Description
In this paper relating to organizational strategy and firm performance a test of miles.
Journal of Research in International Business and Management (ISSN: 2251-0028) Vol. 2(6) pp. 170--178, June 2012
Available online @http://www.interesjournals.org/JRIBM
Copyright ©2012 International Research Journals
Full Length Research Paper
Organizational strategy and firm performance: a test of
miles and snow’s model using 34 paint manufacturing
SMES in South-western Nigeria
*
Ade Oyedijo and Akewusola RO
Department of Business Administration and Management Technology, Lagos State University, Ojo, Lagos, Nigeria
Abstract
This paper provides a systematic empirical evidence obtained from 34 paint manufacturing SMEs in
South-Western Nigeria in support of Miles and Snow’s model that prospectors and anxious analyzers
perform better than domain defenders and reluctant reactors. Primary and secondary data were used
for the analysis. Using the ordinary least square (OLS) regression technique and correlation matrix to
analyze performance data covering a period of three years, significant performance differences were
found between prospectors, analyzers, defenders and reactors. A negative performance was found to
be associated with a reluctant reactor strategy and this was significant at 0.05 level. The study found
out that SMEs compete in different ways thus allowing for their classification as prospectors, analyzers,
defenders and reactors. This result has brought additional fresh evidence to dismiss the speculation
that Miles and Snows typology is a sequential stage of strategy development in which defender
strategies are linked to small firms and prospector strategies to larger firms. The overall evidence in the
study suggests that organizational strategy plays an important role in explaining the relative success or
failure of SMEs and that SME managers can make a significant difference to the performance of their
organizations through the type of strategies that they use.
Keywords: Organizational strategy, organizational performance, prospectors, anxious analyzers, domain
defenders, reluctant reactors.
INTRODUCTION AND PURPOSE
One of the core functions of top managers is to shape a
company’s strategy. A strategy may be defined as a
pattern of decisions that are selected and implemented to
achieve a long-term goal and a sustainable competitive
advantage. Grant (1991) defines a strategy as the overall
game plan for deploying resources to establish a
favourable industry – market position. Many studies have
contended and demonstrated that the type of strategy
that is used by a company matters and makes a big
difference to performance (e.g. Ketchen, et. al., 1996;
Miles and Snow, 1978; Slater and Olsen, 2000). Thus, a
major issue for managers is ensuring that they have the
right strategy in order to perform and compete effectively.
The purpose of this paper is to provide a systematic
empirical evidence on
*Corresponding Author Email
[email protected]
the validity or otherwise of this proposition by testing
Miles and Snow’s model using multiple-informant cross-
sectional survey data from 34 SMEs in South-Western
Nigeria.
The performance of Nigerian SMEs has been a major
focus of research by many scholars. While much effort
has been made to determine the influence of many
variables on the performance of SMEs in Nigeria, such as
owner-motivation (Ogundele and Opeifa, 2003), ethical
practices (Ogundele, Olajide, Hassan and Ashamu,
2008) strategic planning intensity (Akewushola, 2010),
and marketing orientation practices (Oyedijo, Idris and
Aliu, 2010), no work has been done to examine and
determine the impact of the type of strategy that is used
on the performance of these organizations. This paper
provides the first empirical test of the relationship
between strategy type and firm performance in Nigerian
small and medium business organizations.
The paper is divided as follows. In the next section,
Miles and Snow’s strategy types are presented. The
literature is then reviewed and the hypotheses on the
relationship between strategy type and firm performance
are presented. This is followed by a discussion of the way
the variables are operationalised and measured and the
methods used to collect data for the analysis. The
interpretation of the statistical findings and the limitations
and suggestions for future research are presented in the
concluding section.
LITERATURE REVIEW
Based on three studies in four industries (College
textbook publishers, electronics, food processors and
health care), Miles and Snow (1978) concluded that four
types of viable SBU strategies can be identified. They
are: prospectors, anxious analyzers, domain defenders
and reluctant reactors. At a conceptual level, these seem
to cover all the major possible organizational responses
to new circumstances: innovate (prospector), follow
promising new developments (anxious analyzer),
consolidate (domain defender) or wait for the unfolding
developments (reluctant reactor). Miles and Snow’s
(1978) model which is perhaps the best known and most
widely used SBU typology has proven to be very robust
and adaptable as evidenced by its successful application
to the study of a wide variety of strategic issues. It has
been used to examine changes in R and D intensity
(Hambrick, MacMillan and Barbarosa, 1983), distinctive
competence and performance (Snow and Hrebiniak,
1980); manufacturing and service strategies (Adam,
1983); strategic awareness (Hambrick, 1981);
environmental scanning (Hambrick, 1982); strategic
choice (Burgleman, 1983; Seger, 1989); and
compensation strategies (Broderick, 1986; Gomez-Mejia,
1992). Empirical results also provide strong support for its
reliability and validity (Shortell and Zajac, 1990).
