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Product-market Strategy and Performance: An Analysis of the Miles and Snow Strategy Types
Stanley F. Slater John C. Narver
Article information:
http://dx.doi.org/10.1108/03090569310045870
Universidad
de Navarra
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John C. Narver
33
Received March
1993 Revised June
1993
Introduction
The Miles and Snow[l] typology of strategic behaviour has recently been the subject of
much debate and research in strategic management and marketing. This typology has
important implications for managers and scholars because it seems to represent generic
approaches to business strategy very well and the theory tells us that there are important
market-level and business-specific factors which determine the effectiveness of the
strategy types. Since 1987, over a dozen empirical studies (see[2] for an extensive
review) and'several conceptual pieces (e.g.[3, 4]) have been published in the
management and the marketing literature. However, previous research has been
predominantly descriptive (e.g.,[5-7D. In this study, we examine the business
characteristics which lead to superior performance for the Prospector, Analyser and
Defender strategy types.
Miles and Snows strategy types are primarily differentiated by the manner in which
each solves the entrepreneurial problem, the strategic management of its productmarkets [8, p. 6], Defenders attempt to create a stable domain by aggressively
protecting their product-market. In contrast, Prospectors approach their environment
more proactively and seek to identify and exploit new opportunities through both
product and market development. Occupying the middle position, Analysers carefully
explore new product and market opportunities while maintaining a core of skills,
products, and customers.
After a business determines its product-market strategy, it must create a system for
producing and distributing its products (the engineering problem), and must develop
and implement organizational structures and processes which support its entrepreneurial
and engineering solutions (the administrative problem). According to theory,
Defenders invest heavily in
The comments of Sully Taylor and Mike Hitt are gratefully acknowledged.
European Journal of Marketing, Vol.
27 No. 10,1993, pp. 33-51. CO MCB
University Press, 0309-0566
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technological efficiency and manage the organization with a functional structure and
centralized control. Prospectors invest in multiple, flexible technologies, and utilize
product management and decentralized control. Analysers invest in both stable and
flexible technologies, and utilize matrix structures and complex co-ordinating
mechanisms.
A fourth usually unsuccessful type, the Reactor, has not been consistently described.
In research on the Miles and Snow typology, the Reactor often has been characterized
as having unique strategic qualities (e.g.[9-ll]) which rank below the Defender in such
attributes as proactiveness, attitude towards growth, and intensity of environmental
monitoring[5,7], However, Miles et al. [12, p. 553] say that it is the Prospector and
Defender which occupy the opposite ends of a continuum of adjustment strategies, and
elaborate further that [1, p. 557], the Reactor is a residual strategy, arising when one
of the other three strategies is improperly pursued. In an analysis of businesses in the
adhesives and sealants industry, Wright et al.[ 13] found that a three-cluster solution
which roughly corresponds with the strategy types was superior to a four-cluster
solution, thus supporting the proposition that there are three natural entrepreneurial
archetypes, rather than four.
Performance Analysis
Performance of the Miles and Snow strategy types is not clearly understood. Miles and
Snow[l] propose that Prospectors, Analysers and Defenders have the opportunity to be
equally successful, and that these three will consistently outperform Reactors. In
support of the theory, Wright et a/.[13] present counterpropositions for how different
strategy types could achieve superior performance. However, in their review of
research on the typology, Zahra and Pearce[2] concluded that support for equal
effectiveness among Prospectors, Analysers and Defenders was mixed. And, in contrast
to the theory, Snow and Hrebeniak[9] found that Reactors outperformed Prospectors
and Defenders in the air transport industry.
Research Objective
of the clusters will correspond with the characteristics of the Prospector, Analyser, and
Defender strategy types as described below.
Proactiveness. Proactiveness, the aggressiveness with which businesses pursue
growth opportunities in their product-markets, is the foundation for the Miles and
Snow typology[8]. Defenders isolate and protect a relatively stable market and seek
growth through market penetration. In contrast, the Prospectors distinctive
competence is in identifying and exploiting new product and market opportunities. The
Analyser extends into new products from a relatively stable base of customers and
products. Thus, its growth can come from further market penetration as well as from
new product and market development. Shortell and Zajac[ll, p. 826] found that the
strategy types could be differentiated from one another based on the overall emphasis
placed on new services and markets.
