Carl R. Anderson and Carl P. Zeithaml - Stage of The Product Life Cycle, Business Strategy

Stage of the Product Life Cycle, Business Strategy, and Business Performance
Author(s): Carl R. Anderson and Carl P. Zeithaml

Source: The Academy of Management Journal, Vol. 27, No. 1 (Mar., 1984), pp. 5-24
Published by: Academy of Management
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?Academy of Management
Journal
1984, Vol.
27,
No. 1, 5-24.
S tage of
th e Product
L i fe C ycle,
Busi ness
S trategy,
and
Busi ness
Performancel
C ARL R. ANDERS ON
Uni versi ty
of North C aroli na at
C h apel
Hi ll
C ARL P. ZEITHAML
Texas A&M
Uni versi ty
Th i s
study empi ri cally
exami nes
di fferences
i n
strategi c
vari ables between
stages of
th e
product li fe cycle (PL C ),
as well as
di fferences among
th e determi nants
of h i gh per-
formance
across
stages of
th e PL C . Th e results
support
th e use
of
th e PL C as a
conti ngency
vari able
duri ng
strat-
egy formulati on. Impli cati ons for i ncreasi ng
market sh are
and ROI are di scussed.
For a number of
years,
busi ness
strategy
research ers h ave search ed for
a construct or
conti ngency
vari able wi th broad
explanatory power.
Th e at-
tracti veness of th i s ki nd of construct i s self-evi dent. It would
si mpli fy
strat-
egy
formulati on and
i mplementati on.
Th i s
search , h owever,
h as led re-
search ers i n a number of di fferent di recti ons. S ome of th e more
wi dely
re-
search ed vari ables i nclude envi ronmental
uncertai nty (Anderson
&
Pai ne,
1975),
market sh are
(Buzzell, Gale,
&
S ultan, 1975),
and th e
stage
of th e
product
li fe
cycle (Hofer, 1975).
Oth er research ers h ave exami ned combi -
nati ons of th ese
vari ables, parti cularly
market sh are and
stage
of th e
prod-
uct li fe
cycle (Hambri ck, MacMi llan,
&
Day, 1982; MacMi llan, Hambri ck,
&
Day, 1982). Alth ough
th ere i s
empi ri cal
evi dence
supporti ng
all th ese
conti ngency approach es,
none h as
emerged
as
predomi nant
i n th e fi eld.
Th i s
probably
i s due to th e
large
number of
strategi cally si gni fi cant
envi -
ronmental and
organi zati onal
vari ables th at affect th e
performance
of busi -
ness
strategi es
and to th e numerous
ways
i n wh i ch
th ey
can be
categori zed.
Of th e vari ables
i nvesti gated
to
date, perh aps
th e most attenti on h as been
devoted to th e
stage
of th e
product
li fe
cycle (PL C ).
Research i n
marketi ng
as well as i n
strategi c management
i ndi cates th at th e PL C i s
li kely
a funda-
mental vari able
affecti ng
busi ness
strategy. (S ee
Ri nk and
S wan, 1979,
and
Day, 1981,
for
compreh ensi ve
revi ews of th e PL C and related
concepts.)
'Th e auth ors
gratefully acknowledge
th e
generous support
of th e
S trategi c Planni ng Insti tute,
C am-
bri dge, Mass.,
i n th e
completi on
of th i s
project.
5
Academy of Management
Journal
Hofer
(1975) developed
th e most extensi ve th eoreti cal
profi le
of th e PL C
as i t affects busi ness
strategy.
Two
proposi ti ons suggested by
Hofer are
of
parti cular
i nterest:
1. "Th e most fundamental vari able i n
determi ni ng
an
appropri ate
busi -
ness
strategy
i s th e
stage
of th e
product
li fe
cycle" (1975, p. 798).
2.
"Major ch anges
i n busi ness
strategy
are
usually requi red duri ng
th ree
stages
of th e li fe
cycle: i ntroducti on, maturi ty,
and decli ne"
(1975,
p. 799).
In
addi ti on,
Hofer
developed descri pti ve proposi ti ons
for each
stage
of th e
PL C ,
envi ronmental and
organi zati onal
ch aracteri sti cs th at exert a
major
strategi c
i nfluence at each
stage,
and normati ve
proposi ti ons
for th e
maturi ty
stage.
Recently,
Hambri ck et al.
(1982)
exami ned
strategi c
di fferences between
busi nesses i n th e four cells of th e BC G
Matri x,
and MacMi llan et al.
(1982)
i denti fi ed
strategi es
related to
profi tabi li ty
i n each cell. Th ese PIMS -based
analyses
of i ndustri al
product
busi nesses focused on
h i gh
and low market
sh are fi rms wi th i n two
stages
of th e
PL C , growth
and
maturi ty. Alth ough
some
strategi es
vari ed between th ese
stages
of th e
PL C ,
Hambri ck et al.
commented th at oth er
strategi es
"vari ed
pri mari ly accordi ng
to market
sh are"
(1982, p. 520). Furth ermore,
MacMi llan et al.
(1982)
found th at
a number of
strategi es
were
strongly
associ ated wi th
performance
i n all of
th e BC G
cells, alth ough
several i ndi vi dual
strategi es
were associ ated
(more
weakly)
wi th performance i n
speci fi c
cells. Th i s
research , h owever,
con-
centrated on
only
th e
growth
and
maturi ty stages, provi di ng
a restri cted
test of PL C
si gni fi cance.
To
date,
th e
present
auth ors h ave found no com-
preh ensi ve empi ri cal
test of th e Hofer
proposi ti ons
or of th e
strategy-per-
formance
i mpli cati ons
of th e PL C .
In
spi te
of th e li mi ted attenti on
gi ven
to
empi ri cal
research
relati ng
busi -
ness
strategy
to
performance
for
stages
of th e
PL C ,
a number of studi es
h ave
conceptually
related th ese vari ables both
di rectly
and
i ndi rectly.
S tudi es
th at
i nvesti gate strategy
and
performance
and th at h ave PL C
i mpli cati ons
are summari zed i n Table 1. Th e table revi ews research
publi sh ed
si nce th e
Hofer
(1975) survey
and i ncludes Hofer's
major relati onsh i ps
and
fi ndi ngs.
It i s obvi ous th at most i nterest h as been focused on th e
maturi ty stage
and
th at
many
of th e vari ables are
i nexact,
for
example, "buyer
needs." Never-
th eless,
th i s research
provi des
an overvi ew of current
strategi c th i nki ng
for
each
stage.
Two
strategi c performance
vari ables are i ncluded i n th e
table,
return on i nvestment
(ROI)
and market sh are. ROI h as been a standard
measure of busi ness and
corporate performance
for a number of
years.
S i nce th e
publi cati on
of th e PIMS
fi ndi ngs,
wh i ch underli ned th e
i mpor-
tance of market
sh are,
th i s
objecti ve
h as been
pursued by many
busi nesses
ei th er i n
conjuncti on
wi th or
i ndependently
from ROI
(Buzzell
& Wi er-
sema, 1981). Alth ough
some of th e
fi ndi ngs
are
contradi ctory,
th e
major
trends i n Table 1 are summari zed below.
Introducti on
stage. S trategi es
for th e i ntroducti on
stage emph asi ze
a
buyer
focus, bui ldi ng
on
adverti si ng,
and
i ncreasi ng purch ase frequency.
Prod-
uct
development
was seen as
i mportant by
Hofer
(1975).
6 March
Table 1
S i gni fi cant S trategi c
Vari ables and
S trategi es
for Each
S tage
of PL C
Introducti on Growth
Maturi ty Maturi ty (C ont.)
Decli ne
Hofer
(1975):
Newness of
product
Rate of
tech nologi cal
ch ange
i n
product
desi gn
Buyer
needs
Purch ase
frequency
Hay
& Gi nter
(1979),
Wi nd
(1981):
Informati ve adver-
ti si ng
Hi gh pri ci ng
of
products
S potty
di stri buti on
Rumelt
(1979):
Pri ce
Product
performance
Access to di stri buti on ch annels
Match i ng producti on
ch aracteri s-
ti cs to
segments
Effi ci ency
i n
producti on
and
selli ng
Economi es of scale
Hay
& Gi nter
(1979),
Wi nd
(1981):
Adverti si ng stressi ng product
meri ts
Product modi fi cati on and i m-
provement
Full
coverage
di stri buti on
Hambri ck et al.
(1982):
Growth fi rms
emph asi zed
Plant and
equi pment
newness
C api tal i ntensi ty
Employee producti vi ty
Manufacturi ng, R&D,
and mar-
keti ng expenses
New
products
MacMi llan et al.
