control is represented as the first and second components of the model illustrated in
Figure 2.5. The model in Figure 2.5 is an adapted and simplified version of
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Rajagopalan et al’s [1993]88 model that includes organisational structure as an
antecedent to involvement and empowerment decision process characteristics.
Figure 2.5 Strategic Decision Processes: An Integrative Contingency Control Framework
In addition to the elements of control discussed in sub-section 2.3.2, the second
and third components of the model in Figure 2.5 illustrate the focus of the discussion for
sub-section 2.3.3. The specific description of these two components in Figure 2.5
expand on the second and third components of Fisher’s [1998] broad contingency
control framework illustrated in Figure 2.4. Sub-section 2.3.3 reviews, separately,
literature that examined the relationship between involvement and managerial
performance, as well as between empowerment and managerial performance. In
addition to these separate relationships, the discussion for each control element will
consider the mediating effect of that control element on the strategy-managerial
performance relationship.
88 Rajagopalan et al’s [1993] developed an integrative framework including the strategy-strategic decision process characteristics relationship, as well as the strategic decision process characteristics-performance relationship after their review of prior research (e.g., Segev [1987], Robinson & Pearce [1988], Eisenhardt [1989], Wooldridge & Floyd [1990], Floyd & Wooldridge [1992]).
Organisational Macro Control
• Structure: - Organic-Mechanistic
structural control forms
Macro Control Factor Elements Strategic Decision Proc- Middle management Involvement and Psychological Empowerment
Organisational Outcome
• Performance Outcome:- Man
gerial Performance
Source: Summarised and adapted from Rajagopalan et al [1993, Fig 1, p. 352]
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2.3.3 Effects of elements of the control mechanism on managerial performance
Fisher [1998] included ‘other outcomes’ as well as organisational outcomes in his
contingency control framework. Fisher [1995] identified that most contingency-based
research has examined only organisation level performance outcome and he suggests
that future research should explore the effect of elements of macro control mechanisms
on ‘other outcomes’. As mentioned in sub-sections 2.3.2.2.1 and 2.3.2.2.2, research
supports involvement and empowerment as key elements of the new mode of control
mechanism. Vandenberg, Richardson and Eastman [1999] suggested the effect of
involvement on individual performance should be investigated for future studies.
Managerial performance, therefore, will be examined in this study as one of Fisher’s
[1998] ‘other outcomes’.
Middle management involvement and empowerment separate relationships with
managerial performance will be discussed initially in sub-sections 2.3.3.1 and 2.3.3.2.
Floyd and Wooldridge [1992, 1994, 1997] have provided empirical evidence that
identifies middle management as playing a mediating role in the performance of
organisation. It therefore may be argued that their involvement may have a meditating
effect on their behavioural outcome, their own performance. Research has found that
some dimensions of psychological empowerment have a mediating effect on
effectiveness (e.g., Liden, Wayne & Sparrowe [2000]).
There are additional reasons for considering the mediating effect of these two
decision process characteristics. Firstly, consideration is given to the theoretical
relationships between strategy types and middle management involvement as well as
between strategy types and middle management’s empowerment as discussed in sub-
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sections 2.3.2.2.1 and 2.3.2.2.2. Secondly, consideration is given to the suggestion by
Gerdin and Greve [2004, p. 310] that where such strategy types and MCS design are
theoretically related then “only the mediation model can be applied in order to find out
whether fit exists or not”.89 Therefore the mediating effect of involvement and
empowerment also will be considered at the end of each discussion in the next two sub-
sections.
2.3.3.1 Involvement of middle management and managerial performance
Management literature has examined the effect of middle management
involvement in the strategic decision process on organisational performance (e.g., Floyd
& Wooldridge [1992, 1994, 1997], Wood [1999]). Two articles have conducted meta-
analyses to examine the results of previous studies that investigated participation and
outcomes [Cotton, Vollrath, Froggatt, Lengnick-Hall & Jennings, 1988; Wagner,
1994].90 Various levels of (organisational and individual) and types of (satisfaction,
effectiveness, and productivity performance) outcomes were examined in the meta-
analyses by Cotton et al [1988] and Wagner [1994] because they analysed, respectively,
the results of 91 and 52 past studies. However, both studies labelled all outcomes,
regardless of the level or type, as performance.
89 Gerdin and Greve [2004] provided a critical review of the forms of contingency fit in management accounting research. These authors reviewed investigations undertaken into the mediating effect of variables on performance, as the dependent variable. Such investigations were categorised by these authors as the mediation contingency fit form within the Cartesian approach to contingency fit research. They provided an illustration of these forms of fit in Figure 1 on page 304 of their article. Additionally, they concluded that where strategy and controls within the MAS (e.g., the budgetary decision process examined by Chong & Chong, 1997) are theoretically related, these variables should be depicted in a mediating model. 90 In sub-section 2.3.2.2.1, it was mentioned that the terms employee “involvement” and “participation” were used interchangeably in the literature reviewed. Therefore the term as used in the original article under discussion has been used in this sub-section.
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After reviewing the results of 91 past studies, Cotton et al [1988] found that the
effect of participation in the strategic decision process on performance differed
according to the form of participation. In particular, participation providing managers
with a great deal of influence in decisions was associated with increased performance,
which was not present for consultative participation where managers had lower levels of
influence. Wagner [1994] examined 52 articles and his results supported only a
statistically significant but small relationship between participation in strategic
decisions and performance.91 Consequently, both studies found some relationship
between participation in strategic decisions and performance irrespective of the level or
type of outcome. More recently, Bayo-Moriones and Merino-Diaz de Cerio [2004]
found a significant relationship between middle management involvement and
operational performance.92
From evidence reviewed in the previous paragraph, the level of middle
management involvement in the decision process has a positive and statistically
significant effect on performance. However, limited specific evidence is available on
the ‘middle management involvement in the decision process-managerial performance’
relationship. Research into this specific relationship is important due to the high
emphasis placed on the involvement of middle management by modern management
systems, such as BSC. Therefore an examination of this specific relationship appears
warranted in further research.
Some studies have investigated the interaction of involvement with other
variables. However, a review of the literature did not produce any study that has
91 Wagner [1994] reported that performance was defined in terms of individual-level performance for most of the research he reviewed. 92 Bayo-Moriones and Merino-Diaz de Cerio [2004] measured operational performance by using four subjective measures that reflected the basic objectives of the strategic unit, which were productivity, product quality, on-time delivery, and flexibility.
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examined the mediating effect of involvement on any strategy-managerial performance
relationship. The lack of investigation into the mediating effect of middle management
involvement in the decision process on any strategy-managerial performance
relationship is surprising for two reasons. Firstly, literature has indicated that modern
management systems place a high emphasis on middle management involvement in the
decision process [Kaplan and Norton, 2001a]. Secondly, empirical evidence has
identified that middle management’s co-ordination, mediation, and interpretation roles
may alter performance through their strategic involvement [Floyd and Wooldridge,
1992; 1994; 1997]. This study therefore will include an investigation of the mediating
effect of involvement on the relationship between each strategic priority and managerial
performance.
In the next sub-section the discussion will focus on the relationship between
empowerment and managerial performance as well as empowerment’s mediating effect
on managerial performance.
2.3.3.2 Psychological empowerment of middle management and managerial
performance
Research has reported findings that support the significant positive effect of
psychological empowerment on middle management’s performance or other
empowered behaviours (e.g., Thomas & Velthouse [1990], Spreitzer [1995], Spreitzer et
al [1997], Robins, Crino & Fredendall [2002]).93 While some studies did not find the
93 Job effectiveness is the empowered behaviour used by Spreitzer [1995] as well as Thomas and Velthouse [1990] while Robbins et al [2002] included the personal initiatives of the manager such as refining the process or improving the product.
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same level of significance for each dimension, in general, the results showed a positive
significant effect.
An extensive literature review located only two studies that have examined the
mediating effect of psychological empowerment [Liden et al, 2000; Hall, 2004].
However, neither of these studies examined the mediating effect of psychological
empowerment on any strategy-managerial performance relationship.94 Liden et al
[2000] found both impact (< .1) and competence (< .01) have a significant mediating
effect while Hall [2004] found self-determination, impact and competence had no
significant effect.95
These inconsistent results may have occurred for two key reasons. Firstly, the
studies look at psychological empowerment’s mediating effect on the relationship
between different variables and performance. The deduction from such an explanation
should be that dimensions of psychological empowerment have a varying mediating
effect contingent upon the relationship. Secondly, Liden et al [2000] analysed data
from 337 employees of a large US service organisation and followed a series of three
regression analyses to assess the mediating effect of the empowerment dimensions.
Compared to this research method, Hall [2004] conducted a structural equation model
(SEM) for 83 responses from Australian manufacturing organisations, which is an
inadequate sample size to find significant effects [Tabachnick & Fidel, 2001]. Thus, it
may be deduced from this explanation that dimensions of psychological empowerment
94 Liden et al [2000] examined the mediating role of psychological empowerment on the information exchange-work outcomes relationship while Hall [2004] investigated the mediating role of psychological empowerment on the comprehensive performance measurement system-managerial performance relationship. 95 In footnote 69, it is noted that different researchers have used the following terms to describe the dimensions of the psychological empowerment concept. The dimension ‘autonomy’ has been used interchangeably with ‘control’ and ‘self-determination’; ‘influence’ has been used interchangeably with ‘power’ and ‘impact’; and ‘competence’ has been used interchangeably with ‘self-efficacy’.
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have a similar mediating effect on the relationship, but the small sample size caused the
non significant results.
Although neither study examined the relationship between strategy and
managerial performance, the motivation for their investigation was the lack of support
for a direct relationship between their selected variables and performance. The
literature reviewed for this section has determined that there is a paucity of research into
the relationship between strategy and managerial performance. This lack of empirical
attention to this relationship exists even though there is evidence of a relationship
between strategy and organisations performance as well as empowerment and
performance. It is possible, therefore, that the examination of cognitive and
motivational elements of a control mechanism (as suggested by Chenhall [2003]) may
help explain the overall direct and indirect contingency effect of strategy on managerial
performance. Therefore, the evidence provided in the discussion warrants this study
also investigating the mediating effect of empowerment on the relationship between
strategic priorities and managerial performance.
2.3.4 Summary of elements of the control mechanism on managerial
performance
Sub-sections 2.3.3.1 and 2.3.3.2 presented research findings supporting the
existence of a set of relationships. The relationships supported are, firstly, between
involvement and managerial performance, and secondly, between empowerment and
managerial performance. These relationships follow the adapted and simplified version
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of Rajagopalan et al‘s [1993]96 model illustrated in Figure 2.5 (sub-section 2.3.2.2).
The Figure 2.5 incorporates the second and third components of Fisher’s [1998]
contingency control framework summarised model shown in Figure 2.4 (sub-section
2.3.2).
Also contained in sub-sections 2.3.3.1 and 2.3.3.2 are discussions about the
mediating effect of involvement and empowerment on the relationship between strategy
and managerial performance. While these discussions relate to the adapted and
summarised version of Fisher’s [1998] contingency control framework illustrated in
Figure 2.4, the mediating effect relates to a more specific relationship and forms part of
the overall specific theoretical model for this study that will be provided in chapter 3.
2.4 Chapter Overview
The abstract nature of the term strategy was discussed in section 2.1 of this chapter
and the narrow focus of meaning of this term for section 2.2 was identified specifically
in Porter’s theory of generic competitive strategies. Initially, the discussion in section
2.2 focused on criticisms about the accuracy and generalisability of the propositions
underlying the elements of Porter’s theory. The subsequent discussion in section 2.2
reviewed research that had investigated alternative descriptions and predictors.
Discussions about studies in sub-sections 2.2.4 and 2.2.5 presented findings that have
implications for future studies and provided the first of four objectives for this study.
96 Rajagopalan et al’s [1993] developed an integrative framework including the strategy decision-making process-performance relationship based on prior research (e.g., Segev [1987], Robinson & Pearce [1988], Eisenhardt [1989], Wooldridge & Floyd [1990], Floyd & Wooldridge [1992]).
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This first objective is illustrated in Figure 1.1 and is represented by step one of stage
one. The aim of the first objective is to improve the accuracy and generalisability of the
description of the strategic priorities that are the source of competitive strategy. This
aim involves identifying whether a differentiation strategy is comprised of more than
one strategic priority dimension. These dimensions may emerge from an analysis of the
specific competitive methods associated with different strategic priorities and provide a
more accurate set of measures for strategy.
The second objective has two aims, which are represented, respectively, by steps two
and three of stage one in Figure 1.1. The first aim of the second objective is to improve
the accuracy and generalisability of the description of the different combination of these
strategic priorities that organisations select as their strategic orientations. This first aim
of the second objective requires the study to establish whether organisations will adopt a
single strategic priority, pursue a combination of strategic priorities, or do not select any
strategic priorities as their strategic orientation. This aim will involve the analysis of
these strategic priority dimensions to identify patterns of dimension selection (strategic
orientations). Such classifications of strategic priorities, as well as clustering of
organisations based on their strategic orientations, should assist in improving the
accuracy and generalisability of strategy-based findings.
The second aim of the second objective for this study is to conduct an additional
examination of Porter’s [1980, 1985] performance prediction proposition. The second
aim is to test Porter’s proposition within the Australian business environment and
compare the results to the findings from similar studies from different countries
examined by Campbell-Hunt [2000] (see sub-section 2.2.5). The results of prior studies
do not support Porter’s performance prediction. Should the findings for this second aim
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be consistent with prior studies, then the current study will adopt Campbell-Hunt’s
[2000] conclusion that it is necessary to investigate why the empirical evidence does not
provide universal support for Porter’s above-average prediction proposition. These
investigations form the basis for achieving the third and fourth objectives of this study.
Consequently, the third and fourth objectives of this study will be to develop an
expanded range of strategic and organisational variables within a contingency
framework from prior strategic management research [Campbell-Hunt, 2000]. To
provide guidance for this contingency-based study to achieve the third and fourth
objectives, literature was reviewed from three research disciplines; (1) strategy-MCS
contingency-based, (2) strategy decision making process, and (3) psychology.
Literature from these disciplines regarding middle management involvement and
dimensions of their empowerment was reviewed. These decision process characteristics
were identified as control elements of structure (the macro control mechanism) and the
new mode of control within a modern MCS. The various associations between a set of
more descriptive strategic priorities, involvement and empowerment of middle
management, and managerial performance were discussed and the need for further
investigations identified.
This identified need for further investigations underpins the third and fourth
objectives, which are represented by the three sets of relationships illustrated in Figure
1.1. The aim of the third objective study is to conduct an investigation into each of the
‘strategic priorities-managerial performance’ contingency-based relationships. The first
set of relationships presented in Figure 1.1 relates to this third objective.
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Finally, the fourth objective of this study is to examine the mediating effects of
control elements, involvement and empowerment, on the relationships between each of
these specific strategic priorities and managerial performance. To achieve this fourth
objective, the first aim of this objective is to examine each contingency-based ‘strategic
priorities-elements of control’ fit that is the focus of this study. These contingency-
based fits are shown as the second set of relationships in Figure 1.1. The second aim of
this fourth objective is to study the ‘elements of control-managerial performance’
relationships and the third set of relationships in Figure 1.1 represents this aim. Chapter
3 will present discussions to develop the theoretical framework models and hypotheses
for these more specific descriptions of strategy and identified relationships.
3 Theoretical Model & Hypotheses Development
92
Chapter 3
Theoretical Model and Hypotheses Development
This chapter has three objectives. The first objective is to identify the research
problems that will be the focus of this study and to develop research questions that
address these research problems based on the literature review presented in chapter 2.
The second objective is to develop the first theoretical model and hypotheses that (a)
incorporate a detailed description of strategic priorities, (b) identify different
combinations of this detailed description of strategic priorities adopted by organisations
as their strategic orientations, and (c) establish any variation to performance among
these strategic orientations. The third objective involves the development of another
theoretical model and hypotheses for a number of relationships. This second model and
hypotheses incorporate (a) the relationship between each of the strategic priorities and
managerial performance, (b) the relationship between each of the strategic priorities and
middle management’s involvement and their psychological empowerment in the
strategic decision process, and (c) the separate mediating effect of middle
management’s involvement and their psychological empowerment in the strategic
decision process on the relationship between each of the strategic priorities and
managerial performance.
3.1 Research Problems
There are two research problems identified in section 1.4 that were developed as a
result of the discussion in chapter 1. The following discussion about these research
questions is supported by the examination of prior literature presented in chapter 2. The
first research problem relates to the two elements of Porter’s theory of generic
3 Theoretical Model & Hypotheses Development
93
competitive strategy and, therefore, contains two parts; each part addressing one of
Porter’s two elements. The first part of this problem relates to the accuracy of the
differentiation strategy measure that evolved from the broadly described source
proposition of the differentiation strategy typology within Porter’s [1980, 1985] theory
of generic competitive strategy.
This problem’s second part relates to the generalisability of the theoretical above-
average long-term performance proposition being achieved through the mutually
exclusive selection of only one strategy described in Porter’s source proposition. Porter
[1980, 1985] labelled organisations that either selected more than one strategic priority
(i.e., cost leadership and differentiation) or fail to develop at least one strategy as
adopting ‘stuck-in-the-middle’ strategic orientation. He predicted that these
organisations will experience “strategic mediocrity and below-average performance”
[Porter, 1985, p. 12]. His prediction is based on his argument that for organisations to
implement each of these strategic priorities successfully required different resources,
skills, and leadership styles.97 However, evidence discussed in section 2.2.2 raises
questions about the accuracy of this prediction. This evidence also questions the
correctness of grouping organisations adopting multiple strategic priorities with
organisations failing to develop at least one strategy in the ‘stuck-in-the-middle’
classification (e. g., Yamin et al [1999], Wagner & Digman, 1997].
Both parts of this first research problem will be addressed in section 3.2. The
theoretical model illustrated in Figure 3.1 and two hypotheses developed in section 3.2
are based on research considered in section 2.2.