Prospectors according to Miles and Snow (1978) are
organizations which “almost continually search for market
opportunities and regularly experiment with potential
responses to emerging environmental trends”. Such
organizations are characterized by a strong concern for
product and market innovation, a visionary mode based
on looking ahead to break new grounds, a high risk
orientation, a search for new opportunities, a rapid
response to new circumstances, the invasion of the
markets of other organizations, devotion of more
attention to market changes than to improving internal
efficiency and an entrepreneurial organizational culture
with a calculative commitment (Thompson, 2003; Gomez-
Mejia and Balkin, 1992). A prospector organization
typically operates within a broad product-market domain
that undergoes periodic redefinition. The organization
values being “first in” in new product and market areas
even if not all of these efforts prove to be highly
profitable. The organization responds rapidly to early
Oyedijo and Akewusola 171
signals concerning areas of opportunity, and these
responses often lead to a new round of competitive
actions. However, this type of organization may not
maintain market strength in all of the areas it enters. The
strategic patterns of prospectors are opposite to that of
defenders. “Unlike the defender whose success comes
primarily from efficiently serving a stable domain, the
prospector’s prime capability is that of finding and
exploiting new product and market opportunities” (Miles,
Snow, Meyer and Coleman, 1978).
Anxious analyzers are organizations that are seldom
first in with new products or services but monitor
competitors and adjust their strategies as promising new
ideas are seen. Such organizations attempt to maintain a
stable, limited line of products or services while at the
same time moving out quickly to follow a carefully
selected set of the more promising new developments in
the industry. By carefully monitoring the actions of major
competitors in areas that are compatible with its stable
product-market base, an anxious analyzer organization
can frequently enter the market as a ‘second in’ often
with a more cost-efficient and superior product or service.
A defender does not strive to be a leader in the field,
but instead seeks to be a late adopter of innovations
taking a conservative perspective of new product or
service development and focusing intently upon a narrow
segment of the market to retain its existing core business
activities. Such organizations adopt low-risk strategies,
operate in secure markets, make a little search if at all for
anything really ‘new’ and develop considerable expertise
in narrow areas of specialism. Defenders, as Miles and
Snow (1978) argue, will “devote primary attention to
improving the efficiency of their existing operations”.
Such business organizations prefer to maintain a secure
position in a relatively stable product or service area.
Rather than emphasizing new product development, they
emphasize protecting the market share. According to
Greenland and McGoldrick (1994), defensive strategies
essentially seek damage limitation if a competitor
launches an innovation which cannot be copied or
improved upon quickly or profitably. A reactor is
characterized by an inability to respond effectively to
pressures for change. According to Miles and Snow
(1978), a reactor will seldom make adjustments of any
sort until it is forced to do so by environmental pressure.
In other words, adjustments are forced on the firm in
order to avert crises.
The central contention of Miles and Snow’s (1978)
model of organizational strategy is that prospectors and
anxious analyzers perform better than domain defenders
and reluctant reactors. This has been supported by
several studies (e.g. Hawes and Crittenden, 1984;
Shortell and Zajac, 1990; Woodside, Sullivan and
Trappey, 1999). A study by Conant, et al., (1990) found
that profitability is significantly greater for prospectors and
defenders than for reactors. However, a reactor strategy
is not always associated with poor performance. Snow
172 J. Res. Int. Bus. Manag.
and Hrebiniak’s (1990) study of four industries confirmed
Miles and Snow’s (1978) primary hypothesis except in
the case of highly regulated industries where reactors
outperformed prospectors and defenders. This finding
may have implications for the relative effectiveness of
different types of strategies in different institutional
environments and organizational contexts. For example,
a reactor strategy may be a deliberate and positive
choice for small and medium scale businesses who may
wish to watch the evolving business trends and wait for
them to mature fully before taking a decision on how to
respond.
Miles and Snow maintain that there are no
performance differences between prospectors and
defenders. This view was supported by the findings of
Slater and Olson (2001). However, the evidence on the
relative performance of prospectors and defenders is
neither comprehensive nor conclusive perhaps because
of the limited number of industries covered by Miles and
Snow’s (1978) study. A study of chapter 11 bankruptcy
by Evans and Green (2000) concluded that business
turnaround is more likely to be achieved by prospectors
than defenders. In an analysis of the relationships among
strategic types, distinctive marketing competencies, and
organization performance, Woodside, et. al., (1999)
concluded that prospectors outperform defenders, who in
turn outperform reactors. A test of the effectiveness and
functional attributes of Miles and Snow’s strategic types
in some U.S companies by Hambrick (1983) showed that
prospectors outperform defenders on market share
changes, although a reverse pattern was found for return
on investment.