(1982):
and manufac-
turi ng
costs reduce
profi ts
Value added benefi ci al to
profi ts
Avoi d
product
R&D
Avoi d sales force
expenses
Premi um
pri ces i mprove profi ts
Hofer
(1975):
Buyer
needs
Degree
of
product
di versi fi cati on
Rate of
tech nologi cal ch ange
i n
process desi gn
Degree
of
marketi ng segmenta-
ti on
Rati o of di stri buti on costs to
manufacturi ng
value added
Hay
& Gi nter
(1979),
Wi nd
(1981):
Adverti si ng di fferenti ati ng
products
Product di fferenti ati on
Decli ni ng pri ci ng
Number of di stri buti on outlets
begi nni ng
to decli ne
Hall
(1980):
Ach i eve lowest deli vered cost
posi ti on
relati ve to
competi -
ti on
coupled
wi th an
accept-
able
quali ty
and
pri ci ng poli cy
to
gai n profi table
volume and
market sh are
growth
Ach i eve th e
h i gh est product/ser-
vi ce/quali ty posi ti on
relati ve
to
competi ti on
Hamermesh , Anderson,
&
Harri s
(1978):
(L ow
market sh are
busi nesses)
S egmentati on
Effi ci ent use of R&D
Pervasi ve i nfluence of C EO
L ow
emph asi s
on market sh are
growth
Buzzell & Wi ersema
(1981):
(Market
sh are
bui ldi ng
strategi es)
Increase new
product acti vi ty
Increase relati ve
product quali ty
Increase
expendi tures
for sales
force, adverti si ng
and sales
promoti on
relati ve to th e
growth
rate of th e served
market
Hamermesh & S i lk
(1979):
(S tagnant i ndustri es)
Identi fy, create,
and
exploi t
growth segments
Emph asi ze product quali ty
and
i nnovati ve
product
i mprovement
S ystemati cally
and
consi stently
i mprove
th e
effi ci ency
of
product
and di stri buti on
sys-
tems.
Improve
th e manufac-
turi ng process
and lower
costs.
Hambri ck et al.
(1982):
C apaci ty
uti li zati on
MacMi llan et al.
(1982):
Emph asi ze employee producti v-
i ty, capaci ty uti li zati on,
and
product quali ty
and manufac-
turi ng
costs reduce
profi ts
Value added benefi ci al to
profi ts
Avoi d
product
R&D
Avoi d
extraordi nary marketi ng
expenses
Premi um
pri ces i mprove profi ts
Hofer
(1975):
Buyer loyalty
Degree
of
product
di fferenti ati on
Pri ce
elasti ci ty
of de-
mand
C ompany's
market
sh are
Product
quali ty
Margi nal plant
si ze
Hay
& Gi nter
(1979),
Wi nd
(1981):
Decli ni ng i mportance
of
adverti si ng
Product di versi fi ca-
ti on
Decli ne i n number of
outlets
Harri gan (1979):
C onti ngency ap-
proach emph asi zi ng
i ndustry
structure
and
competi ti ve
strength s/
weaknesses
00
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Journal
Growth
stage.
In th e
growth stage,
th ere i s a movement toward
strategi c
segmentati on
and
bui ldi ng
effi ci enci es i n
producti on
and
marketi ng.
Per-
formance of th e
product
as i t relates to customer needs i s
cruci al,
and
prod-
uct modi fi cati on
may
be
necessary.
Th e
capi tal
i nvestment and
expenses
associ ated wi th th ese
strategi es may
be detri mental to sh ort term
profi ts.
Intense di stri buti on i s also
emph asi zed.
Th e MacMi llan et al.
(1982) study
provi ded
li mi ted
strategi c gui dance
for
growth
busi nesses
beyond
th e strat-
egi es
wi th uni versal
i mportance.
Maturi ty stage. Hi gh performance strategi es
for th e
maturi ty stage
are
more
complex
th an for th e
previ ous
two
stages
because of th e
larger
number
of research studi es and vari ables.
Basi cally, th ey
center on
i mprovi ng
effi -
ci ency
i n
process, reduci ng
overall costs i n
marketi ng
and
di stri buti on,
fur-
th er di fferenti ati on of
products,
and furth er market
segmentati on.
Table
1 revi ews a number of studi es th at do not focus
speci fi cally
on th e
PL C ,
but th at address PL C i ssues. Th e Hamermesh et al.
(1978)
and Buzzell and
Wi ersema
(1981) studi es,
for
example,
detai l
strategi es
for
i ncreasi ng
market
sh are i n th e
maturi ty stage.
Hamermesh and S i lk
(1979) di rectly
address
th e
maturi ty stage
i n th e form of
"stagnant" i ndustri es,
wh i ch i s th e
growth
profi le
for
maturi ty. Perh aps
th e best of th ese
peri ph eral
studi es i s th at
by
Hall
(1980),
wh o
provi des
some
empi ri cal
evi dence for
h i gh performers
i n th e
maturi ty stage
and deri ves two
di sti nct, compreh ensi ve strategi es.
Th ese are:
(1)
ach i eve th e lowest deli vered cost
posi ti on
relati ve to
compe-
ti ti on, coupled
wi th both an
acceptable
deli vered
quali ty
and a
pri ci ng poli cy
to
gai n profi table
volume and market sh are
growth ;
and
(2)
ach i eve th e
h i gh est product/servi ce/quali ty
di fferenti ated
posi ti on
relati ve to
compe-
ti ti on, coupled
wi th both an
acceptable
deli vered cost structure and a
pri c-
i ng poli cy
to
gai n margi ns
suffi ci ent to fund rei nvestment i n
product/ser-
vi ce di fferenti ati on. Hall
poi nts
out th at th e best
performers
use both of
th ese
strategi es.
In
summary, prescri pti ons
for th e
maturi ty stage
center
around i ncreased
effi ci ency,
i ncreased
quali ty,
and i ncreased
product/mar-
ket di fferenti ati on wh en
compared
to i ntroducti on and
growth .
Decli ne
stage. Relati vely
li ttle work h as been done
regardi ng strategi es
leadi ng
to
h i gh performance
i n th e decli ne
stage.
Th e most
i mportant pi ece
of research was done
by Harri gan (1979),
wh o
developed
a
conti ngency
model for
strategi es
i n
decli ni ng
busi nesses.
S trategy depends
on
i ndustry
trai ts
(e.g.,
th e
certai nty
wi th wh i ch demand wi ll
decli ne),
wh eth er some
segments
wi ll h ave
enduri ng demand,
wh eth er barri ers
i mpede
exi t of
fi rms,
and th e nature of
competi ti on.
Th e oth er
vari able, competi ti ve strength ,
i ncludes
average
returns
compared
to
competi tors, relati onsh i ps
wi th cus-
tomers,
and verti cal
relati onsh i ps. Dependi ng
on th e mi x of th ese
factors,
strategi es ranged
from an i mmedi ate exi t to
i ncreasi ng
i nvestment i n th e
decli ni ng
busi ness.
Th e
performance
vari ables are mi xed i n Table
1,
th at
i s,
both market
sh are and ROI are
i ncluded,
but most research ers h ave concluded th at strat-
egy
content sh ould
vary
for each
stage
of th e PL C
(i .e.,
busi nesses sh ould
emph asi ze
di fferent
strategi c vari ables). However,
an alternati ve
possi bi li ty
8 March
Anderson and Zei th aml
i s th at
strategi c
vari ables
may
be th e same for each
stage
of th e
PL C ,
but
th e di recti ons would
ch ange
based on th e
performance objecti ve.
For ex-
ample, i nventory
levels would be rai sed wh en i ncreased market sh are i s th e
objecti ve,
and
th ey
would be reduced i f
h i gh
ROI i s th e
goal.
Research
th at confi rmed th e "di fferent di recti on"
h ypoth esi s
would be of
great
i n-
terest to
strategi c
deci si on makers: i t would li mi t th e number of
strategi c
vari ables th at
th ey
would need to consi der
duri ng strategy
formulati on.
Th e
purpose
of th i s research i s to
provi de empi ri cal
evi dence for th e
proposi ti ons relati ng
busi ness
strategy
and
performance
at each
stage
of
th e PL C . Th i s
study
i s based on th e work of Hofer and oth er PL C
th eori sts,
and i t
represents
an extensi on of
previ ous empi ri cal research , parti cularly
th at of Hambri ck et al.
(1982)
(1982).