97 See Appendix A for a detailed discussion on these issues.
94
Strategic Priorities Strategic Orientations Performance Outcome
Strategic Priorities Strategic Orientations Three Dimensions of Clusters of organisations each with Organisational Long-term Differentiation Strategy an emphasis on the same: Above-average Financial
- Product Innovation; - single strategic priority, Performance - Product-Service Quality; - combinations of multiple strategic priorities, - Profit - Marketing/ Brand Image; or - ROI
Cost Leadership - no emphasis on any strategic priority - Cashflow
3 Theoretical Model & Hypotheses Development 94Figure 3.1: An Overall View of the Conceptual Model for Research Questions 1a and 1b
Theoretical model for testing
1. a multidimensional differentiation strategy and cost leadership strategy [AI] hypothesis [H1] (contrary to Porter’s [1980, 1985] single differentiation strategy source),
2. an hypothesis [H2.1] for different strategic orientations; a single strategic priority, a multiple combination of strategic priorities, or no strategic priority [AII] may be selected by organisations as their strategic orientations
3. an hypothesis [H2.2] for the prediction of above-average financial performance [AIII] being achieved by organisations that select either a single strategic priority or a multiple combination of strategic priorities (as implicit part of Porter’s ‘stuck-in-the-middle’ classification) as their strategic orientations (contrary to Porter’s [1980, 1985] argument that such performance requires the mutually exclusive selection of either cost leadership or differentiation strategy and is not achievable with multiple cost leadership and differentiation strategy selection or no selection of a strategy, which are respectively the implicit and explicit parts of the ‘stuck-in-the-middle’ strategic orientations).
H1
H2.2
AI AII AIII
H2.1
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The second research problem arises out of the findings and conclusions by
Campbell-Hunt [2000] in chapter 2. He found no universal evidence to support Porter’s
financial performance proposition that organisations adopting a single strategic priority
will perform better long term compared to organisations with multiple strategic priority
orientations. His findings led him to conclude that future studies should examine an
expanded range of strategic and organisational variables within a contingency
framework. He stated that this important objective should add to the body of
knowledge regarding the strategy-performance relationship.
Based on Campbell-Hunt’s [2000] conclusion, it may be argued that organisations’
above-average long-term performances may be contingent upon how organisational
controls are adapted to the selected strategic priority or strategic priorities. The purpose
of the emphasis on control elements by modern management systems, such as BSC, is
to reinforce and support the strategic priorities adopted by organisations. Control
elements are used to communicate the objectives of the chosen strategy and to achieve
goal congruency between middle management’s and organisational goals.
Furthermore, empirical evidence presented in chapter 2 [Floyd & Wooldridge,
1992, 1994, 1997] linked middle management’s mediating role, through their strategic
involvement, on the relationship between strategy and organisational performance.
Therefore if the purpose for adopting control elements is to align middle management’s
and organisational goals, then middle management’s performance should be aligned
with organisational performance by adapting these control elements.
Therefore this second research problem focuses initially on the relationship between
each strategic priority adopted by organisations and behavioural outcomes. This
3 Theoretical Model & Hypotheses Development
96
research problem then address the emphasis placed on control elements by modern
management systems, such as BSC, so that middle management’s goals and
performance are aligned with organisational goals and performance. Thus, the second
research problem also concerns the matching of each strategic priority adopted by
organisations to elements of the control mechanism of the MCS and control elements to
behavioural outcomes.
To develop the research questions for this study that enable these relationships and
hypotheses to be investigated, the broad terms need to be operationalised. This is
achieved for the first set of relationships by using a set of more descriptive strategic
priorities identified from the literature and established through testing the hypothesis for
research question 1a, stated in section 1.4, which will represent each of the strategic
priorities adopted by organisations. The relationship between middle management’s
performance and each of the more descriptive strategic priorities may be contingent
upon the environmental uncertainty and complexity that past research has established
surrounding specific strategy priority. Consequently, research question 2a, stated in
section 1.4, asks whether there are relationships between each of the strategic priorities
and middle management’s performance. These relationships are illustrated as the
second set of relationships in Figure 1.1. This relationship is deduced based on the
different environmental uncertainty and complexity that has been established to
surround the strategic priorities from past evidence.
Additionally, the literature presented in chapter 2 provided information about two
elements of the strategic decision process as control elements of MCS. Past research
has established that these control elements may be necessary to mitigate environmental
uncertainty and complexity for some strategic priorities (e.g., innovation, Miller [1988],
3 Theoretical Model & Hypotheses Development
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Jermias & Gani [2004]) but are not necessary for other strategic priorities (e.g., cost
leadership, Govindarajan & Shank [1992], Cabrera, Ortega & Cabrera [2003]). These
two characteristics are middle management’s involvement and their empowerment in
the strategic decision process. The purpose for organisations adopting these two
decision process control elements should be to reduce uncertainty and promote goal
congruency. Therefore middle management’s involvement and their empowerment in
the strategic decision process will differ depending upon the selected strategic priority
or strategic priorities. These relationships are presented as the first set of relationships
in Figure 1.1.
Another focus of the second research problem relates to the relationships between
each of these two control elements and a behavioural outcome. Firstly, evidence was
provided in chapter 2 about the relationship between middle management’s involvement
in the strategic decision process and their performance (as a behavioural outcome). The
second relationship concerned the relationship between their empowerment in the
strategic decision process and their performance. These relationships are shown in
Figure 1.1 as the third set of relationships.
The discussion contained in the past two paragraphs about the first and third sets of
relationships shown in Figure 1.1 are the basis for research question 2b that is stated in
section 1.4. That is, the relationship for each strategic priority to each control element
and each control element to managerial performance provides a combination effect of
these relationships. This combination effect represents the separate indirect (mediating)
effect of that control element on the relationship between each strategic priority and
managerial performance. Research questions 2b poses the impact that each of these two
control elements has on the relationship between each strategic priority adopted by
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organisations and managerial performance. An examination of research question 2b
should provide a basis for identifying the extent to which each of these two control
elements will match with each strategic priority and managerial performance within a
contingency framework.
The second research problem will be addressed in sections 3.3 and 3.4. A second
theoretical model is constructed and five hypotheses are developed in the relevant sub-
sections of sections 3.3 and 3.4, based on discussions in section 2.3. Figure 3.2 contains
an overview of the conceptual model developed for research questions 2a and 2b of this
study. Specific aspects of the conceptual model are provided throughout the chapter to
support the relevant discussion. Figure 3.9 presents a summary of the three sets of
relationships that relate to the research questions 2a and 2b.
4
Specific Control Elements of the Middle Management’s Strategic Priorities Strategic Decision Process Performance Outcome
Middle management
1 Involvement 2 Psychological Empowerment ― Autonomy ― Influence ― Competence
Strategic Priorities, i.e., - Product Innovation (SP1) - Product & Service Quality (SP2) Managerial Performance - Marketing/ Brand Image (SP3) - Cost Leadership (SP4)
3 Theoretical Model & Hypotheses Development 99 Figure 3.2: An Overall View of the Conceptual Model for Research Questions 2a and 2b
A theoretical model for testing of
1. hypotheses [H3 and H4] about the relationships between each strategic priority and middle management involvement & psychological empowerment in the strategic decision process [AI to B],
2. hypothesis [H5] the relationship between each strategic priority and managerial performance [AI to C], 3. hypothesis [H6] about the relationships between middle management involvement & empowerment in strategic decision process and
managerial performance [B to C], and 4. hypotheses [H7 and H8] for the separate mediating effect of middle management involvement & psychological empowerment in the
strategic decision process on the relationship between each strategic priority and managerial performance [AI to B to C].
H4.1, 4.2 4.3 & 4.4 H6a1, 6b1, 6b2 & 6b3
H7a1, 7a2 7a3 & 7a4, H8.1a, 8.1b 8.1c & 8.1d, & H8.2a, 8.2b 8.2c & 8.2d
H3.1, 3.2 3.3 & 3.4
AI
B (Mediating Variables)
C
H5.1, 5.2 5.3 & 5.4
AI to C = Direct Relationship
AI to B Times B to C = Indirect Relationship
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3.2 Research Problem One: Two elements of Porter’s Theory of Generic Competitive Strategy
As discussed in section 2 of chapter 2, Porter’s [1980, 1985] theory of generic
competitive strategy model is among the influential contributions to the study of
strategic behaviour [Campbell-Hunt, 2000]. Porter’s [1980, 1985] theory contains two
elements. The first element of the theory provides a description of market scope (broad
or focused) of organisations’ competitive strategies as well as the source of the
competitive advantage (a cost leadership or differentiation strategy). The second
element involves the theoretical proposition about above-average long-term
performance outcomes of each of these two strategies. Included in Porter’s proposition
is the prediction that inferior performance would result if an organisation selected a
‘stuck-in-the-middle’ position. He argued that a ‘stuck-in-the-middle’ position includes
organisations that fail to choose between a cost leadership and differentiation strategy.98
The discussion in the following three sub-sections develops from the theoretical
model shown in Figure 3.1. The theoretical model is constructed with the aim of
overcoming the criticisms of Porter’s two propositions99 that are identified in the
literature reviewed in chapter 2. Empirical findings presented in chapter 2 are used to
support the achievement of this aim. Hypotheses are developed in these sub-sections to
test the two parts of the first research question; question 1a and question 1b identified in
section 3.1.
98 As mentioned in section 2.2.2, Porter [1980] referred to the ‘stuck-in-the-middle’ hypothesis as being the selection of both cost leadership and differentiation strategies or neither of these strategies; thus failure to adopt a mutually exclusive strategy of cost leadership or differentiation. See section 3.1 and Appendix A for a detailed discussion on these issues. 99 The two propositions of Porter [1980] that are of relevance to the current study are the strategy description (source) proposition and the above-average performance predictive proposition, which are, respectively, the first and second elements of Porter’s theory of generic strategy.
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3.2.1 Theoretical model of strategic priorities and hypothesis development
Porter’s theory of generic strategy has been recognised as a dominant paradigm for
over two decades. The previous chapter provided conceptual arguments and empirical
evidence in sub-section 2.2.1 that raises questions about the accuracy of the measures
and generalisability of the results using Porter’s broadly described generic strategy
typologies.100 In sub-sections 2.2.3, 2.2.4, 2.2.5 and 2.2.6, the discussion focused on
attempts made by researchers to help overcome identified limitations through the
integration of strategic attributes in the models of Miles and Snow [1978], Porter
[1980], Miller and Friesen [1982, 1986], and Miller [1988].101
To achieve these multi-dimensional strategic priorities in their findings, these prior
studies have developed descriptions of competitive methods about strategic attributes in
these models as well as interviews with business executives (e.g., Dess & Davis [1984],
Robinson & Pearce [1988], Miller & Dess [1993]). Dess and Davis [1984] were the
earliest identified researchers to use the term ‘competitive methods’. They described
competitive methods as the composition of different strategic dimensions that Porter
[1980] suggested “should capture the possible differences among strategic options of
companies…that include brand identification,…technology leadership, cost position,
service,…among others” [Dess & Davis, 1984, p. 470]. That is, they developed a
number of competitive methods “that might be used to characterize a particular generic
strategy” [Dess & Davis, 1984, p. 471].
100 Kuhn [1962] provided a list of roles that are needed for a dominant paradigm to give a common platform and focus to subsequent empirical and theoretical investigation. These roles include providing a definition for the scope of the important phenomena, the investigation methods to be used, and the acknowledged received wisdom [Campbell-Hunt, 2000]. 101 Three conceptual models are identified in sub-section 2.2.3. Sub-sections 2.2.4, 2.2.5 and 2.2.6 contain detailed discussions about the source of strategic attributes identified and used in numerous studies.
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Robinson and Pearce [1988] expanded on the number of competitive methods by
not only incorporating Dess and Davis’ [1984] competitive methods but also extracting
competitive methods related to the strategy typologies of Miles and Snow [1978], Hofer
and Schendel [1978], and Porter [1980]. They stated that the 27 competitive methods
included in their study “might be used to characterize different strategic behavior (sic)”
[Robinson and Pearce, 1988, p. 47]. These competitive methods therefore form the
basis for each strategic priority for the current study. Sub-sections 2.2.5 and 2.2.6,
provided descriptions of the multi-dimensional strategic priorities drawn from these
generic strategy theoretical models, which are used to define the various strategic
priorities in this study.102
This information forms the basis of the discussion for the development of the
alternative theoretical framework in this sub-section and is related to the first element of
Porter’s theory. This first element is related specifically to the broadness of
differentiation strategy description within his description (source) proposition.103 The
purpose for developing this alternative theoretical framework is to help establish a more
detailed set of strategic priority dimensions within Porter’s differentiation typology.
The objective is to provide an alternative theoretical framework that contributes to
improving the accuracy and generalisability of strategy measures and strategic
orientation. To achieve this objective, the alternative theoretical framework will draw
on previous research. Figure 3.3 provides an illustration of the description of strategic
priorities, which are specific aspects of the conceptual model in Figure 3.1 depicted by
AI.
102 Campbell-Hunt [2000] identified this approach as the taxonomic interpretation of the paradigm’s descriptive system where there is an “…hierarchically ordered set of classifications within which all designs can be allocated to an unique position…” (p. 129). 103 See section 3.2 and footnote 99 for more detailed comments.
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Figure 3.3:
Theoretical Model of Strategic Priority Description Porter’s Source Strategic Priorities Proposition Dimensions Product Innovation SP1 Differentiation Product & Service Quality SP2 Marketing/ Brand Image SP3 Cost Leadership Cost Leadership SP4
The heading Porter’s Source in Figure 3.2 reflects Porter’s [1980] broad source of
competitive strategy proposition. Results from studies summarised in Table 2.2 in sub-
section 2.2.5.4 provide consistent evidence that either two or three sub-dimensions
emerge for the differentiation strategy. These emerging dimensions of the
differentiation strategy provide the basis for three of the four strategic priority
dimensions in Figure 3.3.
These dimensions of the differentiation strategy incorporate the attributes of models
by Miles and Snow [1978], Miller and Friesen [1982, 1986], and Miller [1988]. For
example, the first dimension is Product Innovation strategic priority (SP1), which
incorporates attributes of Miles and Snow’s model as well as Miller and Friesen’s
[1982] model. For instance, Chenhall and Morris [1995] described Miller and Friesen’s
[1982] entrepreneurial organisations category as a bold innovation strategic priority that
AI
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involved organisations taking frequent and high level risks involved in following a re-
engineering approach towards products with enhanced design, quality, and timely
delivery service features.104
The second dimension in Figure 3.3 is Product & Service Quality strategic priority
(SP2), which incorporates product and service quality extrinsic features explained by
Miller and Dess [1993]. Furthermore, Chenhall and Morris [1995] described Miller and
Friesen’s [1982] conservative organisations as a less aggressive innovation strategic
priority adopts a more continuous improvement approach to enhanced design, quality,
and timely delivery features. Additionally, Deming [1986] included ‘constant
improvement’ in quality as a characteristic of TQM strategy. Thus, Product and
Service Quality strategic priority (SP2) should include an operational level Total
Quality Management (TQM) strategy. This strategy priority has been proposed because
most studies summarised in Table 2.2 have combined these product quality and service
quality features into a single strategic priority.
In addition to the extrinsic features of the quality differentiation strategy, most
studies summarised in Table 2.2 have identified the intrinsic features of the quality
differentiation strategy. These intrinsic features correspond with marketing
differentiation strategies established in prior studies [Miller & Friesen, 1986, Miller,
1988] and relate to all intrinsic product and service characteristics described by Miller
104 In their model, Miller and Friesen [1982] identified two strategic typologies (entrepreneurial and conservative) based on the extent of product innovation. Chenhall and Morris [1995] considered Miller and Friesen’s [1982] two typologies, respectively, to be similar to the prospector and reactor organisation types used by Miles and Snow [1978].
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and Dess [1993].105 Therefore Marketing/ Brand Image strategic priority (SP3) in
Figure 3.3 represents the third dimension of the differentiation strategy.
These three strategic priorities in Figure 3.3 are similar to the innovation,
marketing, and quality dimensions of differentiation strategies used by Miller [1992b].
The fourth strategic priority dimension (SP4) is Cost Leadership, which is presented in
all studies summarised under the ‘Cost Leadership-Cost/Price’ column in Table 2.2.
These four strategic priorities are consistent with the result of a number of prior studies
that have a clear loading of specific items onto each single strategic priority (factor)
[Robinson & Pearce, 1988; Miller, 1990; Miller, 1992b; Wagner & Digman, 1997].106
According to [Campbell-Hunt, 2000], the empiricist approach of describing
competitive-strategic orientations adopted in prior studies (e.g., Miller & Friesen
[1986], Miller [1992b]) assumes a large number of competitive-strategic orientations to
be reduced to a small number of strategic priorities, which allows strategic priorities to
be interpreted differently compared to the taxonomic interpretation approach taken by
Porter [1980].107
105 Campbell-Hunt [2000] described the approach taken by Miller and Dess [1993] as identifying distinctive features within dimensions and using these distinctive features as a means of interpreting the variation in competitive strategy orientation. 106 The limitations to the factor analysis by Kotha and Vadlamani [1995] (e.g., items loading onto multiple factors and cut off levels) compared to the statistical rigour undertaken by Robinson and Pearce [1988] are discussed in sub-section 2.2.5.4 and the relevant footnotes to that discussion. 107 In the meta-analysis study conducted by Campbell-Hunt [2000], 6 factors emerged in his ‘Meta-dimensions of competitive strategy’ (p. 138). One item (advertising) loaded on both the ‘Marketing’ and ‘Sales’ factors and without that item, there were only 2 items loading into the ‘Sales’ factor. Furthermore, another factor labelled ‘Market scope’ loaded only two items. To retain ‘Sales’ and ‘Market scope’ as separate factors is inconsistent with the hazardous warning by Tabachnick and Fidell [2001], which is discussed in sub-section 2.2.5.4 of this dissertation. Also, some items loaded with a cut off level below .45 which was the accepted cut off level in the studies included in his meta-analysis. After applying Tabachnick and Fidell’s [2001] recommendations, only 4 statistically robust factors would remain from Campbell-Hunt’s [2000] study.
