Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?

Abstract

Purpose – The purpose of this paper is to investigate the relationship between the strategic positioning of firms and the sustainability of firm performance. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. However, a differentiation strategy may also be associated with greater risk. Design/methodology/approach – To investigate the research questions, the authors utilize publicly available archival data consisting of 12,849 firm-year observations for the period 1989-2003. In the first stage of the analysis, factor analysis is used to determine firms’ strategic positioning. The resulting factor scores are subsequently used in regression analysis to investigate the sustainability of performance based on the strategic positioning of firms. Findings – The results indicate that both cost leadership and differentiation strategies have a positive impact on contemporaneous performance. However, the differentiation strategy allows a firm to sustain its current performance in the future to a greater extent than a cost leadership strategy. The differentiation strategy, though, is also associated with greater systematic risk and more unstable performance. Originality/value – Sustainability of performance refers to how much a firm's current profitability can be sustained in future periods. The main contribution of this study is the comparison of generic strategies based on the sustainability of firm performance. This aspect of the strategy-performance link has not been considered in prior work. Another contribution of the study is that it considers multiple dimensions of firm performance in order to evaluate the trade-offs involved with pursuing different strategies. In particular, the authors contribute to the literature by documenting that while differentiation leads to more sustainable earnings, it also leads to riskier and more unstable earnings.

Analyzing the Effect of Corporate Environmental Performance on Corporate Financial Performance in Developed and Developing Countries

“…This contravenes the primary objective of shareholder wealth maximization postulated in neoclassical economic theory [1,41]. However, the integration of environmental strategies into core business strategy allows firms to develop valuable, inimitable and non-substitutable organizational resources and capabilities [48], enabling firms which own them to create competitive advantage [49,50] by (1) improving the efficiency and productivity in their production processes, which reduces the input and waste disposal costs, improving long-term corporate financial performance from the natural-resource-based view [36,44]; and/or (2) differentiating their products which are made in an environmentally responsible way and/or integrate environmentally-friendly characteristics. This attracts consumers and other key stakeholders with environmentally-friendly behavior, raising the revenues and therefore the corporate financial performance according to instrumental stakeholder theory [51,52].…”

PENGARUH PEMILIHAN STRATEGI DEFERENSIASI TERHADAP KINERJA KEUANGAN1 (Studi Empiris Pada Perusahaan Manufaktur Food & Beverages terdaftar di BEI)

“…Hal ini mendukung temuan penelitian sebelumnya yang lakukan oleh banyak peneliti khususnya penelitian Banker et al, (2014) yang mengidentifikasi unsur beban sebagai proksi pemilihan strategi. Secara detail, Banker et al, (2014) menyimpulkan bahwa strategi deferensiasi berpengaruh positif terhadap kelangsungan kinerja keuangan dimasa yang akan datang.…”

“…Penelitian lain yang juga menggunakan pengukuran keuangan sebagai indikasi pemilihan strategi deferensiasi dan kepemimpinan biaya dilakukan oleh Banker et al, (2014). Penelitian tersebut menggunakan rasio beban umum dan administrasi terhadap penjualan, rasio beban R &D terhadap penjualan, rasio penjualan bersih terhadap HPP dan rasio penjualan bersih terhadap pengeluaran modal, untuk melihat apakah pemilihan strategi bisnis oleh perusahaan, yaitustrategi deferensiasi dan strategi kepemimpinan biaya akan berampak pada kinerja keuangan perusahaan.…”

“…Hal ini didasarkan pada pernyataan Banker et al, (2014) bahwa strategi kepemimpinan biaya biasanya dibangun atas dasar pencapaian efisiensi operasional, sementara strategi diferensiasi biasanya dikembangkan di sekitar inovasi spesifik perusahaan, inovasi spesifik produk serta usaha pemasaran yang tidak mudah ditiru dengan cepat oleh kompetitor.…”

“…Hal sama juga diungkapkan dari hasil penelitian Hoque (2004) yang membuktikan bahwa pemilihan strategi organisasi yang tepat dapat berdampak pada kinerja perusahaan secara positif. Banker et al, (2014) menyimpulkan bahwa strategi diferensiasi memungkinkan perusahaan untuk mempertahankan kinerja saat ini dan kinerja masa depan untuk tingkat yang lebih besar daripada strategi kepemimpinan biaya.Prajogo & Sohal (2006) menyimpulkan bahwa strategi terdeferensiasi berpengaruh terhadap kinerja organisasi. Ortega et al, (2008) juga menunjukkan hasil bahwa strategi deferensiasi berdampak pada peningkatan kinerja.…”