Th e
followi ng
research
questi ons
were of
speci fi c
i nterest:
1. Wh at are th e
speci fi c
di fferences i n busi ness
strategy
across
stages
of
th e PL C ?
2. Wh at
strategi c
vari ables are associ ated wi th
h i gh performance
at each
stage
of th e PL C ?
3. Do th e
strategi c
determi nants of
h i gh performance vary
across
stages
of th e PL C ?
4. In
general,
does
empi ri cal
evi dence
support previ ous th eory relati ng
th e
PL C ,
busi ness
strategy,
and busi ness
performance?
Meth od
Th e research
analyzed
data drawn from th e Profi t
Impact
of Market S trat-
egi es (PIMS )
data base. For a di scussi on of th e PIMS data
base,
i ts
strength s
and
li mi tati ons,
see Anderson and Pai ne
(1978)
and Hambri ck et al.
(1982).
Th e total
sample
consi sted of
1,234
i ndustri al
products manufacturi ng
busi -
nesses. Data for th e busi nesses were collected
duri ng
th e
peri od
1970 to
1980. Each vari able used i n th e
analysi s
i s an
average
of th e most recent
4-year peri od
th at a busi ness was
present
i n th e data base. Th e total sam-
ple
was strati fi ed
accordi ng
to th e
stage
of th e PL C . Th e
composi ti on
of
th e
sample
was:
(1) growth ,
323 cases;
(2) maturi ty,
857
cases;
and
(3)
de-
cli ne,
54 cases. Busi nesses i n th e i ntroducti on
stage
were not i ncluded i n
th e
analysi s
because th ere were
only
11 cases i n th i s
stage.
Th e
stage
of
th e PL C was
self-reported by
busi ness
management followi ng
a
descri p-
ti on of each
stage
of th e PL C . Th e
descri pti ons
were as follows:
Introducti on
S tage: Pri mary
demand for
product just starti ng
to
grow; products
or ser-
vi ces sti ll unfami li ar to
many potenti al
users.
Growth
S tage:
Demand
growi ng
at 10%7 or more
annually
i n real
terms; tech nology
or
competi ti ve
structure sti ll
ch angi ng.
Maturi ty S tage:
Products or servi ces fami li ar to vast
majori ty
of
prospecti ve users;
tech -
nology
and
competi ti ve
structure
reasonably
stable.
Decli ne
S tage:
Products vi ewed as
commodi ti es;
weaker
competi tors begi nni ng
to exi t.
Th e
remai ni ng
data were collected
th rough
extensi ve
questi onnai res.
Two sets of vari ables were selected from th e PIMS data base to address
th e research
questi ons: strategi c
vari ables and
performance
vari ables.
1984 9
Journal
Th e
strategi c
vari ables were
developed i ni ti ally
from Hofer's
(1975)
classi -
fi cati on,
i n wh i ch h e i denti fi ed 22
strategi c
vari ables and 21 envi ronmen-
tal vari ables th at were
si gni fi cant
at di fferent
stages
of th e PL C . Th e
strategi c
vari able set also i ncluded vari ables th at were
promi nent
i n
previ ous
PIMS
studi es,
as well as oth er PL C research . Because measures for all of th ese
vari ables are not avai lable i n th e PIMS data
base,
and di fferent but related
measures are avai lable for
oth ers,
th e number and content of
strategi c
vari -
ables di ffer
sli gh tly
from th ose of Hofer and oth ers. Wh ere
si gni fi cant
multi -
colli neari ty (r> .60)
between two vari ables was
found, only
th e
stati sti cally
stronger
vari able was retai ned. Th e 25
strategi c
vari ables are li sted and de-
fi ned i n Exh i bi t 1. Th ese vari ables h ave been
grouped
i nto
categori es (based
rough ly
on sch emes
developed by
Hofer and
oth ers)
i n order to faci li tate
di scussi on of th e results.
Previ ous
cri ti ques
and research
(Anderson
&
Pai ne, 1978;
MacMi llan
et
al., 1982) focusi ng
on th e PIMS data base h ave addressed th e i ssue of
rati o
strategi c
vari ables th at are
ari th meti cally
related to
profi tabi li ty (e.g.,
i nvestment/revenue and
ROI).
Because of th ei r math emati cal
relati onsh i p,
vari ables th at i nvolve
expendi tures by
th e busi ness
typi cally
h ave an adverse
i mpact
on current
profi ts.
Th i s
may
not be th e
case, h owever,
over a
longer
peri od
of ti me.
Unfortunately, present
data base li mi tati ons do not
permi t
longi tudi nal analyses
of th ese
relati onsh i ps. S trategi c
vari ables wi th th i s
relati onsh i p
are i ndi cated i n Exh i bi t 1. Addi ti onal comments are di rected
at th i s i ssue wh ere
appropri ate
i n th e results and di scussi on secti ons.
Two
performance
vari ables were used i n th i s
study: (1) ROI,
defi ned as
net
i ncome/average i nvestment,
and
(2)
relati ve
average
market sh are
(mar-
ket
sh are),
defi ned as th e
percentage
market sh are of th e busi ness/th e
per-
centage
market sh are of i ts th ree
largest competi tors.
Relati ve
average
market
sh are was i ncluded because
many
fi rms vi ew th i s as an
i mportant
measure
of
strategi c performance,
at least i n th e sh ort term.
Alth ough
market sh are
was li sted as a
strategi c
vari able
(Exh i bi t 1),
i t was excluded from stati sti -
cal
analyses
i n cases i n wh i ch relati ve market sh are was th e
dependent
vari able.
S everal sets of stati sti cal tests were
employed
for each research
questi on.
Fi rst, one-way analysi s
of vari ance was used to
i denti fy si gni fi cant strategi c
di fferences between
speci fi c stages
of th e PL C and th e total
sample.
Th e
ANOVA
package
used
by
th e PIMS
program compared
th e mean
strategy
value for each
stage
of th e PL C to th e
general
mean for all
stages
of th e
PL C .
Alth ough
th i s stati sti cal
approach
to ANOVA
may
be somewh at un-
usual,
i t i s
appropri ate
for th i s research . Because th e
general purpose
i s
to evaluate th e PL C as a
conti ngency vari able,
a lack of
si gni fi cant
results
would rai se seri ous
questi ons concerni ng
i ts
vi abi li ty
as a
conti ngency
fac-
tor. In
addi ti on, one-way analysi s
of vari ance was used to determi ne wh eth er
si gni fi cant performance
di fferences exi sted between
speci fi c stages
of th e
PL C and th e total
sample.
Multi ple regressi on analysi s
was used to
i denti fy
th e
strategi c
vari ables
most
closely
related to ROI and market sh are for each
stage
of th e PL C .
10 March
Exh i bi t 1
S trategi c
Vari ables
Industry
Vari ables
1.
Frequency of product ch anges: Typi cal frequency
of
ch anges
i n all or
part
of
product/servi ce
li ne
by
busi ness and i ts
major competi tors.
L ow
=
more
frequent.
2.
Tech nologi cal ch ange:
Th ere h ave been
major tech nologi cal ch anges
i n th e
product
offered
by
th e busi ness or i ts
major competi tors,
or i n th e meth ods of
producti on duri ng
th e last 8
years.
3.
Development
ti me
for
new
products
or servi ces: For busi ness and for i ts
major competi tors,
th e
typi cal
ti me
lag
between th e
begi nni ng
of
development
effort for a new
product
and market
i ntroducti on.
4. Relati ve
compensati on average: Wage
and
salary
levels relati ve to
competi tors.
Product
C ompeti ti on
Vari ables
5. C ustomi zati on: Th e
products
or servi ces of th i s busi ness are more or less standardi zed for all
customers,
or
desi gned
to
produce
to order for i ndi vi dual
customers; h i gh
value i ndi cates
prod-
ucts or servi ces customi zed.
6. Relati ve
product
breadth : Breadth of
product
li ne of busi ness relati ve to th e
wei gh ted average
of th e
product
li nes of th e th ree
largest competi tors.
7. Product
quali ty average:
Percent of
products superi or
to
competi tors' products
from
perspec-
ti ve of th e customer mi nus percent of products i nferi or to competi tors' products from perspec-
ti ve of th e customer.
8. Relati ve quali ty of servi ces average: Quali ty of customer servi ces relati ve to competi tors.
9. Relati ve pri ce: Th e average level of selli ng pri ces of busi ness' products and servi ces, relati ve to
th e average pri ce of th e th ree largest competi tors.