3 Theoretical Model & Hypotheses Development
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Campbell-Hunt [2000] identified four ways the empiricist approach differs from the
taxonomic interpretation approach taken by Porter [1980]. The first and second
differences he described are related to the accurate description of the strategic priorities
and relate to the discussion in this sub-section. The remaining two differences are
associated with the second part of the first research question and, therefore, will be
discussed in the next sub-section.
Firstly, the empiricist approach asserts the proposition that not all strategy priorities
can be classified into the restricted taxonomy of Porter’s model. Only a large
proportion can be classified in this manner. Secondly, it asserts that a classification
based on a more refined set of strategic priorities can reduce the uncertainty by striking
a balance between a larger set of homogeneous classes (i.e., strategic priorities) and
Porter’s less meaningful yet more parsimonious model.108 Prior studies identified by
Campbell-Hunt [2000] followed the empiricist interpretation approach and these are
included in Table 2.2 as well as discussed in sub-section 2.2.5 [Miller & Friesen, 1986;
Miller, 1992b]. This prior research therefore has empirically derived a classification
based on a more refined set of strategic priorities that cannot all be classified into the
restricted taxonomy of Porter’s model. The four strategic priorities proposed in this
sub-section are therefore an appropriate description of strategy for the current study.
The appropriateness of these four proposed strategic priorities is due to the use of a
detailed set of underlying competitive methods of strategy established by prior studies.
Therefore these four proposed strategic priorities should help to overcome identified
limitations concerning accuracy of the measures and generalisability of the results using
Porter’s broadly described generic strategy typologies. These limitations were
discussed in chapter 2 and in the introductory discussion of this sub-section. 108 In sub-section 2.2.5.2.2 contains a discussion of Miller’s [1992b] comments about more detailed and elaborate sets of typologies not reconciling the more parsimonious typologies because these studies have resulted in rather complex classification framework [Galbraith & Schendel, 1983; Hambrick, 1983b].
3 Theoretical Model & Hypotheses Development
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From the literature reviewed in chapter 2 as well as the discussion based on the
arguments and findings in this sub-section, three dimensions, which have an innovation,
a quality, and a marketing emphasis, should emerge as essentially independent strategic
priorities of the generic differentiation strategy typology as classified by Porter
[1980,1985]. These strategic priorities of the generic differentiation strategy emerge
from a detailed set of underlying competitive methods of strategy established by prior
studies. Furthermore, cost leadership should emerge as a distinct fourth strategic
priority. To address research problem 1a identified in section 3.1, the following
hypothesis is developed based on the discussions in sub-sections 2.2.5 and 2.2.6 as well
as this sub-section:
H1: Four distinct strategic priorities (consisting of three strategic priority
dimensions of differentiation and a single cost leadership strategic priority)
will emerge from an examination of competitive methods of strategy used by
prior research to characterize different strategic behaviour.
In the following sub-section, specific aspects of the conceptual model depicted as
AII in Figure 3.1 are presented and hypotheses are developed to test the first part of
research problem 1b.
3.2.2 Theoretical model of strategic orientations and hypothesis development
Sub-section 2.2.6 contained a summary of the various strategic orientations found
by prior research. These studies also attempt to understand which strategic priorities,
and in what combination, successful firms included in their strategic orientations. For
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this study, strategic priorities are defined as the proposed four strategic priorities
discussed in the previous sub-section. Similarities in the emphasis placed on these
strategic priorities by organisations will be used to cluster organisations into groups.
Consequently, each group of organisations will have different strategic orientations.
Three strategic priorities should have an innovation, a quality, and a marketing
emphasis and be dimensions of the differentiation strategy. Cost leadership strategic
priority is the distinct fourth strategic priority. These four strategic priorities are
depicted as AI in Figures 3.1 and 3.4.
Campbell-Hunt [2000] identified four ways the empiricist approach differs from the
taxonomic interpretation approach taken by Porter [1980]. The first and second
differences109 he described were discussed in the previous sub-section because they
related to the accurate description of the strategic priorities, which is research question
1a. Although the third and fourth differences (discussed in the following paragraph) are
associated with research question 1b, the first and second differences form the
foundation for the third and fourth differences, which suggests all four differences
should be considered relevant to the discussion in this sub-section.
According to Campbell-Hunt [2000], the third difference is the assertion under the
empiricist approach that all empirically derived strategic orientations emerge from their
association of strategic priority similarities. This assertion differs from the taxonomic
interpretation approach taken by Porter [1980], where strategic orientations are imposed
as an ex ante requirement. Finally, the fourth difference is that an empiricist
interpretation of strategy does not anticipate that all organisations’ strategic orientations
109 According to Campbell-Hunt [2000], for the first difference, the empiricist approach asserts that not all strategy priorities can be classified into the restricted taxonomy of Porter’s model while the second difference asserts that a more refined set of strategic priorities classification strikes a balance between a larger set of classifications and Porter’s less meaningful yet more parsimonious model.
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should adopt a single strategic priority; which Campbell-Hunt [2000] described as the
mutually exclusive strategy orientation that is the basis for Porter’s source proposition
for a competitive advantage (i.e., either a differentiation or cost leadership strategy
source).
Prior studies that followed the empiricist interpretation approach have been
identified in Table 2.3 and discussed in sub-section 2.2.6. The findings of these studies
have not only derived a more refined set of strategic priorities,110 but also grouped
organisations into clusters that emerged from their association with similar strategic
priorities that formed the strategic orientations for the organisations within each
grouping. Additionally, these cluster-based organisational groups were found to select
either a single strategic priority or a combination of strategic priorities.111 Thus the four
asserted differences identified by Campbell-Hunt [2000] are present in the findings of
these studies.
However, Dess and Davis [1984] selected three strategy clusters, which is fewer
than the majority of the studies examined by Campbell-Hunt [2000]. They stated that
the purpose for selecting three strategy clusters was their desire to confirm Porter’s
[1980] typologies of generic strategy for comparison purposes.112 It may, therefore, be
argued that Dess and Davis [1984] adopted a taxonomic interpretation approach
identified by Campbell-Hunt [2000] because they focused on confirming Porter’s
110 These findings are consistent with the first difference asserted by the empiricist approach, i.e., a set of strategic priorities that cannot all be classified into the restricted taxonomy of Porter’s model. 111 A large number of these studies shown in Table 2.3 were included in the meta-analysis study conducted by [Campbell-Hunt, 2000]. Campbell-Hunt [2000] adopted the term ‘strategic design’ to refer to strategic orientation. The six clusters in his ‘Hierarchical classification of metadesigns’ contain three clusters related to Porter’s [1980] scope (broad or focus). Also, some items loaded across more than one cluster (e.g., ‘Sales leadership’ and ‘Broad quality and sales leadership’) and cut off levels of less than .45 have been used for a number of items. 112 Refer to sub-section 2.2.6 for Davis and Schul [1993] comments that a three cluster ‘solution’ was selected by Dess and Davis [1984] to facilitate a comparison between their findings and Porter’s typology of three generic strategies.
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strategy typology clusters by following a set of allocation rules. Thus, Dess and Davis
[1984] have not used an empiricist approach to interpret empirically the strategic
priority selection pattern that formed organisations’ strategic orientations.113
Figure 3.4: Theoretical Model of Multi-Dimensional Strategic Priorities
and Strategic Orientations Porter’s Generic Strategy Source Proposition
Differentiation Strategy
Cost leadership
Proposed Strategic Priorities Proposition
Product
Innovation (SP1)
Product &
Service Quality (SP2)
Marketing (Image) (SP3)
Cost/Price Leadership
(SP4)
Proposed Strategic Orientations Proposition
Product
Innovation (SO1)
Product &
Service Quality (SO2)
Marketing (Image) (SO3)
Cost/Price Leadership
(SO4)
Combinations of Strategic
Priorities (SO5)
Un-
differentiated (SO6)
Single Strategic Priority Orientation
Strategic Orientation involving any combination of Strategic Priorities (e.g., SP1 & SP2; SP2 & SP3; SP3 & SP4; SP1 & SP4; SP1, SP2 & SP3; SP1, SP2 & SP4; SP1, SP3 & SP4; SP2, SP3 & SP4; SP1, SP2, SP3 & SP4)
The intention of this dissertation is to investigate not only each strategic priority
that is a dimension of the differentiation strategy but also the strategic orientation
selected by organisations (i.e., to interpret empirically strategic priority selection
patterns). Figure 3.4 provides an illustration of the linkage between the four strategic
priorities (AI) and strategic orientations (AII).
113 This deduction is based on comments by Campbell-Hunt [2000, p. 129] who identified the taxonomic interpretation approach as being “allocated to a unique position,…reduced to a parsimonious set of allocation ‘rules’…by which a specific design of competitive strategy is classified within the hierarchy. This interpretation, clearly inspired by biological taxonomy, requires that allocation rules have a hierarchical structure…”.
Extrinsic Intrinsic
AII
AI
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111
The Proposed Strategic Orientations (AII) in Figure 3.4 represents the potential
individual strategic priority, combinations of strategic priorities, or no clear strategic
priority that organisations may select as their strategic orientations. These strategic
orientations are specific aspects of the conceptual model in Figure 3.1. Results of the
following studies that adopted an empiricist approach are used to support the
development of the theoretical framework illustrated in Figure 3.4.
Robinson and Pearce [1988] found five different strategic orientation clusters in
their study.114 Some clusters represent orientations with combinations of two strategic
priorities, one orientation containing four strategic priorities, and another cluster of
organisations where there is no clear orientation.115 A five-cluster solution was
considered appropriate by Miller [1992b] to identify strategic orientations of
organisations that participated in his study. The results of his study showed variations
in the strategic orientation of groups. He found that some groups pursued several
strategic priorities, other groups pursued two strategic priorities, and some groups had
no clear strategic priority. Because none of the five groups in Miller’s study placed an
emphasis on a single strategic priority, he extended the cluster analysis by including two
additional groups to establish the robustness of his findings. He noted that “the
additional groups did not display pure generic strategies…” [Miller, 1992b, p. 401].
114 These strategic orientation clusters identified by Robinson and Pearce [1988] were as follows: Cluster 1: efficiency and service where organisations emphasise the lowest cost per unit and extensive customer service; Cluster 2: no clear strategic orientation where organisations do not emphasise any distinct pattern of strategic behaviour; Cluster 3: service/high-priced market and brand/channel influence, which reflects a moderate commitment to 2 strategic priorities for such organisations; Cluster 4: product innovation/development where organisations focus the majority of their emphasis on product innovation; Cluster 5: brand identification/ channel influence and efficiency for organisations that place a strong emphasis on two strategic behaviour patterns ― marketing techniques and efficiency through strict quality/lowest cost controls. 115 Cluster 2 is similar to Porter’s [1980] ‘undifferentiated’ typology or Mintzberg’s [1988] ‘copy cat’/‘imitation’ classification.
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The final example study taken from Table 2.3 to support the framework in Figure
3.4 is the study by Wagner and Digman [1997]. They developed a six-cluster solution
after conducting tests on the clusters’ stability.116 These researchers identified that “the
third, fifth, and sixth clusters pursued multiple generic strategies…” [Wagner &
Digman, 1997, p. 342].
The empirical evidence presented in this section supports the strategic orientations
proposition that organisations may select a single strategic priority, a combination of
strategic priorities or may place no emphasis on any specific strategic priority as their
strategic orientation. This proposition is illustrated in Figure 3.4 by solid and dotted
lines. The single solid line is used between each strategic priority (e.g., SP1) to each
strategic orientation (e.g., SO1) to represent a single strategic priority orientation. A
dotted line is used to show the linkage between each strategic priority (SP1, SP2, SP3,
and/or SP4) and the possible multiple strategic priority orientations (SO5).
Multiple strategic priority orientations (SO5) represent what Porter [1980, 1985]
implicitly included in his classification ‘stuck-in-the-middle’ strategic orientations. The
strategic orientation (SO6), shown without connecting lines to any strategic priority,
also was included explicitly by Porter [1980, 1985] in his ‘stuck-in-the-middle’
classification.117 According to Wagner and Digman [1997], some prior studies (e.g.,
Dess & Rasheed [1992]) have followed Porter’s broad classification and improperly
classified as ‘stuck-in-the-middle’ both multiple strategic priority orientations (SO5)
and ‘no strategic priority developed’ strategic orientation (SO6). However, other prior
116 Wagner and Digman [1997] labelled their 6 clusters as follows: C1 ‘Pure Marketing’, C2 ‘Stuck-in-the-middle’, C3 ‘Marketing and Process Innovation’, C4 ‘Pure Process Innovation’, C5 ‘Process and Product Innovation’, and C6 ‘All Four Strategies’. The four strategies that emerged from their factor analysis were Marketing, Cost, Process Innovation and Product Innovation’. 117 For simplicity, only one dotted line has been shown in Figure 3.4 but examples of the possible combinations are provided at the bottom of that figure.
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studies have separately examined strategic orientations (SO5) and strategic orientation
(SO6) (e.g., Miller [1992b], Miller & Dess [1993].
Furthermore, strategic orientation (SO6) only has been identified in prior studies as
‘stuck-in-the-middle’ (e.g., Wagner & Digman [1997]). Therefore, Wagner and
Digman [1997] argue that the improper classification of the ‘stuck-in-the-middle’
strategic orientation may be partially responsible for the inconsistent results reported in
past studies. To avoid confusion that may occur due to the varied definition of ‘stuck-
in-the-middle’, the alternative term ‘undifferentiated’ that has been used by other
researchers (e.g., Mintzberg [1988]) has been adopted for this dissertation for the
strategic orientation (SO6).118
The following hypothesis is developed to test this proposition.
H2.1: Organisations that are strategically orientated adopt either a mutually
exclusive single (differentiation or cost leadership) strategic priority or a
combination of differentiation and cost leadership strategic priorities as the
source of competitive advantage while organisations that do not adopt any
strategic priority are undifferentiated in their strategic orientation.
Hypothesis (H2.1) enables this study to identify the different strategic orientations
adopted by organisations. However, the identification of strategic orientations is only
the first of two steps needed to help answer research question 1b about Porter’s above-
average performance proposition.119 Therefore, a second step related to research
question 1b is required. This second step necessitates the development of a second
118 Mintzberg [1988] identified strategy is to have no basis for differentiation or to pursue deliberately a ‘copycat’ undifferentiated strategy. 119 The results of such an analysis would simply identify the existence of such organisations with more than one strategic priority orientation. Porter [1985, pp. 19-20] acknowledged that some firms may adopt such a position under three conditions but that these firms would not achieve long-term above-average performance.
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hypothesis to address Porter’s prediction of above-average financial performance. In
the following sub-section, evidence will be discussed to enable the development of the
second hypothesis (H2.2).
3.2.3 Theoretical model for above-average performance and hypothesis
development
In this sub-section the discussion will use evidence provided in sub-sections 2.2.6
and 3.2.2 to support the development of the hypothesis (H2.2), which is the second step
related to research question 1b. Figure 3.5 provides an illustration of two specific
components (AII and AIII) of the conceptual model shown in Figure 3.1 that are
necessary to test Porter’s above-average financial performance proposition.
Figure 3.5: Theoretical Model for Long Term Above-Average Performance
Strategic Orientations Performance Outcomes
Strategic Orientations Organisational Long-term Clusters of organisations in Figure 3.4 Above-average Financial (SO1 to SO6) each with an emphasis: Performance on the same: - ROI - single strategic priority, - Profti - combinations of multiple strategic, or - Cashflow - no emphasis on any strategic priority
Direct Effect
The first component labelled AII in Figure 3.5 represents all possible strategic
orientation selections (i.e., a single strategic priority, a combination of strategic
priorities or no clear emphasis on any specific strategic priority) that will be used to
define strategic orientations for this study. These strategic orientations are illustrated in
Figure 3.4 and depicted as SO1 to SO6, which are described in the following two
paragraphs.
AIII
H2.2
AII
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The multiple strategic orientations cluster (SO5) identified in Figure 3.4 illustrates
all possible combinations of strategic priorities that organisations may adopt (e.g., SP1
& SP2; SP2 & SP3; SP3 & SP4; SP1 & SP4; SP1, SP2 & SP3; SP1, SP2 & SP4; SP1,
SP3 & SP4; SP2, SP3 & SP4; SP1, SP2, SP3 & SP4). However, not all combinations of
adopted strategic priorities in the strategic orientations cluster (SO5) are of particular
interest for this study. The focus of the hypothesis developed for the second step of
research question 1b should relate to combinations that represent the strategic
orientations, which were included implicitly by Porter [1980, 1985] in his ‘stuck-in-the-
middle’ classification together with organisations without are strategic priority focus.
Therefore, combinations of any of the strategic priority dimensions of the differentiation
strategy and cost leadership strategy are of particular interest for this study. Conversely,
any combination of only strategic priority dimensions of the differentiation strategy is
equivalent to the broad description of the differentiation strategy provided by Porter
and, therefore, will be subject to the same criticisms and limitations.120
Consequently, only certain possible combinations in multiple strategic orientations
(SO5) are relevant for hypothesis H2.2. Relevant combinations of strategic priorities for
this hypothesis are limited to only those strategic orientations that contain at least one
differentiation strategic priority with the cost leadership strategic priority (e.g., SP1 &
SP4; SP2 & SP4; SP3 & SP4; SP1, SP2 & SP4; SP1, SP3 & SP4; SP2, SP3 & SP4;
SP1, SP2, SP3 & SP4). For this study, these examples of possible strategic priority
combinations will define any multiple strategic priority orientations that should be
included in the first component labelled AII in Figure 3.5 because these orientations
120 Possible combinations of strategic priorities that are dimensions of the differentiation strategy are as follows: SP1 & SP2; SP1 & SP3; SP2 & SP3; SP1, SP2 & SP3.
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would be included in Porter’s ‘stuck-in-the-middle’ classification.