An analysis of U.S hospitals by Zajac and Shortell
(1989) found that the performance of defenders fell
behind other types of generic strategy when the
environment called for a more proactive approach. In
summary, existing literature reports that there is a broad
but mixed support for Miles and Snow’s model of strategy
and performance.
A test of this model in the small and medium business
sector in a developing country where SMEs struggle
seriously for survival may confound or strengthen either
of the contending schools on this subject. It is possible to
find that SMEs wait and watch the unfolding scenarios of
business regulations and competition and the responses
of larger firms before acting. The application of Miles and
Snow’s model to SMEs leads to the following
hypotheses:
H
1
: A prospector strategy and an anxious analyzer
strategy are positively related to organizational
performance of SMEs.
H
2
: Prospector and anxious analyzer SMEs outperform
defender and reactor SMEs.
H
3
: A defender strategy is positively related to
organizational performance of SMEs.
H
4
: Defender SMEs outperform reactor SMEs.
H
5
: A reactor strategy is negatively related to
organizational performance of SMEs.
H
6
: A reactor strategy is positively related to
organizational performance of SMEs.
Hypothesis 6 contradicts H
2
, H
4
, and H
5
but has
nevertheless been added because the distinctive
environmental context of small and medium scale
businesses in Nigeria which is characterized by the
dominance of large firms may predispose SMEs to adopt
a wait-and-see approach for handling strategic issues
imposed by changes in opportunities and threats
emerging from the external environmental domain. In
doing so, SMEs might hope to improve their chances of
survival and better performance by adopting a low-risk
strategy.
METHODOLOGY
Operationalisation and measurement of variables
Performance
Gross revenue and number of customers were used to
measure performance. In Nigeria, gross revenue and
number of customers are generally regarded as important
criteria for evaluating the success of SMEs and the
chances of their survival and growth. Besides, data on
gross revenue and number of customers are not
controversial and are readily available in the books of the
sampled firms although the firms had to be persuaded to
release them after explaining that the data were needed
for research purposes only. Performance data collected
covered a period of three years only (2009 – 2011).
Organizational strategy
One measure for each type of organizational strategy
was used in this study. The prospector strategy was
operationalised through a measure of product and market
innovation. This is considered central to Miles and
Snow’s (1978) definition of a prospector strategy which
includes risk-taking and proactive responses to new
external environmental circumstances as well as an
entrepreneurial organizational culture. Respondents were
asked the extent to which the business approach of their
firms displayed these characteristics. The informants
were asked directly the extent to which their
organizations were exploring new ways of developing
their products and markets. To explore the extent to
which the sampled SMEs displayed anxious analyzer
characteristics, informants were asked to evaluate the
efforts of their firms to get to the market first with new
products or services. It was reasoned that firms that did
not seek to get to the market first are most likely to be
monitoring their competitors with a view to adjusting their
strategies in response to new developments in the
market thus falling into the category of anxious analyzers.
To explore the extent to which the firms in the sample
displayed defender characteristics i.e. adopting
innovations late, focusing upon a narrow and secure
market segment, using tried and tested strategies and
making only a little search for things that are truly ‘new’,
informants were asked whether their company’s
approach to product and service development focused
exclusively on their core business. Theoretically, reluctant
reactors are expected to wait for product and market
innovations to fully mature and crystallize before deciding
how to respond to environmental change. The major
source of external pressure for change facing SMEs in
Nigeria is competition from large scale enterprises and
the other numerous SMEs as well as suppliers of inputs
to SMEs who often integrate forward into the businesses
of such SMEs and cart away their customers. The
informants were therefore asked about the extent to
which the activities of competitors affected their
approaches to product and market improvement.
Sample and data collection
A list of paint manufacturing SMEs maintained by the
Nigerian Association of Small and Medium Scale
Industrialists (NASMI) South-Western Zone was used to
identify the population and the sample for the study. At
the time of this study in 2011, there were 201 registered
paint manufacturing companies in Nigeria (Yusuf, 2011)
of which 148 were located in South-Western Nigeria. Of
this figure, 130 were in the SME category using the
official definition by the Small and Medium Enterprise
Development Agency of Nigeria (SMEDAN).