10. Market sh are: S ales of th e busi ness as a percentage of sales i n th e served market.
R&D Vari ables
11. New products: % of sales average: New products as a percent of total sales.
12. Product R&D/revenue average:a Products and servi ces R&D expenses di vi ded by net sales.
13. Process R&D/revenue average:a Process R&D expenses di vi ded by net sales.
Producti on/Investment Vari ables
14. Total i nventory/revenue average:a Total i nventory di vi ded by net sales.
15. P&E newness average: Net book value of plant and equi pment di vi ded by gross book value of
plant and equi pment.
16. Investment/revenue average:a Average i nvestment (book value) di vi ded by net sales.
Effi ci ency Vari ables
17. C apaci ty uti li zati on average: Percent capaci ty uti li zati on.
18. Employee producti vi ty average: Value added per employee average.
19. Value added/revenue average:a Value added di vi ded by net sales plus lease revenues.
Verti cal Integrati on Vari ables
20. Verti cal i ntegrati on backward: Degree of verti cal i ntegrati on backward of busi ness relati ve to
i ts th ree largest competi tors.
21. Verti cal i ntegrati on forward: Degree of verti cal i ntegrati on forward of busi ness relati ve to i ts
th ree largest competi tors.
Marketi ng Vari ables
22. S ales force/revenue average:a S ales force expenses di vi ded by net sales.
23. Medi a adverti si ng and sales promoti on/revenue average:a Expendi tures for medi a adverti si ng,
catalogs, exh i bi ts and di splays, premi ums, coupons, samples, and temporary pri ce reducti ons
for promoti onal purposes di vi ded by net sales.
24. Relati ve sales force expenses: S ales force expenses relati ve to th ree largest competi tors.
25. Relati ve medi a adverti si ng expenses: Adverti si ng expenses relati ve to th ree largest competi tors.
aS trategy
vari ables wi th an ari th meti c relati onsh i p to ROI.
Two sets of
regressi ons
were run for each
stage
of th e PL C , one
usi ng
ROI
and one
usi ng
market sh are as th e
dependent
vari able.
S trategi c
vari ables
th at exh i bi ted moderate or greater colli neari ty (r> .40)
wi th a
stati sti cally
stronger
vari able were eli mi nated. Two
strategi c
vari ables were deleted due
to colli neari ty:
relati ve
pri ce (colli near
wi th relati ve
product quali ty)
and
total i nventory (colli near
wi th
i nvestment/revenue).
Once
agai n,
th e rela-
ti onsh i p
between rati o
strategi c vari ables and ROI was consi dered
duri ng
th i s analysi s.
C onsi stent wi th th e
meth odologi cal
ch ecks
performed by
Mac-
Mi llan et al.
(1982), regressi ons
were run wi th and wi th out rati o vari ables
1984 11
Journal
th at were
defi ni ti onally
related to ROI. Th e li mi ted
regressi ons yi elded
a
lower R2 i n each
case,
but th e associ ati ons for th e
remai ni ng i ndependent
vari ables were
essenti ally
th e same. As a
result,
th e rati o vari ables di d not
appear
to confound th e
relati onsh i ps
of oth er
i ndependent
vari ables.
Th erefore,
th e i ni ti al
regressi on
for each
dependent
vari able i ncluded 23
strategi c
vari ables.
S ubsequent
runs eli mi nated
strategi c
vari ables th at were
not
si gni fi cant
at
any stage
of th e PL C . Th i s
process
resulted i n 12
strategi es
i n th e fi nal ROI
regressi ons
and 10
strategi c
vari ables i n th e fi nal market
sh are
regressi ons.
In most
cases,
th e reducti on i n R2 because of deleti on
of oth er
strategi c
vari ables was mi ni mal.
Fi nally,
C h ow tests were used to determi ne wh eth er
si gni fi cant
di fferences
exi sted i n th e determi nants of ROI and market sh are across th e
stages
of
th e PL C
(C h ow, 1960).
Th e C h ow test i s a test of
equali ty
between coeffi -
ci ents i n two i denti cal models based on two di fferent sets of data. In
separate
tests,
th e ROI
regressi on
coeffi ci ents for th e
growth stages
were
compared
to th ose of th e
maturi ty
and decli ne
stages,
and th e
maturi ty stage regres-
si on coeffi ci ents were tested i n relati on to decli ne. Th e
analysi s
was
repeated
for th e market sh are
regressi ons.
Hypoth eses
Based on th e li terature di scused
above, h ypoth eses
were
developed
for
strategi c
vari ables wi th
respect
to:
(1)
trends i n th e use of
strategi es
over
th e course of th e
PL C ,
and
(2)
th e
si gn
of coeffi ci ents for each set of
regres-
si ons. Th e
h ypoth eses concerni ng
trends
duri ng
th e PL C and th e
h ypoth eses
for th e
regressi ons
are li sted i n Table 2. C i tati ons
supporti ng
th ese
h ypoth -
eses also are i ncluded. In si tuati ons i n wh i ch th e li terature
provi des
li ttle
gui dance (pri mari ly
i n th e decli ne
stage), h ypoth eses
are not
developed.
Th e null
h ypoth esi s
for each C h ow test
predi cted
no
si gni fi cant
di fference
i n th e
strategi c
determi nants of
performance among stages
of th e PL C .
Results
Tables 3 and 4
present
th e results of stati sti cal
analyses.
S trategi c
Trends
Table 3 contai ns th e results of th e
one-way analysi s
of vari ance. Th e vari -
able mean and standard devi ati on are li sted for th e total
sample
and for
each
stage
of th e PL C . Indi vi dual
stage
means th at are
si gni fi cantly
di f-
ferent from total
sample
means are i ndi cated
by
asteri sks.
Industry
vari ables tended to beh ave as
expected duri ng
th e PL C . Prod-
uct
ch ange
became less
frequent, tech nologi cal ch ange
decli ned from
growth
to
maturi ty, development
ti me for
products
i ncreased wi th later
stage
i n-
troducti ons,
and relati ve
compensati on
i ncreased wi th
maturi ty.
12 March
Table 2
Hypoth esi zed S i gns
of
Regressi on
C oeffi ci ent
ROI Relati ve Market S h are
S trategi c
Vari ables Trenda Growth
Maturi ty
Decli ne Growth
Maturi ty
Decli ne L i terature
S upport
Industry
Vari ables
Frequency
of
product ch anges
L ess
frequent
over PL C
Tech nologi cal ch ange
Decrease after
maturi ty
Development
ti me
Relati ve
compensati on
Product
competi ti on
vari ables
C ustomi zati on
Relati ve
product
breadth Increase
duri ng maturi ty
Relati ve
product quali ty
Relati ve
quali ty
of servi ces
Relati ve
pri ce
Market sh are
R&D vari ables
New
products:
% of sales
Product R&D/revenue
th en decrease
Decrease over PL C
C onstant
C onstant
Decrease over PL C
Decrease over PL C
Process R&D/revenue Decrease over PL C
Producti on/i nvestment vari ables
Total
i nventory/revenue
C onstant
P&E newness Decrease over PL C
Investment/revenue Decrease over PL C
.... ... ... ... ... ...
. ... ... ... ... ...
,
.
~~~~. . . . . . . . . ... .. .....
................ ... ... ...
... ... ... ... ... ..
...i + ... ... ' + Hofer (1975); Hay & Gi nter
(1979)
+ +
+
+ +
+ +
+ + + ... Hofer
(1975);
MacMi llan et al.
(1982);
Buzzell & Wi ersema
(1981)
~... . . ....... . . Hall
(1980)
... ... ... MacMi llan et al.
(1982)
+ ... ... .. Buzzell et al.
(1975)
. .. . .. ... + ... Buzzell & Wi ersema
(1981)
~-
+-
- + ... ... MacMi llan et al.
(1982); Hay
&
Gi nter
(1979)
- - .. . .. ... MacMi llan et al.
(1982)
.. ... ... ... ... ...
- - -
'... ... ... .. S ch oeffler
(1977);
MacMi llan et al.
(1982)
aDeri ved from Hofer and S ch endel
(1978)
(1982).
l
s
5I
rN
-
Q.1
Table 2
(conti nued)
ROI Relati ve Market S h are
S trategi c
Vari ables Trenda Growth Maturi ty Decli ne Growth Maturi ty Decli ne L i terature S upport
Effi ci ency
vari ables
C apaci ty
uti li zati on Increase over PL C ... + ... ..... MacMi llan et al.
(1982)
Decrease over PL C + + + ... ... ... S ch oeffler
(1977);
MacMi llan et al.
(1982)
Value added/revenue
avg
Decrease over PL C + + + . ... ... MacMi llan et al.