Additionally, strategic orientations with a single strategic priority (i.e., SP1 = SO1;
SP2 = SO2; SP3 = SO3; or SP4 = SO4) will define any possible single strategic
orientation included in the first component labelled AII in Figure 3.5. An
‘undifferentiated’ (SO6) position is the other possible strategic orientation that would be
incorporated into Porter’s ‘stuck-in-the-middle’ classification and therefore included in
the first component labelled AII in Figure 3.5. These strategic orientations will be used
to define the strategic emphasis of organisations for this study.
The following discussion addresses the definition for Porter’s above-average
performance, labelled AIII in Figures 3.1 and 3.5. Porter [1980, p. 35] stated that
“generic strategies are approaches to outperforming competitors in the industry” and
related this performance to higher returns. He extended the meaning of performance
beyond profit potential to “firms persistently outperforming others in terms of rate of
return on investment capital” [Porter, 1980, p. 126].
In Porter’s later publication, he identified competitive strategy as an organisation’s
relative position within its industry and “positioning determines whether the firm’s
profitability is above or below the industry average” [Porter, 1985, p. 11]. In footnote 1
on page 126 of his 1985 book, he provides the average rate of return on equity ROE
over a period of years for a number of companies and also referred readers to “other
profitability comparisons” in Forbes.
He further argued that successfully adopting a stuck-in-the middle positioning
(adopting simultaneously differentiation and low costs strategies) may be achievable but
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often this success is temporary [1985. p. 19]. Finally, Porter [1998, p. xi] confirms that
his “…book also brought structure to the concept of competitive advantage through
defining it in terms of cost and differentiation, and linking it directly to profitability.”
On a number of occasions, Porter has defined organisational above-average
performance by a number of financial measures including profitability, ROI, cash flow.
Therefore these three financial measures will be used for this study to define
organisational above-average performance, which are grouped under the titled
organisations’ financial performance and labelled AIII in Figures 3.1 and 3.5.
The relationship between strategy typologies and performance has been the focus of
strategic management research since 1975 [Robinson & Pearce, 1988]. Strategy-
performance studies from management disciplines have used in their investigations
either derived sub-sets of Porter’s strategy typologies from factor analysis (e.g., Dess &
Davis [1984]) or used Miles and Snow’s [1978] generic strategies (e.g., McKee,
Varadarajan & Pride [1989]).
From the cluster analysis by Robinson and Pearce [1988], five organisational
groups with differing strategic orientations emerged with similarities in their selection
of strategic priority combinations. Four of these groups selected more than one
strategic priority as the organisation’s strategic orientation. Two of these groups
combined the cost leadership strategic priority with one or more strategic priorities that
are dimensions of the differentiation strategy and could be classified under the multiple
strategic priority orientations as used in the definition for the current study. Another
two groups only selected one or more strategic priorities that are dimensions of the
differentiation strategy and could be classified under the single strategic priority
orientations as used in the definition for the current study. Their study produced no
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clear evidence of any significant difference in the long term financial performance
between all these four groups. The fifth grouping did not adopt any clear strategic
priorities and could be defined as an ‘undifferentiated’ position as used in the definition
for the current study. However, Robinson and Pearce [1988] reported some significant
differences between this fifth group’s financial performances compared to the majority
of the other four groupings, which had above-average performance.121
Dess and Davis [1984] followed Porter’s strategy typologies. Contrary to Porter’s
performance prediction, they found that the organisational group with multiple strategic
orientations was the highest performance group. McKee, et al [1989] compared the
financial performance among Miles and Snow’s [1978] four strategy typologies and
found no significant difference among these typologies. According to McKee, et al
[1989], Miles and Snow’s [1978] analyser represents a combination of adaptive
capacity emphasis of a prospector and the efficiency emphasis of a defender. Therefore,
their results suggest that prospector or defender firms that have a single strategic
priority emphasis do not outperform analyser firms, which adopt a combination of
strategic priorities that have a multiple strategic emphasis.
As reported by Campbell-Hunt [2000] and discussed in sub-section 2.2.6, his meta-
analysis found inconsistent results of studies spanning approximately 20 years. Results
of these studies are summarised in Table 2.3. In particular, he could not find any
specific association between strategic orientations and above-average performance,
irrespective of whether the organisations adopted a single strategic priority or pursued
jointly a number of strategic priorities.
121 Robinson and Pearce [1988] used a number of performance measure spanning five years including the CEO’s numerical evaluation of the firm’s performance compared to the overall using four measures; industry on return on assets, return on total sales, sales growth and overall performance
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The underlying theorem of this second element of Porter’s theory of generic
competitive strategy is that above-average long-term financial performance can only be
achieved by adopting one of his two specific typologies; cost leadership or
differentiation strategy [Campbell-Hunt, 2000]. Empirical evidence mentioned in sub-
section 2.2.3 and this sub-section does not support Porter’s theoretical proposition about
these strategic orientations with a single strategic priority and financial performance
outcomes. That is, the inconsistent findings of prior studies could not establish a pattern
of any association between these strategic orientations with a single strategic priority
and above-average long-term performance. However, studies reviewed in this sub-
section have identified significant differences in financial performance of organisations
that did not select any strategic priorities compared to organisations with a strategic
orientation.
These prior research findings therefore support the prediction that above-average
performance will not differ significantly for organisations with different strategic
orientations; whether a single (cost leadership or differentiation) strategic priority or
multiple (combinations of cost leadership and differentiation strategic priorities)
strategic orientations. However, evidence also supports the prediction that above-
average performance will differ significantly for organisations that do not select any
strategic priorities, i.e., an undifferentiated position (SO6) in Figure 3.4. The following
hypothesis is developed to test these predictions.
H2.2: Above-average performance will be experienced by organisations with
strategic orientations that adopt either a mutually exclusive single (whether
differentiation or cost leadership) strategic priority or a combination of
differentiation and cost leadership strategic priorities and this performance
will differ from that of organisations with undifferentiated strategic
orientations.
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3.2.4 Summary of discussions for research problem one
The preceding three sub-sections have focused on the development of theoretical model,
and hypotheses for the first research problem that relates to the two elements contained
in Porter’s [1980, 1985] theory. Hypothesis H1 relates to the first element of Porter’s
theory; specifically to the broadness of differentiation strategy description within his
description (source) proposition. Sub-section 3.2.1 discussed evidence presented in
chapter 2, which is used to develop the theoretical framework specifically for four
strategic priorities. Hypotheses H2.1 and H2.2 for this study relate to the second element
related to Porter’s [1980, 1985] theory (the theoretical proposition about performance
outcomes of each of these strategic orientations). Evidence provided in chapter 2 and
the discussion on the theoretical models in sub-sections 3.2.2 and 3.2.3 necessitate
further discussions about the nature of strategy and organisational variables [Campbell-
Hunt, 2000]. Such discussions will be developed in the following section of this
chapter.
3.3 Research Problem Two: Strategic Priorities and Elements of the Control Mechanism within a Contingency Framework
As mentioned in sub-section 2.2.6, Campbell-Hunt [2000] examined Porter’s
theoretical above-average performance proposition in his meta-analysis study from both
a taxonomic and empiricist approach and concluded that this paradigm’s theory of
performance failed “…to provide one universal explanation based on the presence or
absence of specialization in competitive strategies.” (p. 149). He suggested that a more
powerful insight into effective competitive strategy might be achieved through a
contingency theory of performance, which he concludes may be achieved by expanding
the range of strategic and organisational variables within a contingency framework.
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In section 3.1, a discussion is provided related to evidence presented in section 2.3.
The second research question developed from that discussion focused on two issues.
The first issue concerned the relationship between each strategic priority and middle
management performance, which is presented in research question 2a. Research
question 2b is posed about the mediating effect of both involvement and empowerment
of middle management in the strategic decision process, as elements of the control
mechanism. The question posed concerns the mediating effect of these two decision
process control elements on the various strategic priority-middle management
performance relationships incorporated into research question 2a. The following
discussion summarises the relationship among these variables.
The first and second hypotheses of this study are related to these strategic priorities
and combination of strategic priorities (clusters) incorporated into organisations’
strategic orientations. Previously, the definition for above-average performance has
been based upon the rate of return outcomes [Porter, 1980, p. 35] that an organisation
sustained over a period of time [Porter, 1985, p. 11]. Empirical evidence is provided in
sub-section 2.2.7 and section 2.3 that linked middle management’s mediating role,
through their strategic involvement, with organisational performance [Floyd and
Wooldridge, 1992, 1994, 1997].
Theoretical model and hypotheses developed in this section therefore will relate to
relationships suggested by Campbell-Hunt [2000] at the middle management level. The
focus on middle management is consistent with prior research identified in chapters 2
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and 3 (e.g., Robinson & Pearce [1988], Floyd and Wooldridge [1992, 1994, 1997],
Chenhall & Langfield-Smith [1998]).122
However, the financial outcome measures relate to the organisation as a whole
whereas managerial performance, discussed in sections 2.3 and 3.1, is an individual’s
behavioural outcome. It therefore is proposed that an individual’s performance outcome
should be linked to strategy and the elements of the control mechanism for the
theoretical framework in this dissertation. Consequently, the focus of the relationship
investigation will relate to the relationship between each strategic priority and
managerial performance as well as each strategic priority and the levels of both
involvement and empowerment of middle management in the strategic decision process,
as elements of the control mechanism, and their mediating effect on the relationship
between each strategic priority and managerial performance.
This study focuses on each strategic priority because the examination of the different
combinations of strategic priorities (clusters) incorporated into organisations’ strategic
orientations relates to the level of complexity involved with the adoption of strategic
priorities. This level of complexity issue is beyond the scope of this study.
122 Chenhall and Langfield-Smith [1998] used the responses from middle management to identify three strategic priority factors. They then grouped organisations into six clusters based on similarities in “their emphases on strategic priorities and benefits derived from management techniques and management accounting practices” [Chenhall & Langfield-Smith, 1998, p. 252]. However, they used the benefits each group derived from these management techniques (that included human resource management policies, integrating systems, and quality systems) and management accounting practices to explain the different significant levels of performance but not their emphases on strategic priorities.
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The lack of empirical support for Porter’s above-average performance proposition
suggests that organisations may achieve similar performance outcomes by adopting and
adapting elements of the MCS control mechanism for middle-management that are
contingent upon (matched to) the selected strategic priority or strategic priorities. This
relationship relates to the matching of the levels of both involvement and empowerment
of middle management in the strategic decision process, as elements of the control
mechanism, to the strategic priority or priorities adopted by organisations. These
elements of the control mechanism for middle management are implemented to affect
middle management behavioural outcomes that contribute to achieving organisational
performance.
From this deduction, a conceptual model of managerial performance (a middle
management behavioural outcome) is proposed that underlies this study. Relationships
proposed among these variables are illustrated in Figure 3.2 and summarised in the
following manner:
(i) Middle-management performance is affected by their organisation’s level
of emphasis on a strategic priority (or priorities) that is (are) adopted as
their organisation’s strategic orientation.
(ii) Middle-management involvement and psychological empowerment in the
strategic decision process are affected by their organisation’s emphasis on
a strategic priority (or priorities) that is (are) adopted as their
organisation’s strategic orientation.
(iii) Middle-management performance is affected by their involvement and
psychological empowerment in the strategic decision process.
(iv) Middle-management performance is affected by the mediating effect of
their involvement and psychological empowerment in the strategic
decision process, which are contingent upon their organisation’s emphasis
on a strategic priority (or priorities) that is (are) adopted as their
organisation’s strategic orientation.
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Chapter 2 contains discussions related to strategic priorities, middle-management
involvement and empowerment in the strategic decision process (which have been
identified as control elements within the organic-mechanistic structure mechanism — a
macro control), and managerial performance. In sub-sections 3.3.1 to 3.3.3, strategic
priorities as well as involvement and psychological empowerment of middle
management in the strategic decision process are defined and discussed. Hypotheses
about the direct relationships between each of the four strategic priorities123 and middle-
management involvement and empowerment in the strategic decision process are
developed in sub-section 3.3.4.
In section 3.4, literature is used to define managerial performance and to develop,
within the contingency framework, propositions about the relationships between each of
the four strategic priorities and managerial performance as well as between middle-
management involvement and empowerment in the strategic decision process and
managerial performance. Section 3.5 will discuss how middle-management
involvement and empowerment in the strategic decision process will mediate the
relationships between each of the four strategic priorities and managerial performance.
Relevant hypotheses about the mediating effects are then formulated.
Figures 3.6 to 3.8 support, respectively, the discussions in sections 3.3 to 3.5 related
to these three specific aspects of the conceptual model illustrated in Figure 3.2. Figure
3.9 illustrates the specific relationships hypothesised in sections 3.3 to 3.5.
123 These four strategic priorities are contained in the first proposition developed in section 3.2.1 and illustrated in Figure 3.2. These strategic priorities will be used because Chenhall [2003] suggest that future research should use more appropriate dimensions of differentiation strategy when examining the relationship between this strategy, controls and performance.
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3.3.1 Strategic priorities definition
For this study, strategic priorities are defined as the proposed four strategic priorities
discussed in sub-section 3.2.1. Three strategic priorities (innovation, quality, and
marketing emphasis) are recognised as dimensions of the differentiation strategy. These
three strategic priorities incorporate similar competitive methods of strategy as those
developed by Miles and Snow [1978], Miller and Friesen [1986], Miller [1988], Miller
[1992b], and Miller and Dess [1993] Cost leadership strategic priority emerges as a
distinct fourth strategic priority as described by Porter [1980, 1985].
3.3.2 Middle management involvement in the strategic decision process definition
It is intended in this sub-section to define the process of middle management
involvement in the strategic decision process and to identify the components of this
process that defines the variable used in this study. Middle management involvement
for this study is defined separately to distinguish this process from the state of
empowerment experienced by middle management, which is defined in the following
sub-section.
However, before proceeding with these definitions, an appropriate definition of
middle management is provided. Past research has adopted a variety of labels for
middle management including, lower level managers, unit managers, company
managers, sector managers, group managers, division managers, or area managers
[Emmanuel and Kominis, 2001]. Otley [1994] asserts the active involvement of lower
level managers to contribute to strategic thinking in a bottom-up approach. Examples
of appropriate middle management participant for the current study have been provided
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by past studies [Schilit, 1987; Wooldridge & Floyd, 1990; Merchant, 1989]. Therefore,
the definition of middle management for this study will include plant managers,
regional sales managers, human resource or research and development directors [Schilit,
1987], second- or third-manager described as managers not reporting directly to the
CEO [Wooldridge & Floyd, 1990], and a variety of labels from company-, sector-,
group- or area-managers [Merchant 1989].
Macy and Arunachalam [1995] state that new styles of decision making that emerge
from organisations rely on employee participation. Shadur, Kienzle and Rodwell
[1999] also noted that the terms “involvement” and “participation” are used
interchangeably throughout the literature on involvement and participation, but note that
there are several authors who have noted that disparities exist in the definitions of these
two terms.124
In psychology research, different levels of participation have been used for over 50
years (e.g., Coch & French [1948]) and therefore different terminology or definitions of
participation have been established based on participants’ level of involvement in
making decisions. For example, while both Cotton, Vollrath, Froggatt, Lengnick-Hall
and Jennings [1988] and Wagner [1994] used consultative participation to describe
lower levels of middle management influence in final decisions they differed in their
definition of this term.125 Also, they differed in their definition for higher levels of
124 Lawler [1991] used the term participation as consisting of 4 elements and later [Lawler, 1996] referred to these same 4 elements as elements of employee involvement. The more common definition for participation suggested by Glew, O’Leary-Kelly, Griffin, and Van Fleet [1995] includes influence and the degree of employee involvement in decision making. 125 Cotton et al [1988] defined consultative participation as situations where participants have a lower level of influence while Wagner [1994] defined it as situations where participants are involved in the idea generation dimension but not the final idea selection dimension.
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influence in making decisions.126 However, definitions of involvement by Cotton et al
[1988] and Wagner [1994] are too broad and not considered appropriate for this study.
Prior studies [Wooldridge & Floyd, 1990; Woodridge & Floyd, 1992, Black and
Gregersen, 1997] have developed more comprehensive definitions of involvement that
include five dimensions in the decision process.127 The main differences between these
definitions of involvement revolve around how the particular researchers describe each
of the five dimensions of involvement. For instance, Black and Gregersen [1997]
collapsed two dimensions specified by Wooldridge and Floyd [1990] into one
dimension in their definition and included an additional dimension ‘evaluating the
results’ as their fifth dimension. However, this fifth dimension provided by Black and
Gregersen [1997] was their attempt to include a feedback learning dimension into the
decision making process, which they acknowledged had limitations.128
Black and Gregersen’s [1997] inclusion of a feedback learning dimension suggests
that these researchers have unsuccessfully attempted to describe a process broader than
the dimensions of an involvement process. That is, a feedback learning dimension may
be the result of participants’ empowerment through their experience with their
autonomy and involvement in influencing final decisions. However, such
126 Cotton et al [1988] defined ‘participation in the decisions’ as situations where participants have a high influence in making decisions compared to Wagner’s [1994] ‘delegative’ participation, which he defined as situations where participants have autonomy and greater personal influence in decision making. 127 Woodridge and Floyd [1990] and Floyd and Woodridge [1992] defined these five dimensions as 1. identifying problem; 2. generating options; 3. evaluating details about options; 4. developing details about options; and 5. planning implementation of necessary actions. The five dimensions Black and Gregersen [1997] described are summarised as follows: 1. identifying problem; 2. generating alternative solutions; 3. selecting a specific solution; 4. planning its implementation; and 5. evaluating the results. 128 Black and Gregersen [1997, p. 866] acknowledge that the ‘evaluating the results’ dimension has limitations because they argue that “it is not possible for the impact on future involvement expectation to be captured in current performance”.
