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STRATEGIC GROUP THEORY: REVIEW, EXAMINATION AND APPLICATION IN THE UK PHARMACEUTICAL INDUSTRY

by Graham Leask & David Parker

Graham Leask, Aston Business School, Aston University, Birmingham B4 7ET, UK and David Parker, Cranfield School of Management, Cranfield University, Bedfordshire MK43 0AL, UK

ACKNOWLEDGMENT The authors would like to acknowledge the valuable assistance of IMS Health in the preparation of this manuscript, in particular the assistance of Alan Johnson, and the helpful comments of a referee on an earlier draft of the paper.

Strategic Group Theory: review, examination and application in the UK pharmaceutical industry.

Strategic Group Theory: review, examination and application in the UK pharmaceutical industry. Structured Abstract Category Keywords: General review. strategic groups, strategic mapping, industrial structure, UK, pharmaceutical industry.

Purpose of this This paper considers the current status of strategic group theory in the light paper of developments over the last three decades. It then goes on to discuss the continuing value of the concept, both to strategic management research and practising managers. Methodology Critical review of the idea of strategic groups together with a practical strategic mapping illustration. Findings Strategic group theory still provides a useful approach for management research, which allows a detailed appraisal and comparison of company strategies within an industry. Research implications Strategic group research would undoubtedly benefit from more directly comparable, industry-specific studies, with a more careful focus on variable selection and the statistical methods used for validation. Future studies should aim to build sets of industry specific variables that describe strategic choice within that industry. The statistical methods used to identify strategic groupings need to be robust to ensure that strategic groups are not solely an artefact of method. Practical implications The paper looks specifically at an application of strategic group theory in the UK pharmaceutical industry. The practical benefits of strategic groups as a classification system and of strategic mapping as a strategy development and analysis tool are discussed. What is original [246 words] 1 The review of strategic group theory alongside alternative taxonomies and application of the concept to the UK pharmaceutical industry.

Strategic Group Theory: review, examination and application in the UK pharmaceutical industry.

Introduction

The application of strategic group theory in strategic management research stems from an observation by Hunt in 1972 (Hunt, 1972) that, contrary to existing theory based on the structure- conduct-performance paradigm in the industrial organisation (IO) literature (Mason, 1949, Bain, 1959), there appeared to exist performance differences between groups of firms within the same industry as well as across industries. Hunt coined the term “strategic groups” to describe "a group of firms within the industry that are highly symmetric with respect to cost structure, the degree of vertical integration, and the degree of product differentiation, formal organization, control systems, management rewards/punishments, and the personal views and preferences for various possible outcomes" (Hunt, 1972, p.8). Since then the most commonly used definition of strategic groups has been that provided by Porter: “A strategic group is the group of firms in an industry following the same or a similar strategy along the strategic dimensions” (Porter, 1980, p.129). Porter extended Hunt’s original idea to include indirect effects leading to different strategies between firms, notably the existence of market entry barriers. (Porter, 1976, Porter, 1979). A further definition is that provided by Cool, who described a strategic group as “a set of firms competing within an industry on the basis of similar combinations of scope and resource commitments” (Cool and...
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