(1982)
Verti cal
i ntegrati on
vari ables
Relati ve
i ntegrati on
backward C onstant - ... ... ... .. ... MacMi llan et al.
(1982)
Relati ve
i ntegrati on
forward C onstant - ... ... ... ... MacMi llan et al.
(1982)
Marketi ng
vari ables
S ales force/revenue Decrease over PL C - -... ... MacMi llan et al.
(1982);
Buzzell &
Wi ersema
(1981)
Adv. &
promo/revenue
Decrease over PL C .. - + +
-
MacMi llan et al.
(1982);
Buzzell &
Wi ersema
(1981); Hay
& Gi nter
(1979)
Relati ve sales force
expenses
C onstant ... .. ..
... + ... Buzzell & Wi ersema
(1981)
Relati ve
adverti si ng expenses
C onstant ... ... - + +
-
Hay
& Gi nter
(1979);
Buzzell &
Wi ersema
(1981)
Performance
Vari ables
ROI C onstant ... ... ... ...
Relati ve market sh are ... ... ...... ...
aDeri ved from Hofer and S ch endel
(1978)
(1982).
a
C I1
a
a
0
Table 3
Analysi s
of Vari ance:
S trategi c
and Performance Vari ables
Means
(S tandard Devi ati ons)
S trategi c
Vari ables All
S tages
Growth
Maturi ty
Decli ne
Industry
vari ables
Frequency
of
product ch anges
Development
ti me
Relati ve
compensati on
Product
competi ti on
vari ables
C ustomi zati on
Relati ve
product
breadth
Relati ve
product quali ty
Relati ve
quali ty
of servi ces
Relati ve
pri ce
Market sh are
R&D vari ables
New
products:
% of sales
Product R&D/revenue
Process R&D/revenue
Total
i nventory/revenue
P&E newness
Investment/revenue
Effi ci ency
vari ables
C apaci ty
uti li zati on
Value added/revenue
average
Verti cal
i ntegrati on
vari ables
Relati ve
i ntegrati on
backward
Relati ve
i ntegrati on
forward
Marketi ng
vari ables
S ales force/revenue
Adv &
promo/revenue
expenses
Relati ve
Performance
vari ables
ROI
Relati ve market sh are
*p<
.05
**p< .01
***p<.001
.175
(.02)
.125
.039
(.03)
.580
.058
(.03)
-.234
-.042
(.03)
-.170
.155
-.007
.002
.032
-.032
.048
(.03)
(.03)
(.03)
(.03)
(.03)
(.03)
.185
-.055
.235
.038
.018
.030
(.04)
(.06)***
(.04)***
(.06)**
(.06)
(.06)
(.06)***
(.06)
(.06)
(.06)
.184
(.03)
-.159
(.03)***
.135
(.03)***
.002
(.04)*
.151
(.04)
.032
(.03)*
-.069
(.03)***
.041
(.04)
-.049
(.03)
.062
(.04)
-.005
(.03)
.499
(.07)***
-.171
(.03)***
.154
(.03)
.537
(.07)***
.042
(.04)***
.107
(.03)
.484
(.08)***
-.029
(.03)***
-.089
(.03)
.045
(.06)
.107
(.03)
-.091
(.03)
.323
(.06)**
-.211
(.03)***
.097
(.03)
.305
(.07)***
.028
(.03)***
.021
(.03)
-.100
(.06)**
.061
(.03)*
.165
(.04)
.308
(.08)*
.127
(.05)
.066
(.03)
.155
(.06)
.063
(.03)
.023
(.03)
.026
(.06)
-.043
(.04)
.011
(.03)
-.030
(.06)
.029
(.04)
.026
-.310
-.046
-.090
-.003
.062
(.03)
.278
(.01)
-.250
(.03)
-.022
(.03)
-.182
(.06)***
(.02)***
(.06)
(.06)*
(.03)
.005
(.06)
(.03)
.047
(.06)
-.049
-.328
-.048
-.052
(.04)***
(.01)***
(.03)
(.03)*
.336
(.07)*
-.044
(.13)
.589
(.16)***
.025
(.11)
.035
(.14)
-.341
(.12)**
-.269
(.11)**
-.149
(.13)
-.047
(.12)
-.064
(.13)
-.384
(.07)***
-.365
(.09)***
.003
(.12)
.081
(.13)
-.676 (.14)***
-.052
(.09)*
.107
(.14)
-.087
(.17)
-.428
(.17)**
.001
(.14)
-.023
(.12)
-.279
-.384
-.161
-.151
(.14)**
(.03)**
(.13)
(.11)
.008
(.03)
-.233
(.13)*
.079
(.04)
-.110
(.13)
Two
product competi ti on
vari ables exh i bi ted
si gni fi cant
vari ati on from
th e total
sample
mean. Relati ve
product
li ne breadth was
greatest duri ng
maturi ty
and decreased
consi derably duri ng
decli ne. C onsi stent wi th Ham-
bri ck et al.
(1982),
relati ve
product quali ty
decli ned over th e course of th e
PL C . Th i s decrease
may
be due less to a decli ne i n
sample
busi ness
prod-
uct
quali ty
th an to a
general
i ncrease i n th e
quali ty
of
competi tors' prod-
ucts.
S urvi vi ng
busi nesses
may
di fferenti ate th ei r
products
less on
quali ty
i n later
stages
of th e
PL C ,
and customers
may percei ve
a smaller
di screp-
ancy.
Th e
stage
means also i ndi cated a
sli gh t
decli ne i n both
product
cus-
tomi zati on and relati ve
quali ty
of
servi ces,
wi th li ttle vari ati on i n relati ve
pri ce
and market sh are.
1984 15
Journal
S i gni fi cant
di fferences were revealed for th e th ree R&D vari ables. As
h ypoth esi zed,
new
products
as a
percentage
of sales decli ned
duri ng
th e
PL C . Product R&D
expenses
as a
percentage
of revenues decreased to a
large degree
at each
stage
of th e PL C . Process R&D
expenses
decli ned from
growth
to
maturi ty,
but
essenti ally
stabi li zed from
maturi ty
to decli ne. Th ese
expenses
are
probably h i gh er
and consti tute a
larger percentage
of smaller
revenues i n
early stages
of th e PL C .
As
expected,
two of th e
major producti on
i nvestment vari ables decli ned
duri ng
th e PL C :
plant
and
equi pment
newness and
capi tal
i nvestment as
a
percentage
of revenues. A
possi ble explanati on
i s th at
sample
busi nesses
may i denti fy
and
anti ci pate
market
expansi on
and
prepare
for i t
duri ng
growth .
Growth busi nesses also
may possess
a smaller revenue
base, th ereby
i nflati ng
i nvestment/revenue.
Effi ci ency
vari ables demonstrated some
opposi ng
trends.
Alth ough
capaci ty
uti li zati on
i ncreased, employee producti vi ty (value
added
per
em-
ployee)
and value added as a
percentage
of revenues decreased. Mature busi -
nesses,
i n th ei r efforts to
i mprove effi ci ency, probably
h ave balanced
capac-
i ty
and demand. Th e decli nes i n value added
possi bly
reflect several fac-
tors.
Fi rst,
because revenues
may
be lower
duri ng growth ,
value added
may
consti tute a
larger proporti on
of
revenues,
once
agai n i nflati ng
th i s
fi gure.
S econd,
certai n
competi ti ve
factors such as
pri ce competi ti on
i n th e market-
place may
reduce value added over ti me. Because value added i s calculated
as sales mi nus
purch ases,
th i s
competi ti ve
factor lowers th e sales
fi gure.
A si mi lar effect
may
not be
present
for
purch ases. Th i rd,
th e number of
workers
employed by
a fi rm often i ncreases as i t matures. Th i s
ph enom-
enon would result i n a
larger
base for th e
employee producti vi ty
vari able.
Relati ve verti cal
i ntegrati on
backward and forward sh owed li ttle vari a-
ti on
duri ng
th e
PL C , supporti ng
th e
h ypoth eses.
Th e
fi ndi ngs may
i ndi cate
si mply
th at verti cal
i ntegrati on
i s an
i ndustry trend, th ereby negati ng
radi cal
ch anges
i n relati ve
posi ti ons among competi tors.
As
h ypoth esi zed, marketi ng expenses
as a
percentage
of revenues decli ned
over th e PL C .
Agai n,
th e decrease
may
be due not
only
to
h i gh er expenses
duri ng
earli er
stages,
but to a smaller revenue base
duri ng
th ose
stages.