Basis for competitive advantage. Prospectors may use either low-cost or
differentiation-based competitive advantage[4, p. 17]. Being first-movers, Prospectors
have the opportunity to achieve a sustainable cost advantage from learning or
experience effects[15, p. 133; 16, p. 42; 17, p. 406] or by pre-empting rivals in the
acquisition of scarce assets such as raw materials or plant and equipment[17, p. 44],
While Defenders are generally thought to place the greatest importance on low cost,
Smith et al.[7] found no significant difference between Prospectors and Defenders
emphasis on low cost.
However, pioneering new markets also requires high quality, high service;, or the
development of new product technologies[15, p. 133], which are characteristics of
differentiation-based competitive advantage[18]. Prospectors must also differentiate
their offerings from offerings by competitors in threatened industries as was the case
when the compact disc player was introduced to compete with the traditional turntable.
Low cost and differentiation are not inconsistent with each other[17], Porters[18]
definition of stuck-in-the-middle notwithstanding. Consequently, Prospectors may rely
on either differentiation-based competitive advantage or low-cost-based competitive
advantage, or both.
Analysers are followers. They usually enter new markets or introduce new products
only after their viability has been demonstrated by Prospectors. This requires that
Analysers maintain a dual technological core to continue to serve existing customers
with existing products and also to be sufficiently technologically flexible to follow
Prospectors rapidly with new products. Miles and Snow[l] suggest that since the
Analysers operations can never be completely effective or efficient due to this dual
focus, they must rely primarily on differentiation to distinguish their offerings from
competitors offerings and achieve competitive advantage.
The Defenders focus is on solving its engineering problem: how to produce and
distribute goods or services as efficiently as possible[12, p. 551]. This is accomplished
by focusing on a highly cost-efficient core technology and by developing highly
efficient administrative systems. Thus, low cost is the Defenders basis for competitive
advantage.
35
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36
Defender
Prospector
Analyser
High
High
High
Narrow
Medium
High
Low
Narrow
Validation variables
New product importance
New product responsibility
New product success rate
Average profitability
High
High
High
High
High
High
.....No difference-
Low
Low
Low
Performance analysis
HI: SBU Autonomy
H2: Market orientation H3:
HRM emphasis
+
+
+
+
4-
NR
+
Clustering
variables
Proactiveness
Differentiation strategy
Low-cost strategy
Market focus
IvOW
Low
High
Broad
Determinants of Performance
SBU autonomy. Decision-making autonomy of strategic business units (SBUs) puts
responsibility close to the market, allows decisions to be made rapidly, and enables the
business unit to be flexible and adaptable[4]. Prospector and Analyser business units are
concerned with maintaining flexibility both in locating new market opportunities and in
developing new technology. These business units will be more effective when they
operate with few restrictions from headquarters and when they have low
interdependency with other SBUs in the corporation, as any constraints will restrict
their ability to respond rapidly to changes in their environment[20].
In Defender business units, the focus on low cost requires close attention to
operational details, including the relentless pursuit of cost economies and productivity
improvements through standardization of components and processes, routinization of
procedures, and the integration of functional activities across business units [4, p. 21].
These activities are likely to be accomplished most effectively when there are costreducing interdependencies among business units[20] and when decision making and
control are centralized[4].
Hla: There is a positive relationship between SBU autonomy and
profitability for Prospector and Analyser business units.
Hlb: There is a negative relationship between SBU autonomy and
profitability for Defender business units.
37
Table I.
Summary of
Propositions and
Hypotheses
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Relative cost. Achieving low cost is the result of the effectiveness of a businesss
engineering decisions. Relative cost has a very strong theoretical influence on
business profitability[25]. A low relative cost implies a cost advantage, thus, we
expect a negative relationship between relative cost and business profitability for all
strategy types, but it will be most important to Defenders.
H4a: There is a negative relationship between relative cost and profitability for
Prospector, Analyser, and Defender business units.
H4b: Achievement of low relative cost is most important to Defenders.
Table I also displays the performance-based hypotheses as the form of the relationship
between the organizational characteristic and performance for the strategy types. In the
analysis, we also control for market growth rate, buyer power, and rate of product
innovation as these variables have been found to influence performance for the strategy
types[e.g. 2,8].
Research Design
Instrument Development
The Business Practices Survey is composed of existing scales and scales which were
developed to measure constructs which are important to this study.
The instrument was pre-tested with six current or former SBU
managers of the corporation from which our sample would be
drawn. On the basis of their comments, we refined some items and
developed the final instrument.
The Sample
The sampling units in this study are 140 SBUs of a major, highly
diversified, forest-products corporation. These SBUs vary from
mills to wholesale distribution centres to value-added
manufacturing operations. Thus, while all the SBUs operate in the
forest-products industry, they face substantially different productmarket conditions. Within each SBU the top management team
was identified by the responsible group executive and each
member was sent a questionnaire titled Business Practices
Survey with questions about the SBUs competitive practices and
strategies, competitive environment, and performance in its
principal served market.