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empowerment experiences may be more comprehensively captured by the competence
dimension of empowerment for this study.129
The inclusion of the ‘evaluating the results’ dimension by Black and Gregersen
[1997] appears to have been an attempt to provide a broader description of processes in
their definitions of involvement. However, this attempt has been at the expense of
collapsing two separate processes specifically defined by Wooldridge and Floyd
[1990].130 Furthermore, the limitations of their ‘evaluating the results’ dimension
renders Black and Gregersen’s [1997] definition too broad and incomplete for the
purposes of this study and, thus, seems inappropriate for the current study.131
Therefore, the definition for ‘involvement’ specified by Wooldridge and Floyd [1990] is
used for this thesis. Five strategic decision processes form their definition of middle
management involvement and these processes are described in footnote 127.132
In addition to the middle management involvement, this study examines middle
management’s autonomy, influence, and competence experience, which are described as
three dimensions of perceived empowerment in sub-section 2.3.2.2.2. These
129 Bandura [1982] concluded that perceived self-efficacy (a measure for the competence dimensions of psychological empowerment) often is a better predictor of future performance than past performance is a predictor of future performance outcomes. Therefore, using the characteristics of self-efficacy to capture participants’ competence should provide a better definition for learning dimensions than the ‘evaluating the results’ dimensions provided by Black and Gregersen [1997]. 130 Black and Gregersen [1997] specified the dimension ‘selecting a specific solution’ at the expense of Woodridge and Floyd’s [1990] ‘evaluating details about options’ and ‘developing details about options’. As Woodridge and Floyd [1990] include ‘planning to implement necessary actions’ this implies involvement in the selection of the appropriate option. 131 Black and Gregersen’s [1997] definition of involvement does not appear adequate for this study because the feedback learning dimension (‘evaluating the results’) may be defined more appropriately by a more comprehensive definition of competence; a dimension of psychological empowerment examined separately by this study. 132 Furthermore the broad range of involvement levels from ‘Not at all Involved’ to ‘Fully Involved’ used by Woodridge and Floyd [1990] would capture involvement levels such as ‘pseudo-participation’ schemes (that Argyris [1952] identified where no actual influence exists only influence in appearance), consultative participation with a low level of influence in some dimensions and ‘delegative’ participation when there is a higher level of influence for each of the five dimensions in the decision process (both types of participation described and defined by Cotton et al [1988] and Wagner [1994]).
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psychological empowerment dimensions are defined and discussed in the following
sub-section.
3.3.3 Middle management’s psychological empowerment in the strategic decision
process
Cotton [1996] contended that the terms “involvement”, “participation” and
“empowerment” are essentially describing the same processes. However, a body of
literature disagrees with Cotton’s contention (e.g., Spreitzer et al [1997], Corsun & Enz
[1999], Hancer & George [2003]).133 Furthermore, empowerment appears to be a
complex concept, which may be defined in different ways (e.g., “different things to
different people” Quinn & Spreitzer [1997], p. 37). It is argued that there is no
unidimensional construct that can capture the “full essence of the concept (of
empowerment)” [Spreitzer et al, 1997, p. 682, parentheses added]. According to Menon
[2001], the process of granting power to employees (which may be called participation,
involvement or Kanter’s [1977] empowerment) leads to employees’ experience of
power. The psychological empowerment construct relates to this experience of power
and is “a psychological state that manifests itself as cognitions that can be measured
(e.g., Spreitzer [1995])” [Menon, 2001, p.157].
For example, while involvement discussed in the sub-section 3.3.2 reflects an act of
involvement by middle management, outcomes of the process are mediated by
employees’ motivation and psychological processes, i.e., employees must choose to be
empowered [Sparrowe, 1994; Spreitzer, 1996]. This follows the argument by Thomas
133 Also, Sagie and Koslowsky [2000] identified Leana’s [1987] description of delegation as well as Hackman and Oldham’s [1976] description of autonomy to identify the differences between participative decision making and empowerment as concepts underlying the term psychological empowerment in the industrial/organisation psychological literature.
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and Velthouse [1990] that empowering management involvement practices fosters the
internal (intrinsic) motivation of employees.
In this study, psychological empowerment will be defined as the management
practices of empowerment that emphasises and fosters intrinsic motivation of middle
management [Thomas & Velthouse, 1990]. There are disputes about the number of
dimensions that represent the nature and conceptual structure of psychological
empowerment as a cognitive construct [Eylon & Bamberger, 2000]. This study will use
autonomy, influence, and competence as three dimensions of psychological
empowerment to define intrinsic motivation of middle management.134 A number of
titles have been used in psychology and management literature to describe these three
dimensions of psychological empowerment.135 However, autonomy, influence, and
competence have been identified from the review of the literature as the most
commonly cited titles for these three dimensions of psychological empowerment.
These three dimensions of empowerment will be defined in the following three sub-
sections.
134 In footnote 80 within sub-section 2.3.2.2.2, two additional dimensions of psychological empowerment have been suggested by researchers; meaningfulness by Spreitzer [1995] and goal internalisation by Menon [1999, 2001]. However, empirical evidence has found that the meaningfulness dimension is associated with work satisfaction not work effectiveness (e.g., Spreitzer et al 1997). Also, Menon [2001] found goal internalisation to be related to organisational commitment. As both these attitudinal outcomes are outside the scope of this study neither dimension has been considered appropriate for this study. Finally, Brownell [1979] argued that influence and involvement are aspects of autonomy, which suggests the inclusion of autonomy and influence dimensions of psychological empowerment should capture a broader range of middle management’s strategic decision process activities. 135 Different researchers have used the following terms to describe the dimensions of the empowerment concept. The dimension ‘autonomy’ has been used interchangeably with ‘control’ and ‘self-determination’; ‘influence’ has been used interchangeably with ‘power’ and ‘impact’; and ‘competence’ has been used interchangeably with ‘self-efficacy’.
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3.3.3.1 Autonomy dimension of empowerment definition
Autonomy has been defined as a reflection of an individual’s sense of control over
their own work behaviour in that they have choice in initiating and regulating actions
[Deci, Connell, & Ryan, 1989]. According to Emmanuel, Otley and Merchant [1990, p.
118], the decentralisation of decision making allows people’s influence over behaviour
and decisions thus allowing significant autonomy.
If organisations have decentralised structures, the very adaptable nature of the
work undertaken by middle management in a broad range of situations requires
personnel controls, because input controls cannot be precise for middle management
[Emmanuel et al, 1990, p. 114]. The use of Deci et al’s [1989] individual’s sense of
control over their own activities reflects the level of this control mechanism, as an
element of structure, that may be matched to different strategic priorities and therefore
is an appropriate definition for autonomy in the current study.
After considering Brownell’s [1979] comments mentioned in sub-section 2.3.2.2.2
and in footnote 82 of this chapter, middle management’s influence in the decision
process also should be included in this study and is discussed in the following sub-
section.
3.3.3.2 Influence dimension of empowerment definition
The perceived degree of influence that employees possess over strategic,
administrative or operating outcomes at work is an acknowledged dimension of
empowerment (e.g., Ashford [1989], Spreitzer [1996]). This definition is used in the
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current study because it reflects the power over decision making experienced by
employees and this experience affects their perceived level of influence [Philamon,
2003].136
In summary, the above definition for this study has been adopted from industrial/
organisation psychology literature (e.g., Ashforth [1989], Thomas & Velthouse [1990],
Spreitzer [1996]) because it is a more specific definition of the influence dimensions of
empowerment than the unidimensional definition used in previous management
accounting studies, mentioned in sub-section 2.3.2.2.2. The definition also applies to a
broader range of middle management’s strategic decision process activities than the
definition used in previous management accounting studies. Therefore the perceived
influence based on employees’ experience is the appropriate definition of the influence
dimensions of empowerment for this study. The third dimension of empowerment is
competence, which is discussed and defined in the next sub-section.
3.3.3.3 Competence dimension of empowerment definition
According to Spreitzer [1995, p. 1442], “competence, ‘or self efficacy’…is based
on personal mastery or effort-performance expectancy theory” [Philamon, 2003, p. 19].
Smith [2003, p. 68] stated that competence may be described as “an individual’s belief
in his or her capabilities to perform their activities (Gist, 1987)”. Gist [1987] and other
researchers (e.g., Bandura [1982], Bandura [1986], Wood & Bandura [1989]) have used
this definition to describe self-efficacy. This belief is based on an individual’s
assessment of personal factors including their past performance, adaptability, and
136 Philamon [2003] related this dimension to the extent to when an employee’s behaviour may impact on various organisational outcomes, e.g., how the employee makes a difference [Thomas & Velthouse, 1990]. She also provided a number of other titles that other researchers have used to study this concept (e.g., locus of control ― Rotter [1966]).
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capacity to co-ordinate a skilled sequence of actions [Bandura, 1986]. Thus, people’s
perception of their competence is affected more by how they interpret their performance
than the actual performance level and this feedback reinforces self-efficacy in people
[Bandura, 1982]. Because perceived self-efficacy represents a combination of past
results as well as people’s interpretation of their ability through feedback, Bandura
[1982] concluded that people’s perceived competence (self-efficacy) is often a better
predictor of future performance than past performance itself. The remaining paragraph
of this sub-section will outline why perceived self-efficacy is an appropriate definition
of competence for this study.
By empowering employees, Conger and Kanungo [1988] identified employees
experiencing a strong sense of self-efficacy while accomplishing the activities related to
achieving the desired outcomes. DiClemente and Prochaska [1998] acknowledge
behavioural change to learning may be facilitated by 10 processes that can be identified
readily. Self-evaluation is one of these processes, which includes self-efficacy as one of
its two dimensions (e.g., Prochaska, Velicer, Rossi, Goldstein, Marcus, Rakowski,
Fiore, Harlow, Redding, Rosenbloom and Rossi, 1994). Furthermore, active
involvement in the strategic planning process has an effect on participants’
understanding of the need for change as well as enhancing efficacy [Armenakis, Harris
and Mossholder, 1993]. Jung and Sosik [2002] used the argument of Avolio and Bass
[1995] that empowerment enables enhancement of personal self-confidence (i.e., self-
efficacy).137
High autonomy also allows people to choose actions and they learn from their
mistakes and successes, i.e., it allows on-the-job training [Emmanuel et al, 1990].138
137 The reference to groups may include departments, divisions, and business sub-units. 138 This learning process may be considered to develop middle management’s self-efficacy.
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Thus behaviour influences self-control, which can be increased through recruitment,
placement and training or communication to help individuals understand their roles
better, which helps employees’ identification with corporate goals (goal congruency).
Luckett and Eggleton [1991] argue that there is a possible link between learning and
self-efficacy. Psychological approaches all predict that successful acquisition of new
knowledge is conditional upon employee involvement [Tharenou, 1997]. She suggests
that a key determinant for achieving this involvement include employees’ perceptions of
their self-efficacy [Noe and Wilk, 1993; Tharenou, 1997].
According to Miller [1996], although there are a number of definitions for
organisational learning, it should be related to new knowledge acquisition by employees
who are able and willing to apply that knowledge in decision making.139 Using this
definition of organisational learning, Miller [1996] contrasted the most influential
paradigms of organisational research along two important dimensions. The first
dimension relates to the extent of the constraint on human and organisational action,
while the second dimension deals with the method of administrative thought and
action.140
139 Miller [1996] explained that learning may occur before, or long after, action is taken; therefore learning and decision making should be distinguished. However, he acknowledged that the method of decision making (e.g., level of employee involvement or limit to constraints on employee actions) may influence learning processes. 140 The contrast within the 1st dimension is the voluntarism-determinism continuum, where voluntarism gauges the extent organisations and employees are deemed to be intelligent and autonomous while with determinism at the other end of the continuum, organisations and employees are viewed as severely restricted in cognition and actions. Similarly, the contrast within the 2nd dimension is the emergent-methodical analysis continuum that compared how organisational actions are more spontaneous and emergent in emergent learning methods than in methodical analysis methods. The latter methods tend to view managers as intentionally rational beings “who make decisions by systematically analysing hard information about competitive options and costs” [Miller, 1996, p. 487]. His review revealed that it is quite common to have these forms of learning for the emergent method and for the methodical analysis method.
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Miller [1996] concluded that while each method can lead to learning many
different things, there are some outcomes that are typical for specific methods. For
example, interactive learning allows managers to exchange a considerable amount of
information with each other, fosters collaboration and simplifies organisational
adaptation by involving a local agreement and accommodation, which is carried out
mostly by middle managers. Such a learning method should form part of an interactive
MCS, and from the prior discussion, may be related to self-efficacy.
Locus of control is a widely used personality control mechanism variable across
many disciplines including prior contingency-based management accounting studies
(e.g., Brownell, 1981; Mia, 1984; Govindarajan, 1988). However, Locke and Latham
[1990] state that locus of control has been recognised as a more general measure of
personality. These authors state that “it is likely that anything useful obtained from
locus of control measures can be subsumed under the self-efficacy concept. The latter
measure is task specific and will probably work better than more general measures”
[Locke and Latham, 1990, p. 218]. Ajzen [2002, p. 12] argued on similar grounds with
the example that internal versus external is often confused with control or lack of
control over performance because “perceived control over an outcome is independent of
the internal or external locus of the factors responsible for it”. He suggested that self-
efficacy may “reflect the presence of internal as well as external factors” Ajzen [2002,
p. 16]. From the discussion contained in this sub-section, perceived self-efficacy is the
definition of competence chosen for this study.
The following sub-section will use research findings to develop hypotheses about
the relationships between each strategy priority and both involvement, as well as
empowerment of middle management in the strategic decision process.
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3.3.4 Strategic priority—Elements of the Control mechanism relationships
The following two sub-sections will discuss the relationships between each of the
four strategic priorities defined in sub-section 3.3.1 and two strategic decision process
control elements. In section 2.3.2.2, middle management involvement and their
empowerment in the strategic decision process were identified as two control elements
of the structure, which is a macro control mechanism. Both involvement and
empowerment of middle management in the strategic decision process are defined in
sub-sections 3.3.2 and 3.3.3. These relationships are depicted by AI to B in Figure 3.6.
Figure 3.6:
The Relationships between Strategic Priorities and Control Mechanism Variables
Specific Control Elements of the Strategic Priorities Strategic Decision Process
Middle Management
1. Involvement 2. Psychological Empowerment
― Autonomy ― Influence ― Competence
Strategic Priorities, i.e., - Product Innovation (SP1) - Product & Service Quality (SP2) - Marketing/ Brand Image (SP3) - Cost Leadership (SP4)
Relationship
Sub-section 3.3.4.1 addresses the strategic priorities-middle management
involvement relationship while 3.3.4.2 discusses strategic priorities-middle management
empowerment relationship.
H4.1, 4.2 4.3 & 4.4 H3.1, 3.2 3.3 & 3.4
AI
B
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3.3.4.1 Strategic priority—Middle management involvement relationship hypotheses
The term involvement is used in this sub-section to refer to both participation and
involvement when discussing prior findings because both terms have been used
interchangeably in past research. Also, some studies have reported involvement as a
unidimensional concept but have used multi-dimensional measures. Consequently,
some reported findings may have captured information collectively, or in part, about the
involvement, influence and autonomy of middle management. Thus, findings of some
studies of involvement are discussed in this sub-section because their definitions of
involvement (e.g., consultative participation) have a close association with the
definition of involvement used in the current study. However, other involvement
studies that adopt broader definitions of involvement (e.g., delegative participation) are
addressed in sub-section 3.3.4.2 because middle management’s influence in the final
decision process is included in their definitions of involvement.
Evidence presented in sub-section 2.3.2.2.1, suggests that the relationship between
a strategic priority and involvement will differ depending upon the strategic priority
selected by the organisation [Floyd & Wooldridge, 1992].141 In section 3.1, past
findings are presented that suggest these differences may be attributed to the varying
level of uncertainty and complexity associated with each strategic priority (e.g., Miller
[1988], Jermias & Gani [2004, Govindarajan & Shank [1992], Cabrera et al [2003]).
Therefore it may be concluded that middle management involvement in the strategic
decision process will differ depending upon the strategic priority chosen by
organisations. To establish the specific relationship for each strategic priority and
141 Floyd and Wooldridge [1992] used prospectors, analysers and defenders (Miles & Snow’s [1978] typology) and examined middle management involvement in four types of middle management involvement; two upward forms and two downward forms of involvement. These four types of middle management involvement are described in footnote 144.
3 Theoretical Model & Hypotheses Development
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involvement, prior results for each strategic priority are discussed separately. A
separate hypothesis is developed following each of these discussions and illustrated in
Figure 3.9.
3.3.4.1.1 Innovation-Involvement relationship hypothesis
Simons [1990] found that where an organisation adopted an innovation
strategic priority, middle management involvement was utilised as part of an interactive
MCS. Other researchers have found that when an innovation strategic priority was
selected, organisations (a) engage in middle management involvement, i.e., an
innovation strategic priority has a positive relationship with involvement (e.g., Ezzamel
[1989], Chenhall & Morris [1995], Cabrera, et al [2003]), or (b) require a more
expansive set of information thus emphasising more flexibility that allows the
organisations’ participants to adjust planned decisions (e.g., Abernethy & Brownell
[1999], Rogers et al [1999]).142 Veliyath and Shortell [1993] noted that organisations
adopting an innovation strategic priority place heavy emphasis on the involvement of
key personnel for market research.
Furthermore, Floyd and Wooldridge [1992] examined middle managements’
level of involvement in the strategic decision process related to different strategy
priorities.143 In their study, they utilised four types of middle management involvement;
142 Rogers et al [1999] described defenders as competing mainly through cost leadership. This is consistent with Kumar and Subramanian’s [1997/98] grouping of Porter [1980], Miles and Snow [1978], and Miller and Friesen [1986] as illustrated in Table 2.1. 143 See footnote 144 for further details.
3 Theoretical Model & Hypotheses Development
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two upward forms and two downward forms of involvement.144 They found a
statistically significant higher level of middle management involvement occurred only
for an innovative strategic priority (e.g., prospectors) for three of the four types of
middle management involvement.