Busi nesses
may
use
marketi ng
to bui ld future
revenues,
at th e
expense
of
current
profi ts. However,
relati ve
were
greater
dur-
i ng maturi ty
th an
duri ng growth
and decli ne. Mature busi nesses i n th i s sam-
ple may
vi ew
adverti si ng
as a cri ti cal
competi ti ve
devi ce.
Fi nally,
Table 3 contai ns th e
one-way analysi s
of vari ance results for th e
performance
vari ables. As
predi cted,
no di fference was found i n ROI be-
tween
growth
and
maturi ty.
Decli ne
stage busi nesses, h owever, reported
a much lower ROI.
Alth ough
a
sli gh t
deteri orati on i n market sh are was
observed for decli ne
stage busi nesses,
no i ndi vi dual
stage
means exh i bi ted
a
si gni fi cant
di fference from th e total
sample
mean.
Th ese
strategi c
trends
support
most of th e
h ypoth eses
set forth i n Table
2.
Alth ough many
of th ese
h ypoth eses
were based on a si mi lar
analysi s
of
th e PIMS data base
performed by
Hambri ck et al.
(1982),
th e results extend
16 March
th ei r
fi ndi ngs th rough
th e decli ne
stage, provi di ng
furth er
i nsi gh t
i nto PL C -
strategy relati onsh i ps.
In
addi ti on,
th e
analysi s
i ncluded several
strategi es
excluded from th e Hambri ck et al.
(1982) study: frequency
of
product
ch anges, tech nologi cal ch anges, development ti me,
relati ve
compensati on,
customi zati on,
and
employee producti vi ty.
ROI
Regressi ons
Table 4
reports
th e results of th e
regressi on analysi s
for each
stage
of
th e PL C . As menti oned
above,
12
strategi c
vari ables were
si gni fi cant
i n
at least one
stage
of th e PL C . Th e di recti on of all
si gni fi cant
vari ables
sup-
ported
th e
h ypoth eses regardi ng
th e
si gns
of th e
regressi on
coeffi ci ents.
C h ow tests
compari ng
th e determi nants of ROI across th e PL C
stages
i n-
di cated th at:
(1)
th e determi nants of ROI for
growth
were di fferent from
th e determi nants of ROI
duri ng maturi ty [F(12, 1167)
=
1.99, p
<
.05],
re-
jecti ng
th e null
h ypoth esi s
of
h omogenei ty;
and
(2)
th ere were no
si gni fi -
cant di fferences between th e determi nants of ROI i n th e decli ne
stage
and
th e determi nants of ROI i n ei th er th e
growth
or
maturi ty stages.
Th e reasons beh i nd th ese C h ow test results become more
apparent
wh en
combi ned wi th th e
regressi on fi ndi ngs
for each
stage
and th e trends i denti -
fi ed i n th e
previ ous
secti on. Th e
growth stage regressi on analysi s
i ndi cated
th at
superi or
ROI was li nked to lower levels of
i nvestment, product
R&D
expenses,
sales force
expenses,
and
product customi zati on,
and to
h i gh er
levels of
producti vi ty,
value
added, product quali ty,
and market sh are. To
a certai n
degree,
several of th ese associ ati ons can be attri buted to th ei r
ari th meti c
relati onsh i ps
wi th ROI.
However,
two addi ti onal
poi nts requi re
consi derati on.
Fi rst, growth
busi nesses exh i bi ted th e
h i gh est
mean levels
for seven of th e
ei gh t strategi c
vari ables
si gni fi cant
i n th e
growth stage regres-
si on.
(Market
sh are was th e
excepti on.)
Th i s
suggests
th at
many growth
busi nesses h ave deci ded to
spend
a
greater proporti on
of th ei r revenues on
product, producti on,
and market
development,
even
th ough
th ese
expen-
di tures reduce sh ort term ROI. Investment i n th ese
strategi c
vari ables
may
contri bute to th e
h i gh er
levels of relati ve
product quali ty,
value
added,
and
employee producti vi ty. S econd,
th e results also
suggest
th at not all
growth
busi nesses are constrai ned to low ROI
duri ng growth .
Th e di fference be-
tween
growth
and
maturi ty
ROI was
mi ni mal;
th us some
growth
busi nesses
h ave
managed h i gh profi tabi li ty.
Th ese busi nesses
may operate
i n i ndustri es
i n wh i ch
competi ti on
does not
requi re h i gh
i nvestment and
expenses, yet
h i gh
value added can be ach i eved wi th
standardi zed, quali ty products.
Market
growth
and
resulti ng supply
and demand i mbalances
may
be
respon-
si ble for th ese more
profi table
condi ti ons.
Alternati vely,
oth er
growth
busi -
nesses
may operate
at a more
restri cted, yet profi table,
scale wi th i n th ei r
i ndustri es. MacMi llan et al.
(1982) emph asi zed
th at th e scale at wh i ch a
busi ness deci des to
compete
i s cri ti cal.
C learly,
future research sh ould i n-
vesti gate
th ese
poi nts
i n
greater
detai l.
17 1984
S trategi c
Vari ables
Industry
vari ables
Frequency
of
product ch anges
Development
ti me
Relati ve
compensati on
Product
competi ti on
vari ables
C ustomi zati on
Relati ve
product
breadth
Relati ve
product quali ty
Relati ve
quali ty
of servi ces
Market sh are
Relati ve
pri ce
R&D vari ables
New
products:
% of sales
Product R&D/revenueb
Process R&D/revenueb
T,t%tl ;r%wontnrt rltzul ni ,b
Table 4
Regressi on
Results: ROI and Relati ve Market S h area
Growth
Maturi ty
Decli ne
C ontri buti on C ontri buti on C ontri buti on
B to R2 B to R2 B to R2
-.005
(n.s.)
-.079
(-.024)
-.134**
(-.047)
n.s.
(.221***)
.093*
(.287***)
.044
(.126*)
.114*
-. 194***
(.106)*
.003
.006
(.001)
.012
(.002)
(.078)
.008
(.136)
.002
(.011)
.021
.030
(.009)
...
-.055*
(n.s.)
.056*
(.067*)
-.066*
(-.011)
n.s.
(.242***)
.107***
(.178***)
.066*
(.191***)
.167***
-.11***
(.046)
.. .
. o2 .002
.003
(.004)
.004
(.000)
(.150)
.015
(.028)
.003
(.072)
.046
.012
(.001)
...
-.169
(n.s.)
-.089
(-.094)
-.007
(-.384**)
n.s.
(-.074)
.109
(.046)
.037
(.210*)
.109
.061
(.111)
.. .
.012
.009
(.008)
.000
(.083)
(.004)
.008
(.002)
.001
(.058)
.015
.003
(.011)
.. .
I
Uta1 i IYVIllVtIU/ ri C vlUe-
. .. .. ... ... . ..
P&E newness n.s. . n.s. ... n.s.
(.003) (.000) (.019) (.000) (-.292*) (.091)
Investment/revenueb -.438 .189 -.436*** .159 -.310* .072
(n.s.)
...
(n.s.)
...
(n.s.)
aPeri ods
(...)
next to
strategi c
vari ables i ndi cate no
si gni fi cance
for ei th er ROI or relati ve market sh are. Numbers not i n
parenth eses
refer to ROI
regres-
si on
equati ons.
Numbers i n
parenth eses
refer to relati ve market sh are
regressi on equati ons.
bS trategi c
vari ables wi th an ari th meti c
relati onsh i p
to ROI.
*p<
.05
**p< .01
***p< .001
00
o
I
s,
i
c2c
Z
=r
8
~~~~~~~~~~~~~~~Table 4 (conti nued)"~a~~00
Table 4
(conti nued)a
Growth
Maturi ty
Decli ne
C ontri buti on C ontri buti on C ontri buti on
S trategi c
Vari ables B to R2 B to R2 B to R2
Effi ci ency
vari ables
C apaci ty
uti li zati on .002 .000 .150*** .030 .319* .075
(n.s.)
...
(n.s.)
...
(n.s.)
.245*** .081 .263*** .083 .280* .120
(n.s.)
...
(n.s.) ... (n.s.)
Value added/revenueb .329*** .091 .328*** .096 .435** .175
(n.s.)
...
(n.s.)
...
(n.s.)
...
Verti cal
i ntegrati on
vari ables
Relati ve
i ntegrati on
backward n.s. .. n.s. .. n.s.
(.165***) (.029) (.076*) (.006) (.188) (.018)
Relati ve
i ntegrati on
forward ............