There is a trade-off between using SBUs from one corporation
as the sampling frame and sampling from a broader group of
businesses. Our approach produces high response rates and access
to multiple respondents within each SBU. The reduction in
measurement error[26-27] increases the internal validity of the
study. However, the generalizability of the study may be reduced.
We believe that internal validity should be the primary concern in
the early stages of research.
The number of useable questionnaires returned was 371, a response rate of 84 per
cent. Within each SBU, top management team responses were aggregated and an
average score on the constructs of interest was calculated for the SBU. Averaging
responses within an SBU allows measurement errors to cancel out each other and thus
the reliability of the measure is increased[26]. There was a
total of 116 SBUs (83per cent) with useable data, averaging three respondents perSBU.
Clustering Variables
Proactiveness. Consistent with Miles and Snows emphasis on the different approaches
to growth which are employed by the different strategy types, we measured
proactiveness based on a SBUs relative emphasis on market penetration, market
development, product development, and introduction of new products into new markets.
The Prospectors distinctive competence is in identifying and exploiting new product
and market opportunities. In contrast, the Analyser extends into new products from a
relatively stable base of customers and products. Thus, its growth can come from
further market penetration as well as from new product and market development.
39
Defenders seek to isolate and protect a relatively stable market, thus their growth is
generated through additional market penetration.
Following Gupta and Govindarajan[28], we constructed a weighted-average strategy
index based on each strategys importance to the SBU and its magnitude of
proactiveness. They offer evidence of the validity of a similar measure of SBU strategy
based on its correlation with the SBUs market share. As proactiveness is a measure of
the aggressiveness of the SBUs growth strategy, it should be strongly related to the
SBUs sales growth rate. The correlation coefficient for the relationship between
Proactiveness and sales growth is 0.3923 (p = 0.0001).
Differentiation-based and low-cost-based competitive advantage. Drawing on
Porter[18] and Dess and Davis[29], we developed a five-item scale to measure
differentiation-based competitive advantage and a six-item scale to measure low-costbased competitive advantage (see Appendix for a description). A similar measurement
approach was employed by Govindarajan and Fisher[20] and was demonstrated to have
convergent validity as well as adequate reliability.
Market focus. Similar to the approaches of Smith et al.[7] and Conant et al.[5], we
use a single item, the importance to overall competitive strategy of segmenting the
[SBUs] served market, to measure market focus.
41
2. Differentiation
4.523
(1.023)
5.046
(0.688)
3. Low cost
4.478
(0.687)
4. Market focus
4.639
(1.052)
5. New product
importance
4.461
(1.164)
(2)
0.494*
**
(7) (8)
0.76a
0.385*
**
0.673
***
0.270
**
0.74b
0.616*
**
0.663
***
0.161
*
0.424
0.75b
0.119
0.119
-0.007
-0.025
0.245*
*
0.77b
-0.082
0.295*
*
0.513*
**
0.1692
*
0.78b
0.215*
*
0.146
0.014
0.063 0.88b
0.449
***
8. Profitability
4.437
(1.432)
0.116
0.258
**
P
* p< 0.10 ** p < 0.01 *** p
< 0.001
(6)
0.357
***
-0.0581
0.551*
**
= Cronbachs alpha
= Median interior
reliability
(5)
0.76a
4.133
(1.397)
(4)
0.81b
(3)
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1. Proactiveness
(1)
42
Table II.
Correlation Matrix.
Reliability Measures on
the Diagonal
Mean
(SD)
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0.086
1. Autonomy
2. Market orientation
3. HRM emphasis
4. Relative cost
5. Market growth
6. Product innovation
7. Buyer power
8. Profitability
Mean
(SD)
(1)
5.080
(1.000)
0.88b
4.610
(0.630)
4.600
(0.740)
3.880
(1.100)
3.780
(1.360)
4.780
(0.620)
3.920
(0.740)
4.410
(1.470)
(2)
(3)
0.196
*
0.92a
0.276
**
0.473*
**
0.8P
0.002
0.260**
0.07
8
0.013
0.15C
0.080
0.142
0.027
0.353*
**
(5)
(6)
(7)
(8)
0.90b
0.77b
-0.071
0.001
0.154
(4)
0.008
0.09
2
-0.032
0.03
5
0.050
-0.005
0.059
0.88b
0.034
0.085
0.88b
0.434**
*
-0.214*
0.058
0.17
3
0.88b
: go O
rt> o W
:3 3
o i 33 _j
ill
SXM
4-
00
Prod
uctmark
et
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egy
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Strategy types3
Prospectors Analysers Defenders
H2: Proactiveness
H3a: Differentiation
H3b: Low cost
H4: Market focus
H5a: New product importance
H5b: New product responsibility
H5c: New product success
H6: Profitability
Number of cases
Comparison of meansc
1-2
1-3
5.197
(0.771)
5.653
(0.411)
5.016
(0.534)
5.353
(0.666)
5.192
(0.905)
5.120
(0.947)
4.644
(1.116)
4.588
(1.229)
37
4.594
(0.