The result of Simons’ [1990] two-firm case study is similar to the results from
these cross sectional studies. Therefore both forms of research provide findings that
suggest a positive relationship between an Innovation (SP1) strategic priority and
middle management involvement in the decision process. The following hypothesis is
developed from these results.
H3.1: There is a positive relationship between Product Innovation strategic priority
and middle management involvement in the strategic decision process.
3.3.4.1.2 Product and Service Quality-Involvement relationship hypothesis
In section 3.2.1, evidence was presented that supported the inclusion of the
TQM strategy within the definition of the Product and Service Quality strategic priority
(SP2) for this study. A number of field research findings have identified a change in
responsibility for TQM strategy [Schaffer & Thomson, 1992; Atkinson, Hamburg &
Ittner, 1994, Bonn & Christodoulou, 1996]. Ittner and Larcker [1997] found that senior
144 Upward forms of involvement were firstly, the championing form of involvement, where middle management influenced corporate management to adjust the current strategic priority to initiatives developed at the operational level. Synthesizing is the second upward form of involvement where middle management could affect how issues are interpreted by supplying information to top management “to combine strategic…with hands-on…information” [Nonaka, 1988, p. 15]. Facilitating adaptability is the first downwards form where more flexibility and informality are introduced into the process to facilitate learning by sharing information informally and to encourage adoption of change through experience of the new approaches. Implementing deliberate top-down management strategy is the second downwards form involving middle management to ensure they implement the strategic priority and control performance to achieve the desired outcomes. However, Floyd and Wooldridge [1992] identified the need for a series of interventions by middle-management to align actions with strategic intentions and therefore used this series of interventions to define this form of involvement.
3 Theoretical Model & Hypotheses Development
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management’s role is limited to the choice of quality improvement projects and then
assigning teams the responsibility of implementing strategies to achieve these quality
improvements. Powell [1995] identified that a significant factor in TQM performance
was that it operated within an open organisation, which he defined as exhibiting a
relaxation of traditional hierarchy. These results are consistent with a longitudinal study
by Bonn and Christodoulou [1996]. These researchers revealed that Australian
companies adopting a TQM strategy decentralised the strategic decision process to
divisional or SBU managers who were more involved in strategic planning. More
recently, Bayo-Moriones and Merino-Diaz de Cerio [2004] found a statistically
significant relationship between a TQM strategy and involvement.
Conversely, Carr et al [1997] found no significant difference for involvement
between organisations adopting a quality strategy compared to those adopting a cost
strategy. However, their inconsistent result may be attributed to the limitations in the
choice of their dichotomy, which is noted in sub-section 2.3.2.2.2 and footnote 85 of
that sub-section.
From the literature reviewed, evidence presented supports a positive
relationship between a Product and Service Quality strategic priority (SP2) and middle
management involvement in the decision process. The following hypothesis is
developed from these results.
H3.2: There is a positive relationship between Product and Service Quality strategic
priority and middle management involvement in the strategic decision
process.
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3.3.4.1.3 Marketing/Brand Image-Involvement relationship hypothesis
Limited research has investigated the relationship between marketing/brand
image and involvement in the strategic decision process. Simons [1990] identified that
when an organisation adopted a marketing (image) strategic priority, middle
management involvement formed part of its interactive MCS. McKee et al [1989] have
found that an adaptive marketing (brand image) strategic decision process existed for
prospector type firms. The existence of an adaptive strategic decision process would
suggest middle management involvement within a decentralised decision process.
Therefore a positive relationship should exist between Marketing/Brand Image (SP3)
strategic priority and involvement similar to the positive relationship for an Innovation
(SP1) strategic priority. The following hypothesis is developed from this evidence and
deduction.
H3.3: There is a positive relationship between Marketing/Brand Image strategic
priority and middle management involvement in the strategic decision
process.
3.3.4.1.4 Cost Leadership-Involvement relationship hypothesis
Table 2.1 illustrates how prior studies have integrated strategic typologies
(including Miles and Snow [1978] as well as Porter [1980]) based on similarities in
competitive characteristics [Simons, 1990; Kumar and Subramanian, 1997/98]. The
current study incorporates the competitive methods that are described in prior studies
and discussed in section 3.2.1 as the composition of different strategic dimensions.
Therefore, the following discussion in this section integrates findings or discussions
about defender firms and cost leadership strategic priority because past studies have
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identified that these strategic typologies possess similarities in competitive
characteristics.
Studies investigating either cost leadership strategy or defender type firms have
found mixed results. Some studies produced evidence that suggests cost leadership
strategy or defender type firms are associated with low involvement (e.g., Schuler &
Jackson [1987], Simons [1990], Floyd & Wooldridge [1992], Veliyath & Shortell
[1993]) and that involvement focuses on critical internal efficiency information (e.g.,
Rogers et al [1999]). Involvement identified in these studies relate to some involvement
in variance analysis functions or interpretation of issues but not in the decision process.
Chenhall and Morris [1995] argued that when an organisation places more attention on
internal strategies, such as cost efficiencies, then management of these conservative
organisations tend to view participation in decision making as costly and disruptive to
production efficiency.145 Therefore these results and logical arguments suggest a lack
of involvement in the decision process when a cost leadership (or defender) strategy is
adopted.
More recently, Cabrera et al [2003, p. 48] argued that management of
organisation following a cost leadership strategic priority would view middle
management as a cost and therefore be treated “as a factor of production”.
Consequently, Cabrera et al [2003] commented that middle management involvement in
information sharing or opinion solicitation would be considered a cost. Cabrera et al
[2003, p. 48] further argued that with such a philosophy involvement would be
considered costly “because more time is required…to reach a consensus when making
145 Basing their comments on established and recognised literature (e.g., Burns & Stalker [1961], Galbraith [1982], Lawrence & Lorsch [1967]), Chenhall and Morris [1995, p. 488] suggested that it is more appropriate for conservative organisations “to employ standardized procedures and a higher degree of bureaucratization to achieve effective performance”.
3 Theoretical Model & Hypotheses Development
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decisions”. To support their comments they used the claim by Hyman and Mason
[1995] that middle management would have little discretion in the decision process.
Based on these discussions and arguments, Cabrera et al [2003] hypothesised and found
a negative relationship between a cost leadership strategy and involvement in respect to
the focus of the current study.
This latter finding provides some support for a negative relationship between a
Cost Leadership (SP4) strategic priority and middle management involvement in the
decision process. The following hypothesis, therefore, is developed from this evidence
by these latter findings.
H3.4: There is a negative relationship between Cost Leadership strategic priority
and middle management involvement in the strategic decision process.
3.3.4.2 Strategic priority—Psychological Empowerment relationship hypotheses
The term psychological empowerment used in this sub-section refers to
autonomy, influence, and competence of middle management, which were defined in
sub-section 3.3.3 as three dimensions of empowerment relevant to the current study.
Carlopio, Andrewartha and Armstrong [1997] stated that empowerment is useful in
unstable and unpredictable business environments where a more flexible and involved
workforce is needed. Consequently, if organisations select a strategic priority in
response to such business environments, then these firms will require flexibility in their
workforce and the strategic decision process, which will necessitate the empowerment
of lower level management.
3 Theoretical Model & Hypotheses Development
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According to Bowen and Lawler [1995], research suggests that empowerment is
a state of mind. They argue that for employees to feel empowered, companies must
abandon the traditional top-down control orientated approach and implement high-
involvement practices that distribute influence, information, and knowledge with more
personal control to middle managers. Furthermore, Menon [2001] acknowledged the
need to implement such a high-involvement middle management empowerment process
to create psychological empowerment.
Thus, for middle management to feel empowered, they should experience
autonomy, influence, and competence that they acquire through their access to
information and knowledge via individual learning. Also, autonomy, influence, and
competence they experience, or do not experience, should be related to the selected
strategic priority. These deductions suggest that the relationship between each strategic
priority and empowerment should be similar to the predicted relationship for each
strategic priority and involvement in sub-section 3.3.4.1. Therefore empowerment
(autonomy, influence and competence) should vary depending upon the strategic
priority adopted. As a consequence of these findings, it may be deduced that middle
management’s autonomy, influence, and competence (three dimensions of
psychological empowerment) in the strategic decision process will differ depending
upon the strategic priority chosen by organisations. To establish the specific
relationship for each strategic priority and empowerment, prior results for each strategic
priority are discussed separately. A separate hypothesis is developed following each of
these discussions and illustrated in Figure 3.9.
In sub-section 2.3.2.2.2, it is identified that theoretical and empirical-based
articles may have used the overall psychological state of empowerment as a construct.
3 Theoretical Model & Hypotheses Development
145
As a corollary of this overall approach, some authors have not identified and analysed,
specifically, autonomy, influence or competence dimensions of empowerment.
Furthermore, limited research in the management accounting discipline that has
examined dimensions of psychological empowerment (e.g., Smith [2003], Hall [2004]).
Also, no research has been located that discussed or investigated, specifically, the
relationship between any strategic priority and individuals’ competence (self-efficacy)
dimension of empowerment.
However, individuals must not only feel they are capable and competent to
perform the activity but also believe that they will not be prevented from accomplishing
the activities by outside obstacles because self-efficacy is the opposite to powerlessness
[Carlopio et al, 1997; Bandura, 1977]. Bowen and Lawler [1995] argue that
empowerment of individuals provides them with this feeling of competence through
their individual learning. Therefore middle management’s perceptions of their
autonomy and influence complement their feelings of competence. It may then be
argued that relationships between each strategic priority and competence should be
similar to the relationships predicted in the following sub-sections between each
strategic priority and both autonomy and influence dimensions of empowerment.
3.3.4.2.1 Innovation-Empowerment relationship hypothesis
Research has either suggested or found that organisations with an innovation
strategic priority adopted an organisational environment that enabled middle
management to have an increased feeling of empowerment [Bowen & Lawler, 1995;
Abernethy & Brownell, 1999; Lind, 2001]. In particular, Miller and Friesen [1984]
argued that organisations adopting an innovation strategic priority tended to decentralise
3 Theoretical Model & Hypotheses Development
146
decision making powers to middle management. Ezzamel [1989] stated that middle
management autonomy is associated with an innovation strategic priority because they
were involved in incremental and up-to-date innovations and therefore possess
information necessary for relevant decision making. More specifically, Floyd and
Wooldridge [1992] found that middle management of prospector firms only perform
intervening activities, which suggests they possess autonomy. Also, Simons [1990]
found that responsibility was delegated to the line manager for the prospector firm.
Other researchers have formed the opinion that middle management have a higher
degree of autonomy where an innovation strategic priority is adopted (e.g., Miller,
Dröge & Toulouse [1988], Jermias & Gani [2004]).
Schuler and Jackson [1987, p. 210] suggest that an implication of adopting an
innovation strategy priority is the need to provide employees with more discretion and
this “may result in feelings of enhanced personal control”.146 Other researchers share
the opinion that middle management have a high influence on decisions where the
organisation adopts a product differentiation strategy (e.g., Govindarajan & Shank
[1992]). As prospector firms focus on a product innovation strategic priority, these
findings suggest that middle management possess autonomy and influence for
organisations that adopt an innovation strategic priority. Furthermore, information flow
and learning in the form of competency may result from middle management’s
autonomy and influence experience obtained through an organic organisational
environment found to be adopted by prospector firms or firms adopting entrepreneurial
146 Schuler and Jackson’s [1987] comments about enhanced personal control should be related to manager’s autonomy. Footnote 134 in sub-section 3.3.3 explains that control has been used interchangeably with ‘autonomy’ and ‘self-determination’.
3 Theoretical Model & Hypotheses Development
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(innovation) strategies [Abernethy & Brownell, 1999; Chenhall, 2003].147
The results mentioned in this sub-section suggest that middle management may
experience autonomy, influence, and competence where an Innovation strategic priority
(SP1) is adopted. The following hypothesis, therefore, is developed.
H4.1: There is a positive relationship between Product Innovation strategic priority
and middle management’s perception of their (a) autonomy, (b) influence,
and (c) competence associated with the strategic decision process.
3.3.4.2.2 Product and Service Quality-Empowerment relationship hypothesis
Bowen and Lawler [1995] suggest that organisations adopting a quality strategic
priority are more likely to adopt an organisational environment that enables middle
management to feel empowered. Consistent with the discussion in sub-section
3.3.4.2.2, such an organic organisational environment should facilitate learning and be
reflected in middle management’s competence Research has found a TQM strategic
priority is associated with high levels of empowerment [de Macedo-Soares & Lucas,
1995; Lind, 2001; Wall et al, 2002].
Other findings have produced more specific results for the relationship between
the product and service quality strategic priority and individual dimensions of
empowerment. For instances, Australian companies adopting a TQM have been found
to decentralise their strategy making process to provide divisional or SBU managers
147 Miller and Friesen [1982] developed another model using an archetype classification based on an organisation’s strategic momentum in innovation. They identified two strategic typologies (entrepreneurial and conservative) based on the extent of product innovation and compared, respectively, these two typologies to the prospector and reactor organisation types used by Miles and Snow [1978]. Entrepreneurial firms aggressively pursue product innovation to compete by differentiating their products.
3 Theoretical Model & Hypotheses Development
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with more autonomy [Bonn & Christodoulou, 1996]. Furthermore, Ezzamel and
Willmott [1998] found that the adoption of a TQM strategic priority necessitates
increased middle management autonomy and influence dimensions of empowerment.
Cabrera et al [2003] stated that ‘delegative’ participation148 gave employees autonomy
to influence activities that fall within their responsibilities. They found that a
significantly higher level of ‘delegative’ participation was present in organisations
adopting a quality strategic priority. Schuler and Jackson [1987] identified that middle
management were responsible for decision making where the organisation adopted a
continuous quality enhancement strategic priority. This evidence implies that middle
management have not only an influence for such decisions but also achieve learning
through this process, which would be reflected in their competence.
The results of prior studies presented in this sub-section and subsequent
discussions suggest that middle management may experience autonomy, influence, and
competence where an organisation adopts the Product and Service Quality strategic
priority (SP2). Therefore, the following hypothesis is developed.
H4.2: There is a positive relationship between Product and Service Quality strategic
priority and middle management’s perception of their (a) autonomy, (b)
influence, and (c) competence associated with the strategic decision process.
3.3.4.2.3 Marketing/Brand Image-Empowerment relationship hypothesis
Hutt, Reingen, and Ronchetto [1988] recognised the need to understand the
complex nature of a Marketing/Image strategic priority (SP3) and identified influence
148 Wagner [1994] defined ‘delegative’ participation as a participation process where middle management participants have greater personal influence in the strategic decision process.
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and autonomy as two characteristics from prior network research. Hamel and Prahalad
[1994] recognised that empowerment is required to implement a build-banner-brands
marketing strategic priority. In keeping with the discussion in sub-section 3.3.4.2,
middle management’s perceptions of their autonomy and influence complement their
feelings of competence [Bowen & Lawler, 1995; Carlopio et al, 1997; Bandura, 1977].
The arguments and comments presented in this sub-section suggest that middle
management may experience autonomy, influence, and competence where an
organisation adopts a Marketing/Image strategic priority (SP3). Therefore, the
following hypothesis is developed.
H4.3: There is a positive relationship between Marketing/Brand Image strategic
priority and middle management’s perception of their (a) autonomy, (b)
influence, and (c) competence associated with the strategic decision process.
3.3.4.2.4 Cost Leadership-Empowerment relationship hypothesis
The following discussion integrates defender and cost leadership strategic
priority because these strategic typologies possess similarities in competitive
characteristics. This discussion is consistent with the discussion in section 3.3.4.1.4 that
was based on similarities in competitive characteristics illustrated in Table 2.1.
Simons [1990] discovered that responsibility for decision making remained at
head office for the defender firm, which implies a lack of autonomy for middle
management. This finding is consistent with the cost minimisation, more centralised
decision process, and narrow information focus description of defender firms by Miles
and Snow [1978]. According to Maloney and Mia [1988, p. 52], due to the stability and
3 Theoretical Model & Hypotheses Development
150
certainty of defender firms’ operating environment, planning “requires minimum input
from lower level members in the organisational hierarchy.” Such arguments suggest
that middle management’s autonomy and influence in the decision process are minimal
for a defender firm.
Similarly, a decentralised decision process was not considered necessary for a
cost leadership strategic priority due to low uncertainty and low complexity of the
operating environment (e.g., Govindarajan & Shank [1992], Cabrera et al [2003]). In
particular, Govindarajan and Shank [1992] argued that business unit managers have
relatively low influence in the decision process and then identified similarities between
cost leadership and harvest missions. Therefore, middle management’s autonomy and
influence in the decision process may not be required for a cost leadership strategic
priority.
More recently, Cabrera et al [2003] reported that a cost leadership strategic
priority was related negatively to ‘delegative’ participation.149 This finding by Cabrera
et al [2003] is consistent with comments by Hyman and Mason [1995] that imply more
limited and adversarial uses of ‘delegative’ participation are caused by the
management’s push to regain greater control. According to Hyman and Mason [1995]
argument, this limited and adversary usage of ‘delegative’ participation is due to cost
and control pressures associated with strategic priority such as cost leadership. Also,
this adversary use of ‘delegative’ participation, and the more internally focused
information from a management accounting system mentioned by Maloney and Mia
[1988], would suggest that middle management competence would concentrate on
decisions of a routine nature. Therefore, it may be argued that middle management’s
149 See footnote 148 for Wagner’s [1994] definition of ‘delegative’ participation.
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individual learning and competence would be adversely affected by their limited access
to information and knowledge about the overall process. These arguments by Hyman
and Mason [1995] and findings by Cabrera et al [2003] suggest a negative relationship
between a cost leadership strategic priority and middle management’s autonomy,
influence, and competence in the decision process.
These findings and discussions suggest that middle management may have
negative perceptions about their autonomy and influence in decisions where an
organisation adopts a Cost Leadership strategic priority strategy (SP4). It therefore
follows from an observance of the discussion in sub-section 3.3.4.2, that when an
organisation adopts a Cost Leadership strategic priority strategy (SP4), middle
management may have a negative perception about their competence in the decision
process. Consequently, the following hypothesis is developed.