Marketi ng
vari ables
S ales force/revenueb -. 174*** .048 -.052 .002 -.048 .001
(-.058) (.003) (-.044) (.002) (.411**) (.118)
Adv &
promo/revenueb
...
expenses
............ .. .
Relati ve
n.s. ... n.s. ... n.s.
(.119*) (.015) (.126***) (.015) (-.273*) (.040)
ROI
summary
stati sti cs S .E.
=
.785;
R2 = .489 S .E. =
.712;
R2
=
.456 S .E. =
.777;
R2 =.497
F(1 1,311)
=
27.05
F(12,844)
= 58.88
F(1 1,42)
= 3.77
p<.001 p<.001 p<.Ol
Relati ve market sh are S .E. =
.956;
R2= .283 S .E. =
.904;
R2= .278 S .E.
=.764;
R2= .432
summary
stati sti cs
F(9,313)=
13.73
F(10,846)=
32.55
F(10,43)=
3.27
p<.001 p<.001 p<.01
aperi ods
(...)
next to
strategi c
vari ables i ndi cate no
si gni fi cance
for ei th er ROI or relati ve market sh are. Numbers not i n
parenth eses
refer to ROI
regres-
si on
equati ons.
Numbers i n
parenth eses
refer to relati ve market sh are
regressi on equati ons.
bS trategi c
vari ables wi th an ari th meti c
relati onsh i p
to ROI.
*p< .05
**p <.01
***p<.001
Z
s
I
I
Journal
Alth ough effi ci ency
and market sh are domi nance were
i mportant
dur-
i ng growth , th ey
became more cri ti cal
duri ng
th e
maturi ty stage.
All th ree
effi ci ency
vari ables were
h i gh ly si gni fi cant,
wi th
capaci ty
uti li zati on enter-
i ng
th e
regressi on equati on.
In
addi ti on,
market sh are was
strongly
asso-
ci ated wi th ROI. Both
capaci ty
uti li zati on and market sh are were at some-
wh at
h i gh er
levels i n
maturi ty
th an i n th e
growth peri od. Alth ough
overall
relati ve
product quali ty
decreased from
growth
to
maturi ty,
i t i ncreased
i n
si gni fi cance.
Th e
abi li ty
to di fferenti ate
products th rough quali ty
and
servi ce
may
be more cri ti cal i n a more
h omogeneous
market. As i n
growth ,
i nvestment/revenue, product R&D/revenue,
and customi zati on
depressed
ROI
duri ng maturi ty.
Relati ve
compensati on, h i gh er
for mature
busi nesses,
and
development
ti me also
adversely
affected ROI.
Only
four
strategi c
vari ables were
si gni fi cant
i n th e decli ne
stage regres-
si on. Th ree of th e four were
effi ci ency vari ables;
i nvestment/revenue mai n-
tai ned an i nverse associ ati on wi th ROI. Wi th th e
excepti ons
of
develop-
ment ti me and relati ve
compensati on,
all oth er
strategi c
vari ables i n th e
regressi on equati on
were at th ei r lowest levels. Th e value
added, effi ci ency
ori entati on found i n earli er
stages may
be of
si ngular i mportance
for ROI
duri ng
decli ne.
An exami nati on of Table 4 reveals
ei gh t strategi c
vari ables
si gni fi cant
i n more th an one
stage
of th e PL C . Th ree
strategi c
vari ables h ad
si gni fi -
cant associ ati ons wi th ROI i n all
stages:
i nvestment/revenue
(-), employee
producti vi ty (+),
and value added/revenue
(+).
Th ese
fi ndi ngs
are con-
si stent wi th
previ ous
PIMS studi es.
S everal oth er vari ables were
si gni fi cant
i n two of th e th ree
stages.
C ustomi zati on and
product
R&D/revenue were
i nversely
related to ROI
i n
growth
and
maturi ty.
Relati ve
product quali ty
and market sh are were
posi ti vely
related to ROI i n
growth
and
maturi ty. C apaci ty
uti li zati on h ad
a
posi ti ve
associ ati on wi th ROI i n
maturi ty
and decli ne. Th ese
fi ndi ngs sup-
port
th e
h ypoth eses.
Four
strategi c
vari ables were
si gni fi cant
i n
only
one
stage. Development
ti me
(-),
relati ve
compensati on (-),
and relati ve
quali ty
of servi ces
(+)
entered th e
regressi on
for
maturi ty.
S ales force
expenses/revenue
was i n-
versely
related to ROI i n th e
growth stage. Despi te
th e ari th meti c relati on-
sh i p
between sales force
expenses
and ROI i n all
stages,
th i s
strategi c
vari -
able was
si gni fi cant only
i n th e
growth stage.
Relati ve Market S h are
Regressi ons
Th e results
focusi ng
on relati ve market sh are are contai ned wi th i n th e
parenth eses
i n Table 4. Table 4 contai ns th e results of th e
regressi on analysi s
for each
stage
of th e
PL C ;
10
strategi c
vari ables were
si gni fi cant
i n at least
one
stage
of th e PL C . Th e C h ow test
compari ng growth
and
maturi ty
market
sh are determi nants was not
si gni fi cant. However,
th e determi nants of market
sh are i n th e decli ne
stage
were
si gni fi cantly
di fferent from th e determi nants
20 March
of market sh are i n
growth [F(10,366)=2.47, p<.01]
and
maturi ty
[F(12,901)
=
2.49, p<.01].
Growth
stage
busi nesses
appeared
to
capi tali ze
on th ei r
h i gh
levels of
relati ve
product breadth ,
relati ve
product quali ty,
relati ve
quali ty
of ser-
vi ces, product
R&D
expenses,
and relati ve verti cal
i ntegrati on
backward
for
superi or
market sh are. Relati ve
also h ad a
posi -
ti ve associ ati on wi th ROI. It i s noted th at th e
si gn
of th e coeffi ci ent for
product
R&D/revenue was
negati ve
i n th e
growth ,
ROI
regressi on
and
posi -
ti ve and th e
growth ,
market sh are
regressi on.
Th i s reversal
suggests
th e
potenti al long
term benefi ts th at
may
be associ ated wi th
product
R&D.
S i gni fi cant
vari ables i n
maturi ty
were i denti cal to th ose i n
growth
wi th
two
excepti ons.
Relati ve
compensati on
h ad a
posi ti ve
associ ati on wi th mar-
ket
sh are, alth ough
i t made a li mi ted contri buti on to R2. Product R&D/
revenue was no
longer si gni fi cant, i ndi cati ng
th e need to restri ct such ex-
pendi tures
to th e
growth stage.
It
appears
th at a market
penetrati on strategy
emph asi zi ng
relati ve
product
and
marketi ng advantages
over
competi tors
translates i nto market sh are for
growth
and
maturi ty
busi nesses. It
may
be
prudent, h owever,
to
develop
th ese
advantages duri ng growth
and to
focus on th ei r mai ntenance
duri ng maturi ty.
A di fferent mi x of
strategi c
vari ables
emerged duri ng
th e decli ne
stage.
Plant and
equi pment
newness was
i nversely
related to market sh are. Th i s
relati onsh i p may
reflect th e
age
of
establi sh ed, h i gh
sh are busi nesses and
th ei r reluctance to i nvest resources i n
capaci ty
as th e market matures. Mar-
ket sh are also was related to a standardi zed
product li ne, supported by qual-
i ty
servi ce. A radi cal
ch ange
was observed i n th e
marketi ng
vari ables. Al-
th ough
sales force
expenses/revenue
are lower th an i n th e oth er
stages,
th i s
strategi c
vari able h ad a
strong posi ti ve relati onsh i p
wi th market sh are. Rel-
ati ve
adverti si ng expenses,
wh i ch were
posi ti vely
related i n oth er
stages,
h ad a
si gni fi cant negati ve relati onsh i p
i n decli ne. Th i s i s consi stent wi th
th e
decli ni ng i mportance
of
adverti si ng
noted i n Table 1 and th e
h ypoth esi s
i n Table 2.
Hi gh
market sh are busi nesses at th i s
stage may rely
on th ei r
previ ous strategi c efforts, supported by
li mi ted sales and servi ce contacts.
Two
strategi c
vari ables were
si gni fi cant
i n
growth , maturi ty,
and decli ne.
Relati ve
quali ty
of servi ces was
posi ti vely
related i n all th ree
stages.
Relati ve
adverti si ng expenses, h owever,
sh owed a
posi ti ve relati onsh i p
i n
growth
and
maturi ty,
but a
si gni fi cant
i nverse
relati onsh i p
i n decli ne. Relati ve
prod-
uct breadth
(
+
),
relati ve
product quali ty
(
+
),
and relati ve verti cal
i ntegra-
ti on backward
(+)
were
si gni fi cant duri ng growth
and
maturi ty.
