EURAM, Paris (France), may 2007.
Abstract The purpose of this study is to examine the viability of hybrid competitive strategies, which combine differentiation and cost elements, and their impact on organisational performance in comparison to pure strategies and “stuck-in-the-middle” combinations. The analysis carried out on a multisectorial sample of 164 Spanish firms has revealed that a large number of them use different types of hybrid strategies and also that such strategies tend to be associated with higher levels of firm performance, particularly those strategies which place emphasis on a greater number of strategic dimensions, and specifically on innovation differentiation. This is a relevant finding because previous studies had so far focused above all on US data and because it shows that Spain has evolved from being a developing country with low costs to a developed nation where innovating is important in order to be competitive.
Ever since Porter published the study in which he proposed three different, mutually exclusive types of generic competitive strategies, numerous works have fuelled a debate which revolves around three major aspects: a) whether the strategy of any firm can be represented by one of the three types of generic strategies outlined by Porter, i.e. cost leadership, differentiation and focus (Bantel and Osborn, 1995; Dawes and Sharp, 1996; Kotha and Vadlamani, 1995; Miller and Dess, 1993); b) the compatibility or incompatibility between these strategies (Hill, 1988); and c) the convenience of combining these strategies for
the purpose of improving the organisation’s performance and better adapting to the demands posed by the environment (Allen and Helms, 2006; Miller, 1992). The third aspect is the one which has received the least attention, which is why this paper seeks to provide empirical evidence about it. The starting assumption is that “pure” generic costs or differentiation strategies1 are probably much too rigid and might not be suitable to compete in an increasingly turbulent, dynamic environment (Booth and Philip, 1998). Instead, “hybrid” strategies, that is, those which combine low costs and differentiation elements, may turn out to be more appropriate and offer better performance. The objective of this study is threefold: (1) analysing whether or not firms use hybrid strategies; (2) determining, if that is the case, whether or not those hybrid strategies which combine differentiation and costs lead to a higher or lower performance than pure strategies; (3) exploring the “stuck-in-the-middle” concept and its relationship with performance. The results obtained in previous research works are far from conclusive. Some authors (Dess and Davis, 1984; Hall, 1980; Hambrick, 1983; Kim and Lim, 1988) found that many of the most profitable firms had achieved either the lowest costs or the most differentiated position within their industry, which supported Porter’s position. However, others have checked that Porter’s generic strategies do not represent ways to achieve a higher performance level (Dawes and Sharp, 1996; Parker and Helms, 1992) and that hybrid strategies are the ones entailing an improved performance (Gopalakrishna and Subramanian, 2001; Spanos, Zaralis and Lioukas; 2004; White, 1986). Additionally, the studies carried out have usually focused on one sector (Helms, Dibrell and Wright, 1997; Kim, Nam and Stimpert, 2004; Proff, 2000; Wright et al., 1991). This type of studies allows having a more homogeneous sample, though one cannot generalise the research findings to other industries.
It must be pointed out that the focus strategy was not considered in the analysis because that strategy is actually a combination of cost leadership and differentiation strategies across different...