80
4.907
(0.
54
4.011
(0.
48
4.543
(0.
95
4.549
(0.
81
4.957
(1.
03
4.402
(1.
09
4.380
(1.
48
58
2-3
3.140
(0.500)
***
***
***
4.359
(0.444)
***
***
***
***
4.821
(0.494)
***
***
NS
***
3.642
(0.968)
***
***
***
***
(2.931)
(0.965)
***
**
***
***
NS
NS
NS
***
NS
***
***
NS
NS
NS
NS
4.484
(1.378)
2.525
(1.482)
4.338
(1.656)
21
a
a
O'
35
m2
n HI .
5?
3. cr ft
4cn
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Prospector (n =
33)
Strategy
SBU autonomy
Market orientation
HRM emphasis
Relative cost
Market growth
Rate of product innovation
\Buyer Power
F-value
Table V.
Results of Multiple
Regression Analysis.
Regression Coefficient
(Standard Error).
Dependent Variable =
ROI
Defende
Analyser (nProductr (n =
= 56)
market
21)
0.289*
(0.138)
0.618**
(0.240)
0.386**
(0.300)
-1.201***
0(.262)
-0.487***
(0.130)
-0.449***
(0.111)
-.390*
(0.170)
0.427*
(0.215)
0.411**
(0.141)
10.165***
0.641
-0.955***
(0.221)
0.651*
(0.290)
11.679***
0.273
12.693***
0.539
Profitability and Defenders. The explanatory power of the Defender model is also
substantial (adjusted R2 = 0.54). As hypothesized, this power primarily is due to
relative cost.
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that Analysers have the opportunity to enter markets with lower costs than those of the
pioneering Prospectors, there is a strong, and expected, relationship between low
relative cost and profitability. Unfortunately, this study gives little insight into the type
of organization which can manage this dual external- internal focus. A study that helps
to understand the requisite organizational characteristics would be a major
contribution.
Based on the results of this study and the underlying theory, low cost is the name of
the game for Defenders. As we now have substantial confidence in the relationship
between low cost and profitability, it is time to shift the focus of future research on
Defenders to the determinants of low cost. Perhaps it is not too surprising that the old
paradigm of centralized decision making and rigid personnel policies is not related to
success. It is becoming accepted that achievement of a low-cost position requires high
quality and continuous process improvement. Total quality management addresses
these issues by recognizing the innovative capabilities of line workers and by
empowering them to take action without authorization from supervisors or managers.
Other managerial issues include the areas in the value chain which offer the greatest
potential for cost reduction; contributions by the marketing function to reduce total
cost without diminishing organizational effectiveness; and how marketing can best
convey the low-cost message without jeopardizing a pr emium quality image.
As one of the few analyses of within-types profitability, the present study sheds
light on some questions and raises other questions. Thus, research on understanding
the reasons for within-groups performance variation should proceed. We believe that
future studies should recognize that Reactors are not unique strategy types. Reactors
are Prospectors, Analysers or Defenders which are not aligned with appropriate
organizational structures and processes, or market conditions. Analysis within the
Prospector, Analyser, and Defender types should include structure, process, and
technology variables suggested by Miles and Snow[l], As in the current study, the
influence of theoretically important market structure variables on performance should
be examined and controlled.
Conclusion
This study has important implications for managers and scholars. As one of the few
studies to assess the characteristics which lead to superior profitability for the
Prospector, Analyser, and Defender types, it provides guidance to the managers of
businesses with different strategic orientations. However, it leaves a number of
questions open to further study. Specifically, what marketing programmes are most
effective for the different strategy types, what organizational processes allow
Analysers to manage their dual internal- external focus effectively, and what are the
best routes to achieving low cost for Defenders? These are important questions which
marketing and strategy scholars should pursue.
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*** p < 0.001