Oth er stra-
tegi c
vari ables were
si gni fi cant
i n a
si ngle stage.
Di scussi on and
Impli cati ons
Th e results of th i s
study
i ndi cate th at modi fi cati ons i n
strategy
between
certai n
stages
of th e PL C are both
prevalent
and advi sable. S everal
strategi c
vari ables
appear
to
promote
both ROI and market sh are wi th i n
speci fi c
1984 21
Journal
stages
of th e
PL C ;
oth er vari ables i nvolve a trade-off between th ese
objec-
ti ves. Th e "di fferent di recti on"
h ypoth esi s
was
si gni fi cantly supported only
by product
R&D/revenue i n th e
growth stage
and relati ve
compensati on
duri ng
th e
maturi ty stage. Alth ough
th e results do not warrant th e conclu-
si on th at th e PL C i s th e
major
determi nant of busi ness
strategy, th ey general-
ly support
consi derati on of th i s
conti ngency
factor
duri ng strategy
formu-
lati on.
Furth ermore,
wh en
i ntegrated conceptually,
th e
empi ri cal fi ndi ngs
provi de
a better
understandi ng
of th e evoluti on of busi ness
strategy
and
th e trade-offs th at
may
be confronted.
Th e
starti ng poi nt
of th i s
evoluti onary process
sh ould be a
compari son
of
organi zati onal goals
wi th th e sh ort term and
long
term
profi t opportu-
ni ti es of th e
growth
busi ness.
Alth ough
th i s i s not a novel
i dea,
th e results
of th i s and oth er PL C studi es
poi nt
to i ts
i mportance.
As th e fi rm formulates
strategy,
i t must determi ne th e
relati onsh i ps
between vari ous levels of sh ort
term
profi ts
and th e
long
term
consequences
of th ese
profi ts.
Di fferent mar-
ket and
i ndustry
condi ti ons often lead to di fferent
relati onsh i ps.
A stri ct
trade-off
may
not be i nvolved
(e.g.,
sh ort term versus
long
term
profi ts,
sh ort term
profi ts
versus market
sh are).
In
fact,
recent evi dence
(Hambri ck
et
al., 1982;
Rumelt &
Wensley, 1981) suggests
th at th ese
objecti ves
often
are
compati ble.
In some
growth markets,
th e combi ned effects of
rapi d
revenue
growth , h i gh er
value
added,
and lower i nvestment and
expense
re-
qui rements yi eld h i gh profi ts.
Effi ci ent
producti on
and
product expendi tures
for
product
and market
development
sh ould sustai n th ese
profi ts
as th e
market matures. In oth er
growth markets, competi ti ve
and
i ndustry
fac-
tors
may
restri ct
profi ts duri ng growth . S trategi c
deci si on makers
may
be
faced wi th
h i gh er product development
costs and i nvestment
requi rements.
In such
cases,
th e busi ness must determi ne th e
i mpli cati ons
of vari ous
op-
erati ng
scales for
profi ts
over
ti me,
as well as th e
feasi bi li ty
and
profi tabi l-
i ty
of market sh are
gai ns th rough
th e
development
of
competi ti ve
advan-
tages. C learly, many growth
busi nesses devote
large porti ons
of th ei r reve-
nues to th ese
expendi tures. Neverth eless,
careful attenti on to
producti vi ty
and
effi ci ency
sh ould reduce th e adverse effects on
profi ts
as
product
and
market consi derati ons are
emph asi zed.
Duri ng maturi ty
th e li nk between
profi tabi li ty
and
effi ci ency
becomes
even
stronger.
Investment and
expenses
as a
proporti on
of revenues tend
to
decrease, perh aps i mprovi ng
th e
profi ts
of busi nesses th at carri ed sub-
stanti al costs
duri ng growth .
Product di fferenti ati on and market domi nance
become more cri ti cal. Busi nesses th at h ave
developed competi ti ve
advan-
tages
i n
product quali ty
and servi ce reali ze benefi ts i n terms of market sh are
and
profi ts. Alth ough
th e
strategi c
vari ables related to ROI and market
sh are were not
i denti cal, th ey appear
to be
reasonably compati ble
i n most
si tuati ons. Th e results
support previ ous
li terature
focusi ng
on th e matur-
i ty stage, parti cularly
th at of Hamermesh and S i lk
(1979), Hay
and Gi nter
(1979),
Hall
(1980),
Wi nd
(1981),
(1982).
Profi table decli ne
stage
busi nesses conti nue a
strong emph asi s
on effi -
ci ency
and reduced i nvestment. Th e
strategi c
vari ables related to
h i gh
market
22 March
sh are
duri ng
decli ne are
qui te
di fferent from th ose i n
growth
and matur-
i ty.
As
products
are
percei ved
as
commodi ti es,
busi nesses standardi ze th ei r
product li ne, supporti ng
i t wi th
quali ty
servi ce and an effi ci ent use of sales
force
expendi tures.
Market domi nati on
th rough
th i s
strategi c approach may
posi ti on
decli ne
stage
fi rms to mi lk
remai ni ng profi ts.
Two recommendati ons follow from th i s
study. Fi rst, growth
busi nesses
sh ould consi der th e
i mpli cati ons
of th ei r
objecti ves
and
strategi es
for later
stages
of th e PL C . Th i s
analysi s
sh ould i nclude
projecti ons
of market con-
di ti ons and
competi tor strategi es.
Growth
stage
deci si ons
concerni ng
sh ort
term
profi tabi li ty
and market sh are
may
h ave a cri ti cal
i mpact
on th e suc-
cess of th e fi rm as th e market matures.
S econd,
th e busi ness sh ould track
th e
evoluti onary development
of th e
market, constantly evaluati ng
i ts
posi -
ti on and
i mplementi ng strategi es
i n
keepi ng
wi th
ch angi ng
condi ti ons. Th i s
study
h as
attempted
to
provi de
di recti on wi th
respect
to th e
speci fi c strategi es
for th ese si tuati ons.
S everal
speci fi c
recommendati ons can be made for
extendi ng
th i s research .
Fi rst,
alternate data sources sh ould be uti li zed.
Industry
and fi rm case studi es
can enh ance th ese
fi ndi ngs by provi di ng speci fi c examples
and tests of th ese
condi ti ons.
S econd, longi tudi nal analysi s
i s basi c to
understandi ng
th e PL C
because i t i s a
dynami c concept.
For
example,
research
exami ni ng
th e
long
term effects of di fferent
growth stage objecti ves
and
strategi es
sh ould be
traced i n order to determi ne th ei r outcomes under vari ous market condi -
ti ons.
L ongi tudi nal
research also would address
questi ons concerni ng speci fi c
strategi es,
such as R&D
expendi tures
and th ei r effects over th e PL C .
Th i rd,
future research sh ould i nclude oth er
performance measures,
such as cash
flow and stock
pri ce.
Research
focusi ng
on th e effects of vari ous
objec-
ti ves i n di fferent
stages
of th e PL C would be benefi ci al.
Fi nally,
PL C re-
search sh ould exami ne th e effects of structural
deci si ons,
wh i ch
th eory sug-
gests
were related to both
strategy
and
performance (Wh i te
&
Hamermesh ,
1981).
In
summary,
th i s
study
extends
previ ous
PL C research and
provi des sup-
port
for i ts i nclusi on as an
i mportant conti ngency
factor
duri ng strategy
formulati on.
However,
th e
fi ndi ngs questi on
th e i dea th at a
si ngle
set of
strategi es
i s
preferable
at
any stage
of th e
PL C , parti cularly growth .
Wi nd
(1981)
h as
suggested
th at th e li fe
cycle concept
can be used i n two
ways:
(1)
assume th at all
products
follow th e li fe
cycle
and
develop strategi es
to
sustai n sales and
profi ts
rath er th an
allowi ng
a
decli ne,
or
(2) i ncorporate
i nformati on on th e
product's posi ti on
i n th e li fe
cycle
wi th oth er i nforma-
ti on such as market sh are and
profi tabi li ty.
Th e
present
conclusi ons con-
cerni ng
th e
i mportance
of
strategi c objecti ves
and th ei r i nteracti on wi th
th e PL C favor th e
second,
more
compreh ensi ve approach
to
strategy
for-
mulati on. Th i s
i ntegrati ve approach certai nly
i s worth future
i nvesti gati on
i n
strategi c management
research .
1984 23
24
Journal March
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