H4.4: There is a negative relationship between Cost Leadership strategic priority
and middle management’s perception of their (a) autonomy, (b) influence,
and (c) competence associated with the strategic decision process.
3.4 Research Problem Two: Relationships between Strategic Priorities and Managerial Performance and Relationships between Control Elements and Managerial Performance
In this section, the discussion uses the definitions of strategic priorities provided in
sub-section 3.3.1 as well as middle management involvement and psychological
empowerment in the strategic decision process provided in sub-sections 3.3.2 and
3.3.3.150 In the following sub-section, the behavioural outcome ‘managerial
150 The definition for middle management’s level of involvement follows the five processes specified by Woodridge and Floyd [1990] while three individual definitions (one for each of the three dimensions) for perceived level of empowerment are provided in the sub-sections 3.3.3.1, 3.3.3.2, and 3.3.3.3.
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performance’ is defined and discussed. Subsequent discussions will cover the
relationships between each strategic priority and managerial performance; between
middle management involvement and managerial performance; as well as between their
perceived empowerment and managerial performance. Separate discussions about each
of these relationships will be provided in each sub-section.
These discussions support the development of relevant hypotheses. The proposed
relationships between each strategic priority and managerial performance are illustrated
as AI to C in Figure 3.7.
Figure 3.7: Relationships between Strategic Priorities and Managerial Performance, as well as
Relationships between Control Elements and Managerial Performance
Specific Control Elements of the Middle Management’s Strategic Priorities Strategic Decision Process Performance Outcome
Middle management 1. Involvement level 2. Psychological empowerment level
― Autonomy ― Influence ― Competence
Specific Strategic Priorities, i.e.,
Product Innovation (SP1) Managerial Product & Service Quality (SP2) Performance Marketing/ Brand Image (SP3) Cost Leadership (SP4)
Direct Effect
AI C
B
H5..1, 5..2, 5..3, & 5..4
H6a.1, 6b.1, 6b.2 & 6b.3
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Relationships between middle management involvement and managerial
performance as well as between their perceived empowerment and managerial
performance are illustrated as B to C in Figure 3.7. These B to C relationships between
the two elements of the control mechanism within the MCS (as independent variables)
and performance (as the dependent variable) are consistent with a form of ‘fit’ theory
that Gerdin and Greve [2004] identified as having been adopted in prior research.
Furthermore, Rajagopalan et al [1993] analysed prior research that has examined
different combinations of relationships between strategic priorities, characteristics of the
strategic decision process, and performance. From their review of management
research spanning 11 years, Rajagopalan et al [1993] identified a number of variables
that have been classified as characteristics of the strategic decision process.
Participation/involvement, and by implication empowerment, are included among these
variables classified as characteristics of the strategic decision process. These authors
identified that fewer studies has investigated the link between strategic decision process
characteristics and performance outcomes. They called for future studies to examine
such links because the paucity of information about such links means “important
questions have remained unanswered” [Rajagopalan et al, 1993, p. 373].
3.4.1 Managerial performance definition
In this sub-section, managerial performance is discussed and defined. Managerial
performance was selected as the dependent variable for the reasons discussed in the
following three paragraphs.
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The introductory discussion in sub-section 3.3.3 mentioned that empirical evidence
was provided in chapters 2 and 3 that linked middle management with organisational
performance [Floyd and Wooldridge, 1992, 1994, 1997] and therefore middle
management has been the focus in prior research (e.g., Robinson & Pearce [1988],
Floyd and Wooldridge [1992, 1994, 1997], Chenhall & Langfield-Smith [1998]).
Consequently, it is proposed that the relationships suggested by Campbell-Hunt [2000]
be operationalised at the middle management level. Therefore, for the theoretical
framework in this dissertation, an individual’s performance outcome should be linked to
strategy and to both involvement and empowerment of middle management, as
elements of the control mechanism.
Previous management accounting studies have examined managerial performance
as the dependent variable in relation to: (a) participation (e.g., Brownell & McInnes
[1986], Chenhall & Brownell [1988]); (b) the role of behaviour and personnel controls
(e.g., Abernethy & Brownell [1997]); (c) tolerance of ambiguity (e.g., Chong [1998]);
and (d) strategy with participation as an interaction variable (e.g., Maloney & Mia
[1998]).
Other studies (e.g., Tosi, Rizzo & Carroll [1994], Mia [1988]) have identified how
“…managers’ attitudes and behaviour at work have implications for their overall
performance at work, that is, managerial performance…” [Subramaniam, 2000, p. 82].
Sagie and Koslowsky [2000] developed a multiple level model of multi-dimensional
concepts (PDM) and empowerment151 and in their model they linked individual
outcomes to PDM and empowerment at the individual level. Managerial performance is
151 Sub-section 3.3.3 contains a discussion about how Sagie and Koslowsky [2000] described the differences between PDM and empowerment. Essentially, PDM may be compared to the consultative participation dimension of PDM, which it is argued in sub-section 3.3.2 should be captured by the definition of involvement developed by Woodridge and Floyd [1990] that will be used in this study.
3 Theoretical Model & Hypotheses Development
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considered to be the appropriate individual outcome for this study because of its focus
on controls at the individual level and its use for similar purposes in past management
accounting studies noted earlier in this sub-section.
Prior research has used up to 10 managerial performance criteria in their studies of
middle management (e.g., Grimsley & Jarrett [1973], Maher, Ramanatah, & Peterson
[1979], Johnson, Neelankavil & Jadhav [1986], Neelankavil, Mathur & Zhang
[2000]).152 While these criteria are useful to identify the activities expected of middle
management that may help to operationalise the variable, they do not define a
performance.
Prior studies that have examined managerial performance (e.g., Mia [1984]) have
used the definition provided by Ferris [1977] because it is suitable for activities with
complexities or difficulties.153 More recently, Spreitzer [1995] defined managerial
effectiveness “as the degree to which a manager fulfils or exceeds work role
expectations” Spreitzer [1995, p. 1448]. Because Spreitzer [1995] and this dissertation
include an examination of the relationship between empowerment and performance, her
broader and more recent definition is considered to be more appropriate for the current
study. This definition is similar to Ferris’ [1977] employee performance used as a
measure for managerial performance by Mia [1984].
Consequently, the discussion in the successive three sections will focus on the
following relationships. The first sub-section will address relationships between each
152 The following managerial performance criteria have been compiled from these example studies; leadership ability, communication skills, planning and controlling, problem solving, decision making, ability to work under pressure, organising, public relations representations, supervisory skills, staff training and development, quantity and quality of technical work, and relationship with customers. 153 Ferris [1977, p. 610] defined employee’s performance as “the degree to which successful role achievement is accomplished”.
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strategic priority and managerial performance. Relationships between middle
management involvement, as well as empowerment of middle management, as elements
of the control mechanism, and managerial performance are discussed, respectively, in
the sub-sections 3.4.3 and 3.4.4. These predicted relationships are illustrated in Figure
3.9.
3.4.2 Strategic priority—Managerial performance relationship hypotheses
There is a paucity of research findings into the relationship between strategic
priorities and managerial performance with only three studies examining this specific
behavioural outcome [Subramaniam, 1991; Maloney, 1996; Maloney & Mia, 1998].
The remaining 36 studies identified in sub-section 2.3.1 examined the relationship
between strategy typologies and other levels or forms of performance.154
To provide the discussion necessary to develop the overall proposition and
hypothesis for these relationships, the limited empirical evidence will be complemented
by intuitive reasoning using the following conceptual arguments. The basic issue
underlying the conceptual arguments is that a positive direct association between a
strategic priority and managerial performance should occur when managers can link,
with a degree of certainty and predictability, the procedures or routine tasks needed to
achieve the desired outcomes through the support of formal control mechanisms. Such
a clear perceived linkage should require, if any, a low level of delegation to enable the
154 Appendix C provided a summary of the variables investigated by these 39 studies. The 26 academic journals used to conduct the literature review are listed in Appendix C. The Google Scholar search engine function was conducted also to complete an electronic search. Collectively, these sources provided approximately 6,800 potentially related articles to the relationships relevant to this study. This literature review result is consistent with the prior literature review [Shields & Shields, 1997; Langfield-Smith, 1997; Maloney & Mia, 1998], which suggests this relationship remains relatively unexplored in the management accounting literature.
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continuous flow of actions and involvement of middle management in the strategic
decision process. Intuitively, therefore in such circumstances there should be a
perceived positive association between a strategic priority and managerial performance.
Conversely, where contextual issues exist such as high levels of uncertainty and
unpredictability that result in non-routine tasks and procedures which are not well
developed, then the link between a strategic priority and managerial performance is less
certain. Higher levels of delegation or involvement of middle management in the
strategic decision process are required to mitigate this uncertainty. In such uncertain
and unpredictable circumstances, intuitively, there should be a negative association
between a strategic priority and managerial performance. This negative association
should exist because further actions and strategies should emerge throughout the
process of activities for achieving the desired outcomes. This process necessitates a
high level of delegation to enable the continuous flow of actions or involvement of
middle management in the strategic decision process.
Therefore, the deductive reasoning provided in this sub-section supports the
proposition that the relationships between each strategic priority and managerial
performance will vary, positively or negatively, depending upon the strategic priority
adopted. To establish the specific relationship for each strategic priority and managerial
performance, the limited empirical evidence will be complemented by intuitive
reasoning using conceptual arguments and the results of contextual variables in other
strategy related studies. Using this approach, each strategic priority is discussed
separately. A separate hypothesis is developed following each of these discussions.
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3.4.2.1 Innovation—Managerial performance relationship hypothesis
Studies have examined the relationship between a Product Innovation strategic
priority (SP1) and managerial performance [Subramaniam, 1991; Maloney, 1996;
Maloney & Mia, 1998]. Although, her discussion and hypotheses were developed
within Miles and Snow’s [1978] model, Subramaniam [1991, p. 89] predicted “an
inverse relationship between the level of innovative business strategy and managerial
performance”. She operationalised strategy using measures developed by Ezzamel
[1989] that focused on the innovation dimensions of strategy, which is consistent with
her study’s prediction. Subramaniam [1991] therefore found a small negative but not
significant relationship between innovation strategy and managerial performance.
Maloney [1996] included Miles and Snow’s [1978] prospector-defender typology
in her study. However, the reduced actual range of responses combined with the
negative skewness value and the negative kurtosis value suggest that the majority of the
participants exhibited prospector tendencies and any findings should be related more
towards the Product Innovation strategic priority (SP1) for the current study.155
Although both Maloney [1996] and Maloney and Mia [1998] investigated the effect of
interaction between strategy and budgetary participation on managerial performance,
the following discussion is related to the resulting beta value for strategy after
considering the effect of the substituted value for strategy (X2) on the intercept, which
155 Maloney [1996] reported an actual range of 1 to 6, a mean value = 4.55, a skewness value = -.908 and a kurtosis value = -.736. This negative skewness and below zero kurtosis value suggests, respectively, a “pile up of cases to the right of normality…(and)…a distribution that is too flat (also with too many cases in the tail)” [Tabachnick & Fidell, 2001, p.73, parenthesis added]. Therefore the majority of the responses have values between 4.55 and 6, which suggests the majority of the respondents exhibited prospector tendencies.
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represents the effect of strategy on managerial performance.156
The solution derived from the intuitive analysis of Maloney and Mia’s [1998]
results presented in Appendix C would suggest that the negative significant relationship
between strategy and managerial performance reported by both Maloney [1996], and
Maloney and Mia [1998] may provide a useful directional relationship between the
Product Innovation strategic priority (SP1) and managerial performance for the current
study.
To complement these results, the following theoretical arguments and empirical
evidence is considered. Firstly, a negative relationship may be attributed to the higher
levels of uncertainty associated with prospector (innovation) strategy [Govindarajan &
Shank, 1992]. Empirically, Miller [1988] found that an innovation strategic priority
was positively associated with delegation and involvement mechanisms. This
association was due to the higher levels of uncertainty and unpredictability in an
innovation strategic priority compared to a cost leadership strategic priority. Similarly,
Veliyath and Shortell [1993] found a statistically significant difference between the
level of involvement of key personnel in the strategic planning and implementation
system due to the non-routine nature of procedures that were not well developed.
156 The study by Maloney [1996] and Maloney and Mia [1998] have used interval scale measures. Therefore the related discussion about the findings of Maloney [1996] and Maloney and Mia [1998] for the current study is mindful of the argument by Southwood [1978] that X1 cannot be replaced by a zero. Southwood [1978], however, focused on the effect a zero value for X1 would have on the slope whereas there are two components to a regression equation, the intercept and the slope. If the focus is on the intercept in an equation, it can be argued that if X2 is given different values, then the intercept will include the change in X2 that will result in β2 being part of the intercept as is demonstrated in the following set of equations. Following a consultation with Professor Selvanathan, the set of equations (provided on page 4 of Appendix C) containing changes in the value of X2 that should result in β2 forming part of the intercept (β0 + β2) value were developed by the author of this dissertation. This set of equations was checked by Professor Selvanathan, whose qualifications are listed on pages 5 and 6 of Appendix C.
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The results and intuitive discussions mentioned in this sub-section suggest that a
degree of involvement is needed where an innovation strategy is adopted due to
uncertainty and unpredictability limiting the extent of a well developed strategy
implementation plan. It therefore may be deduced that a negative relationship exists
between an Innovation strategic priority (SP1) and managerial performance. The
following hypothesis is derived from this deduction.
H5.1: There is a negative relationship between Product Innovation strategic
priority and managerial performance.
3.4.2.2 Product and Service Quality—Managerial performance relationship hypothesis
Limited research has been conducted into the relationship between Product &
Service Quality (TQM) strategic priority (SP2) and performance [Samson & Terziovski,
1999; Bayo-Moriones & Merino-Diaz de Cerio, 2004]. While Samson and Terziovski
[1999] reported that their results showed a significant relationship between a TQM
strategy and operational performance (< .001),157 the significant relationship did not
occur for all six dimensions of TQM examined by these researchers. Samson and
Terziovski [1999] used the findings of Fredrickson [1984] to suggest that the result may
be caused by the varying levels of industry stability due to the cross sectional nature of
their study. Furthermore, these researchers acknowledged that the size of companies
included may limit the interpretation of the results.158
Bayo-Moriones and Merino-Diaz de Cerio [2004] found a positive significant
relationship (< .01) between a TQM strategy and operational performance. As 157 Samson and Terziovski [1999] used non-financial indicators of operation performance, i.e., customer satisfaction, employee morale, productivity, quality of output, and delivery performance. 158 Samson and Terziovski [1999] included Australian and New Zealand companies with between 20 and 3,000 employees.
3 Theoretical Model & Hypotheses Development
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mentioned in section 3.3.4.1.2, these researchers also found a significant relationship
between a TQM strategy and involvement. To support their explanation for these two
significant findings, Bayo-Moriones and Merino-Diaz de Cerio [2004] offered prior
evidence. Firstly, they mentioned findings that support the possibility of a reduction of
autonomy and flexibility of middle management through the implementation of a TQM
strategy (e.g., Monks, Buckley, & Sinnott [1997]).159 Secondly, they used other
findings in their explanation that are consistent with a higher level of involvement (e.g.,
Lawler, Mohrman, & Ledford [1998]).160 Results from Bayo-Moriones and Merino-
Diaz de Cerio [2004] therefore provide both a directional indication for this direct
relationship argued in this section and some evidence of a possible indirect relationship
through involvement.
In conclusion, both studies discussed in this section provided evidence of a
significant positive relationship between TQM strategic priority and -performance
[Samson & Terziovski, 1999; Bayo-Moriones & Merino-Diaz de Cerio, 2004].
However, the limited research conducted into this relationship suggests an exploratory
investigation should be considered for this relationship. It therefore may be deduced
from the evidence mentioned in this paragraph that a positive relationship exists
between a Product & Service Quality strategic priority (SP2), and managerial
performance. The following hypothesis is derived from this deduction.
H5.2: There is a positive relationship between Product and Service Quality strategic
priority and managerial performance.
159 Monks et al [1997], for example, found that firms with an established quality system may use involvement as a means to increase control over participants. 160 Lawler et al [1998], for example, found strong association between TQM and involvement.
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3.4.2.3 Marketing/Brand Image—Managerial performance relationship hypothesis
Miller [1988] found a Marketing Image differentiation strategy not associated
with delegation or involvement, which he suggested may occur where such marketing
differentiation avoids implementing innovation techniques. Miller’s [1988] suggestion
follows his logic related to the use of structure as a macro control mechanism. He used
this macro control mechanism as one of the bases for his predictions for product
differentiation, marketing differentiation and cost leadership strategic priorities as well
as a motivation for his study. The following reasoning may be deduced from Miller’s
[1988] finding and srgument when considered in conjunction with the intuitive
discussions mentioned in sub-section 3.4.2.
Firstly, where the implementation of innovation techniques is avoided, there
should exist a degree of certainty and predictability that result in procedures or routine
tasks necessary to achieve the desired outcomes through the support of formal control
mechanisms. Secondly, a clear perceived linkage should therefore exist between a
Marketing Image differentiation strategy and managerial performance. This clear
linkage should require a low level of delegation to enable the continuous flow of actions
and involvement of middle management in the strategic decision process.
Consequently, in such circumstances, there should be a perceived positive association
between a Marketing Image strategic priority and managerial performance.
The above discussion and evidence provide intuitive directional guidance that
should support an exploratory investigation into the relationship between a Marketing/
Brand Image strategic priority (SP3) and managerial performance. It therefore may be
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deduced from the evidence available that a positive relationship exists between a
Marketing/ Brand Image strategic priority (SP3) and managerial performance. The
following hypothesis is derived from this deduction.
H5.3: There is a positive relationship between Marketing/Brand Image strategic
priority and managerial performance.
3.4.2.4 Cost Leadership—Managerial performance relationship hypothesis
In section 3.3.4.1.4, it was recognised that prior studies have identified that a
number of strategic typologies possess similarities in competitive characteristics.
