Strategy formulation and implementation in manufacturing organisations : the impact on performance

• Main Author: Veettil, Nandakumar Mankavil Kovil
• Published: Middlesex University 2008
• Subjects: 658
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.548920

A key preoccupation of strategy as a field of study is the identification of sources of heterogeneous performance among competing firms. The main theories of strategy include contingency theory, Porter's positioning theory, resource-based view and its derivatives and environmental theories and offer varying views explaining the potential reasons for deriving superior rent. Empirical studies in the field of strategic management have mainly focussed on two main streams of research: (i) the relationship between how strategy is formulated in a firm and fírm performance and (ii) the relationship between the content of strategy and firm performance. A third area of interest is strategy implementation, but unlike the other two areas, strategy implementation has not received much empirical interest. The results of the previous studies examining the relationship between strategy formulation and performance and strategy content and performance have been inconclusive. Some studies have reported positive relationships, while others found no relationship. The previous studies also suffered from a number of methodological inadequacies such as inconsistent operationalisation of the constructs, unclear definition of industry sectors and small sample size. Only a few studies have focussed on UK based organisations. In addition there is a dearth of empirical research using UK based engineering organisations. The study reported in this thesis examines the impact of strategy formulation, strategy content and strategy implementation on organisational performance, all within a single study. As far as the author was able to establish by examining the previous studies, none of the previous studies have looked into strategic planning, business-level strategy and strategy implementation simultaneously in a single study. Furthermore this study considers the moderating effects of environment on the relationship between strategy formulation and performance and strategy content and performance. It also assesses the moderating effect of organisational structure on the relationship between strategy content and performance. Because of the integrated approach taken, this study makes a significant contribution to the literature. This study also addresses some of the methodological shortcomings of the previous studies by clearly defining the industry sectors, using a good sample size and by using properly validated constructs. It gains significance mainly due to its focus on UK based organisations and helps theory development because a robust theory is crucially dependent on empirical studies representing different industry sectors and geographical regions. Based on the literature review a conceptual model of strategy formulation and implementation was proposed and the hypotheses to be tested were derived. These hypotheses were classified into two groups namely (i) hypotheses for validating the findings of previous studies and (ii) hypotheses which have not been tested in previous studies. Hypotheses in the first group have examined the impact of strategic planning, business-level strategy and planning of strategy implementation on organisational performance. Hypotheses in the second group have examined the interrelationships between strategic planning, business-level strategy and strategy implementation. The development of the survey instrument involved a number of processes including adaptation of the constructs from previous studies, review by a panel of experts and a pilot study. This process ensured content and face validity of the measures. Using the validated questionnaire a postal survey was conducted among the chief executives of manufacturing organisations in the UK belonging to the electrical and mechanical engineering sectors. Appropriate analytical techniques were used to test the hypotheses and Partial least squares (PLS), which is a structural equation modelling technique was used to test the conceptual model. Organisational performance was measured using two constructs namely objective fulfilment and relative competitive performance. The study indicated that strategic planning has a strong positive relationship with objective fulfilment and its relationship with relative competitive performance is not very strong. It was found that strategic planning helps organisations to improve their relative competitive performance in highly dynamic as well as highly hostile environments. The results indicated that organisations that had a clear business-level strategy by adopting one of the strategies namely cost-related, differentiation or integrated strategies performed better than stuck-in-the-middle companies both in terms of objective fulfilment and relative competitive performance. It was also found that external environment moderates the relationship between business-level strategy and performance to some extent. A cost-related strategy helps organisations to improve their performance in environments with low levels of hostility. A differentiation strategy is helpful in improving relative competitive performance in highly hostile environments as well as highly dynamic environments. It was found that an organic structure is helpful for organisations having a clear strategy to improve their performance. The planning of strategy implementation had a significant positive relationship with both the performance measures. When the conceptual model was tested using PLS it was found that some of the relationships in the model were not statistically significant. The model indicated that it is not possible to effectively predict relative competitive performance using the variables used in this study. However, the model indicated that objective fulfilment can be predicted using strategic planning and the planning of strategy implementation. Most of the previous studies have examined bivariate relationships. The structural model indicates that some of the bivariate relationships become insignificant when strategic planning is studied along with business-level strategy and strategy implementation simultaneously. The findings of this study are extremely useful to CEOs and senior managers as they confirm the importance of strategic planning and the need for properly planning and prioritising strategy implementation in order to enhance organisational performance. It also highlights the importance of clearly defining the business-level strategies for improving performance. Some of the main limitations of this study include the use of single respondents, its focus on only two industry sectors, sole dependence on the survey data and common method variance. These limitations, and measures taken to overcome common method variance, are discussed in the thesis. This thesis comprises of eleven chapters which are organised into four sections. Chapter 1 provides an introduction to the study. It explains the background of the study and presents the conceptual model and study objectives. Part 1 contains a comprehensive literature review which includes strategy development process, strategic planning and performance, business-level strategy and performance and a review of strategy implementation literature. Part 2 describes the main aspects concerning research methodology and survey design. Part 3 provides the details of data analysis carried out and the results obtained by testing the hypotheses. Part 4 provides a summary of discussions outlined in this thesis and the conclusions derived.