Included in such typologies were defender firms described by Miles and Snow [1978]
and a cost leadership strategic priority proposed by Porter [1980, 1985]. The conceptual
arguments provided in sections 3.3.4.2.4 and 3.4.2 suggest that a cost leadership
strategic priority (defender firm) has a cost minimisation objective, a more centralised
decision process structure, and a narrow information focus. Also, such firms are
generally associated with a lower level of uncertainty in their operating environment
and as a consequence, minimum input from lower level members is required for
planning.
Furthermore, researchers have suggested that a cost leadership strategic priority is
associated with lower uncertainty due to the routine nature of the processes involved
and the use of prescriptive task controls (e.g., Govindarajan & Shank [1992]). Miller
[1988] found a cost leadership strategic priority had reduced unpredictability, which
was negatively associated with involvement and positively associated with formal
controls. Additionally, Veliyath and Shortell [1993] argued that a cost leadership
strategic priority was associated with a well developed strategy implementation plan.
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Following these arguments and findings, it may be deduced that an absence of
involvement occurs where a cost leadership strategy is adopted. Reasons for an absence
of involvement where a cost leadership strategic priority is adopted include the routine
nature of tasks resulting in lower levels of uncertainty and unpredictability that permits
the presence of a well developed strategy implementation plan and formal control
mechanism. It therefore may be deduced that there is a positive relationship between a
Cost Leadership strategic priority (SP4) and managerial performance. The following
hypothesis is derived from this deduction.
H5.4: There is a positive relationship between Cost Leadership strategic priority
and managerial performance.
3.4.3 Middle management involvement and their performance relationship
Vandenberg et al [1999] found that high involvement has a direct effect on
organisational effectiveness. These researchers argued that conceptually, the influence
of involvement on effectiveness should not differ, regardless of whether involvement is
at the individual, group or organisational level. They suggested that future research
should examine the effect of involvement on other outcome variables to test this
conceptual argument. One suggested variable for future studies particularly identified
by Vandenberg et al [1999] was individual performance. Figure 3.6 contains an
illustration of the proposed relationship as B to C for the current study that will be
discussed in this sub-section and sub-section 3.4.4.
In this sub-section, the discussion will relate to findings of studies regarding the
relationship between involvement and managerial performance that used different terms
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165
but the description of which is related to involvement as defined for the current study.161
Managers that are permitted to be involved in decision making are more likely to have
higher productivity [Bowen & Lawler, 1995]. Wagner [1994] conducted a meta-
analysis for 16 studies and the results showed consultative participation, which lacks
involvement in the strategic decision process, having little effect on performance.162
Black and Gregersen [1997] specifically, conducted a t-test between individuals
with high involvement (those involved in all 5 processes) and individuals with low
involvement (those who were involved in all except the fifth process). They found that
managers involved in less than five decision processes, had a lower level of
performance. These processes are similar to those used by Wooldridge and Floyd
[1990], who found only moderate support for an association between middle
management involvement in each of the five processes and performance.163
Furthermore, Milani [1975] noted that participation did not relate consistently to
performance. Nouri and Parker [1998] found a positive relationship between
participation and job performance while Lau and Lim [2002] found a relationship
between participation and managerial performance. The findings of Spreitzer and
Mishra [1999] support their hypothesis that high employee involvement enhances
performance. More recently, Bayo-Moriones and Merino-Diaz de Cerio [2004] found a
significant small positive relationship between middle management’s involvement and
performance.
161 For example, Wagner’s [1994] consultative participation relates to management being restricted to the idea generation process only in the decision process which is similar to only the first dimension of Woodridge and Floyd’s [1990] involvement definition used for the current study. 162 This result is consistent with Locke and Schwieger [1979]. 163 Wooldridge and Floyd [1990] presented correlations among the five processes and five performance measures. While all correlations were positive, only 3 of the possible 25 associations were significant at < .05 while a further 10 associations were positive at < .1. Furthermore, the correlations ranged from .20 to .44, which would suggest that most of these five processes some positive relationships with performance.
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From this evidence and the relationship illustrated in Figure 3.6, hypothesis six
(H6a) is developed which predicts that middle management involvement will have a
positive effect on their performance.164
H6a: There will be a positive relationship between the involvement by middle
management in the strategic decision process and managerial performance.
3.4.4 Middle management psychological empowerment and their performance
relationship
Although empowerment has been found to have positive effects on behavioural
work outcomes, Winter, Sarros, and Tanewski [1997] argue that further evidence is
needed about the effect of empowerment on work outcomes. Spreitzer et al [1997]
stated that each dimension of empowerment made a different contribution to work
outcomes. As a consequence, each dimension will be addressed separately in the
following discussions.
3.4.4.1 Middle management’s autonomy and their performance
Autonomy has been related to the ability to take action on decisions but not to
influence decisions (e.g., Brownell [1979], Liden & Arad [1996], Kraimer et al [1999]).
Furthermore, although earlier conceptual and empirical research (e.g., Thomas &
Velthouse [1990], Spreitzer [1995]) linked autonomy with job effectiveness, Spreitzer
et al [1997] did not find any significant relationship between autonomy and
164 As discussed in sub-section 3.3.2, this definition incorporates a broad range of controls such as ‘pseudo-participation’ schemes, consultative participation, and ‘delegative’ participation when there is a low level of influence for each of the five dimensions in the decision process identified by Woodridge and Floyd [1990].
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effectiveness. It therefore may be deduced from these discussions and findings that
autonomy does not appear to be associated with performance.
Evidence presented in this sub-section leads to the proposition that there is no
association between the autonomy dimension of empowerment and managerial
performance. The following hypothesis is derived from this proposition.
H6b.1: There will be no relationship between autonomy perceived by middle
management in the strategic decision process and managerial performance.
3.4.4.2 Middle management’s influence and their performance
Cotton et al [1988] suggested that managers’ high level of influence in the
decision process should enhance performance. Research findings by Ashforth [1990]
and Spreitzer et al [1997] support the existence of a positive relationship between
manager’s influence and performance and therefore provides support for Cotton et al’s
[1988] suggestion.
Evolving from evidence presented in this sub-section is the proposition that the
influence dimension of empowerment is positively related to managerial performance.
The following hypothesis is derived from this proposition.
H6b.2: There will be a positive relationship between influence perceived by middle
management in the strategic decision process and managerial performance.
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3.4.4.3 Middle management’s competence and their performance
Wood and Bandura [1989] identified prior studies (e.g., Bandura & Cervone,
1983; Taylor, Locke, Lee & Gist, 1984) that have found perceived managerial
competence can influence performance. Subsequently, Locke [1991] argued that
competence has a powerful effect on performance.165 Spreitzer et al [1997] have also
argued that competence has a stronger relationship with behavioural outcomes like
effectiveness.
The proposition that the competence dimension of empowerment is positively
related to managerial performance may be deduced from evidence presented in this sub-
section. Therefore, the following hypothesis is derived from this proposition.
H6b.3: There will be a positive relationship between competence perceived by middle
management in the strategic decision process and managerial performance.
The mediating effect of middle management involvement and empowerment will be
discussed in the following section.
3.5 Research Problem Two: Mediating Effect of Control Elements
on each Specific Strategic Priority-Managerial Performance Relationship
Boal and Bryson [1987] conducted a theoretical exploration of the three components
of the interrelationship between strategy context, strategy process and process
outcomes. They identified the Porter [1980] model as an example of this
interrelationship because it is implicit in his model that his competitive strategy
165 The term self-efficacy and experience of personal competence have been used interchangeably in the literature. Competence is used in this section to refer to both terms.
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(context) basically determines the strategic response (process), which in turn would
influence outcomes [Boal & Bryson, 1987, p. 214]. From the current study’s
perspective, these three components are strategy priorities as context, involvement and
psychological empowerment of middle management in strategic decision making as the
strategy process, and managerial performance as a specific outcome. Furthermore, Boal
and Bryson [1987, p. 211] argued that managers only need “to match the desired
outcomes to context and the appropriate process will follow automatically”. Their
conclusion that the intervening effect model should dominate conceptually was based
on their observations of numerous links between context and process as well as process
and outcomes.166
Figure 3.8: The Mediating Effect of Control Elements on
Specific Strategic Priority-Managerial Performance Relationships
Specific Control Elements of the Middle Management’s Strategic Priorities Strategic Decision Process Performance Outcome
Middle management 1. Involvement level 2. Psychological empowerment level
― Autonomy ― Influence ― Competence
Specific Strategic Priorities, i.e.,
Product Innovation (SP1) Managerial Product & Service Quality (SP2) Performance Marketing/ Brand Image (SP3) Cost Leadership (SP4)
Indirect Effect
The discussion in the next two sub-sections will relate to the intervening effect of the
levels of both involvement and empowerment on the relationships between each
166 Two of the examples provided by Boal and Bryson [1987] were that process enabled managers to make strategic responses such as more frequent communications that “…increase the likelihood of favourable outcomes” (p. 226) as well as motivate an “…effort to improve goal acceptance, specificity, support for subordinate units will pay off in…improvements in units’ capability” (p. 225).
AIC
BH7a1, 7a2 7a3 & 7a4, H8.1a, 8.1b 8.1c & 8.1d, & H8.2a, 8.2b 8.2c & 8.2d
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strategic priority and managerial performance. These relationships are illustrated by AI
to B to C in Figure 3.8.
3.5.1 Mediating effect of middle management involvement hypotheses
Empirical evidence has identified that middle management involvement plays a
mediating role in performance through their strategic involvement [Floyd &
Wooldridge, 1992; 1994; 1997]. A review of the literature did not produce any study
that has examined the mediating effect of involvement on any relationship with
managerial performance. Powell [1995] identified that a significant factor in TQM
performance was that it operated within an open organisation, which he defined as
exhibiting a relaxation of traditional hierarchy. As the relaxation of the traditional
hierarchy would suggest a form of decentralisation in the decision making process,
involvement in the decision process may be considered to be an intervening influence
on the relationship between TQM strategic priority and performance.
From discussions provided in sub-sections 3.3.2, 3.4.3, and 3.3.4.1, it was predicted
in hypothesis H3 that there are varying relationships between each of the four strategic
priorities and middle management involvement in the decision process. Furthermore, a
proposed positive relationship between middle management involvement in the decision
process and performance is contained in hypothesis H6a. The mediating (or indirect)
effect of middle management involvement is represented by the product of relationships
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proposed in the respective hypotheses of hypothesis H3 as well as hypothesis H6a.167
Therefore, the combination of suppositions about relationships stated in the hypotheses
of hypothesis H3 and hypothesis H6a suggests that involvement in the decision process
should play an intervening role in the relationships between each strategic priority and
managerial performance, which were discussed in sub-section 3.4.2.
The four hypotheses (H7.1 to H7.4) for hypotheses seven were developed from
information that was drawn from three areas. Firstly, evidence provided in prior
sections of chapter 3, secondly, combination of suppositions about relationships stated
in hypotheses of hypothesis H3 and hypothesis H6a, and finally, use of deductive
reasoning in this sub-section lead. Each hypothesis relates to the intervening role that
involvement will have on the relationships between each strategic priority and
managerial performance.
H7.1: Involvement by middle management in the strategic decision process will
mediate the negative relationship between a product innovation strategic
priority and managerial performance.
H7.2: Involvement by middle management in the strategic decision process will
mediate the positive relationship between a product and service quality
strategic priority and managerial performance.
H7.3: Involvement by middle management in the strategic decision process will
mediate the positive relationship between a marketing/ brand image strategic
priority and managerial performance.
167 The mediating (or indirect effect, which is designated by the symbols IE) effect on each direct effect (DE) results from the multiplication of the relationship for each strategic priority and involvement (as predicted in the hypotheses of H3 in sub-section 3.3.4.1) as well as involvement and managerial performance (as predicted in the hypotheses of H6a in sub-section 3.4.3). That is, the IE of each relationship would be the product of the following calculations: (1) involvement on Product Innovation H3.1 and involvement on managerial performance H6a; (2) involvement on Product & Service Quality H3.2 and involvement on managerial performance H6a; (3) involvement on Marketing/Brand Image H3.3 and involvement on managerial performance H6a; and (4) involvement on Cost Leadership H3.4 and involvement on managerial performance H6a.
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H7.4: Involvement by middle management in the strategic decision process will
mediate the positive relationship between a cost leadership strategic priority
and managerial performance.
3.5.2 Mediating effect of middle management’s psychological empowerment
hypotheses
Powell [1995] found that employee empowerment has a positive affect on
performance for organisations that adopt a TQM strategic priority. Other research has
found that only influence and competence dimensions of empowerment have some
mediating effect on effectiveness (e.g., Liden et al [2000]). However, Powell [1995] did
not investigate the effect of the dimensions of empowerment while Liden et al [2000]
did not examine strategic priorities in their study.
Development of a proposition and hypothesis about the mediating effect of
empowerment, requires the consideration of the combination of relationships predicted
in the relevant hypothesis of hypothesis H4 and the appropriate hypothesis of hypothesis
H6b.168 Two of the hypothesis of hypothesis H6b predict that influence and competence
are positively related to managerial performance while the third dimension (autonomy)
has no association with performance. Therefore a proposition may be developed from
the findings discussed in this sub-section and sub-sections 3.3.3, 3.4.4, and 3.3.4.2. The
proposition suggests that the three dimensions of empowerment differ in their mediating
effect on the relationships between each of the four strategic priorities and performance.
Two sets of four hypotheses are derived from this proposition.
168 The mediating effect (IE) of the three dimensions of psychological empowerment would be calculated using the techniques explained in footnote 167 for calculating the IE of involvement on the same relationships.
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For the respective hypotheses of hypothesis four, positive relationships are
predicted between three of the four strategic priorities (H4.1b&c, H4.2b&c, & H4.3b&c) and
both influence and competence and negative relationships between Cost Leadership and
both influence and competence under (H4.4b&c). Also, positive relationships are
predicted between both influence and competence and managerial performance in H6b.2
and H6b.3b. Therefore, the first set of hypotheses (i.e., H8.1a, H8.1b, H8.1c, & H8.1d) is
partitioned into two components; influence (i) and competence (ii) due to the
similarities in their predicted intervening effects (IE) on each relationship.
H8.1a: Middle management’s perceived (i) influence and (ii) competence as
dimensions of psychological empowerment in the strategic decision process
will mediate the negative relationship between a product innovation strategic
priority and managerial performance.
H8.1b: Middle management’s perceived (i) influence and (ii) competence as
dimensions of psychological empowerment in the strategic decision process
will mediate the positive relationship between a product and service quality
strategic priority and managerial performance.
H8.1c: Middle management’s perceived (i) influence and (ii) competence as
dimensions of psychological empowerment in the strategic decision process
will mediate the positive relationship between a marketing/ brand image
strategic priority and managerial performance.
H8.1d: Middle management’s perceived (i) influence and (ii) competence as
dimensions of psychological empowerment in the strategic decision process
will mediate the positive relationship between a cost leadership strategic
priority and managerial performance.
Furthermore, because hypothesis H6b.1 predicts that autonomy does not have a
relationship with managerial performance it should not have a mediating effect on
relationships between any strategic priority and managerial performance. Although the
same directional relationships are predicted for autonomy in hypotheses H4.1a, H4.2a,
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H4.3a & H4.4a as are predicted for H4.1b&c, H4.2b&c, H4.3b&c and H4.4b&c, no positive
relationship is proposed for autonomy in H6b.1.
Therefore the product of each combination of the predicted relationships in
hypotheses H4.1a, H4.2a, H4.3a & H4.4a with the proposed no relationship for autonomy in
H6b.1 will result in autonomy having no mediating effect on the relationships between
each of the four strategic priorities and performance. Consequently, the second set of
hypotheses (i.e., H8.2a, H8.2b, H8.2c, & H8.2d) relates solely to autonomy having no
mediating effect of the relationships between each of the four strategic priorities and
performance.
H8.2a: Middle management’s perceived autonomy dimension of psychological
empowerment in the strategic decision process will not mediate the negative
relationship between a product innovation strategic priority and managerial
performance.
H8.2b: Middle management’s perceived autonomy dimension of psychological
empowerment in the strategic decision process will not mediate the positive
relationship between a product and service quality strategic priority and
managerial performance.
H8.2c: Middle management’s perceived autonomy dimension of psychological
empowerment in the strategic decision process will not mediate the positive
relationship between a marketing/ brand image strategic priority and
managerial performance.
H8.2d: Middle management’s perceived autonomy dimension of psychological
empowerment in the strategic decision process will not mediate the positive
relationship between a cost leadership strategic priority and managerial
performance.
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3.6 Chapter Summary
In this chapter, two research problems have been identified, two research questions
posed, and two conceptual models presented that underlie this study. Also provided are
models that relate to specific aspects of these conceptual models. This chapter contains
definitions for variables and provides discussions about relevant literature that form the
basis for the rationale and propositions for aspects of specific relationships in the
relevant model. These propositions are used as the basis for the construction of eight
hypotheses with associated hypotheses to be investigated in this study. The specific
relationships predicted in hypotheses three to six are illustrated in Figure 3.9.
Chapter 4 discusses the research methods as well as measurements for the variables
used in this study to test these hypotheses.
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9
AI B C Innovation Involvement Product & Autonomy Service Quality Managerial Performance Marketing/Image Influence Cost Leadership Competence
Relationships between
Each Strategic priority & Involvement H3
Each Strategic priority & Autonomy H4
Each Strategic priority & Influence H4
Each Strategic priority & Competence H4
Involvement, Autonomy, Influence, or Competence & Managerial Performance H6
Each Strategic priority & Managerial Performance H5
(+)
X1
(―)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(―)
(―)
(―)
X2
X3
X4
X5
X6
X7
X8
X9
(+)
(+)
(+)
(―)
(―)
(+)
(+)
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Figure 3.9: The Model between (AI) Four Strategic priorities, (B) Involvement & Three Dimensions of Psychological Empowerment, & (C) Managerial Performance
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