According to SMEDAN, a small enterprise is an
enterprise whose total asset including working capital but
excluding the cost of land is between N5million (about
US$32500) and N50million (about US$325,000) and or a
workforce between ten (10) and forty-nine (49) full-time
staff and or with a turnover of not more than N10million
(about US$65000) in a year. A medium scale enterprise
is defined by SMEDAN as a company with a total asset
including working capital but excluding the cost of land
and building of more than fifty million naira (N50m) i.e.
about US$325,000 but less than five hundred million
naira (N500million) i.e. about US$3.30 million and/or a
staff strength of between fifty (50) and one hundred and
ninety-nine (199) full-time workers and/or with an annual
turnover of not more than twenty million naira (N20
million) or about US$1.3 million. All the firms selected
were well within these definitions. 98 of the total number
of paint manufacturing SMEs in South-Western Nigeria
were registered members of NASMI at the time of this
study.
A convenience and judgemental sampling method
was used to select 58 paint manufacturing SMEs for the
study. In all, 39 of the 58 paint manufacturing SMEs
initially contacted for the study responded to the survey.
Oyedijo and Akewusola 173
After a thorough check, questionnaires obtained from 34
respondent SMEs were considered suitable for the final
analysis. All the 34 firms were registered as private
limited liability companies. The biggest of the firms
employed 98 workers while the smallest employed 45
workers.
A multiple-informant survey research method involving
staff members at senior, middle and low level
management positions in the sampled firms was used to
collect data on the organizational strategy of the
respondent firms. This is considered an improvement on
the earlier methods of conducting strategy research
which relied on a single source (the CEO and his
management team). The multiple-informant survey
reflects the voices of senior managers and junior
managers in the measures of organizational strategy as
against past studies in strategy that relied only on the
views of top organizational leaders. The scores of
respondents in each firm on a 5-point Likert type scale
were added together and averaged to obtain the final,
true score of a firm on each of the strategy types. A
cluster analysis was then performed to determine the
strategy category to which each firm belonged.
DATA ANALYSIS AND DISCUSSION
Analytical procedures
To derive a useful meaning from the data and examine
the proposition of this study, data from the survey were
analyzed using the Statistical Package for Social
Sciences Research (SPSS) which is very popular among
academics for this type of survey by questionnaire.
Primary and secondary data were used for the analysis.
Data collected were subjected to three main types of
analysis. In order to gain perspectives into the level of
adoption of competitive strategies by firms, frequency
distribution of firms was calculated while descriptive
statistics was employed in determining the type of
organizational strategies in the SMEs under study
according to Miles and Snow. Correlation matrix analysis
(i.e. pairwise correlation) was employed to show the
existence of relationship between organizational
strategies and the performance of the paint
manufacturing SMEs as well as the differences between
the performance of the SMEs that are using prospector,
analyzer, and defender or reactor strategies.
RESULT AND DISCUSSION
Of the total questionnaires distributed to 58 SMEs, a total
of 39 questionnaires were completed and after a
thorough check, questionnaires obtained from 34
respondent SMEs were considered suitable for the final
analysis representing a response rate of 70 percent
174 J. Res. Int. Bus. Manag.
of the sample.
To address issues of possible common method
variance, Cronbach Alpha reliability test was conducted
for all the measures. Reliabilities were checked and they
fell between 0.75 and 0.87, which is satisfactory for a
study that is exploratory in nature (Nunnally, 1978). The
overall Cronbach Alpha of the scales used in this study is
0.81. This indicates that reliability of the scales is
reasonably high thus depicting high internal consistency
among the measurement items. Validity checks were
made via assessment by a panel of experts in the field.
As can be seen in Table 1 and in accordance with
Miles and Snow, all the 34 respondent firms adopted the
four types of organizational strategies. The most common
strategy among the sample was the prospector strategy
(41.2%). The least frequent strategy among the sample
was the reactor strategy (11.8%).
The means, standard deviations and mean differences
from the test values are shown in Table 2. From this
Table, prospector strategy had a relatively high mean
(Mean = 4.3512). This is because firms that use
prospector strategy have a greater chance to perform
better than firms using other strategies. The mean scores
for analyzer, defender and reactor strategies are 3.8734,
3.3519 and 2.8921 respectively. These results give
additional evidence in support of Miles and Snow’s
contention that analyzers and prospectors are more
effective strategies in any business environment. Based
on Table 3, it is clear that the measures of organizational
strategy are weakly correlated with each other. This
suggests that the organizational strategies of
prospecting, analyzing, defending and reacting are both
conceptually and empirically distinct and can be treated
separately rather than combined.
The mean scores of gross revenue and growth in
number of customers were 3.9164 and 3.6798
respectively. They were relatively significant. The
Cronbach’s Alpha reliability scores of prospector strategy,
analyzer strategy, defender strategy, reactor strategy,
gross revenue and growth in number of customers are
0.92, 0.86, 0.82, 0.78, 0.93 and 0.94 respectively. All the
scales are above the generally accepted reliability level of
0.07 (Nunnaly, 1978). The reliabilities and correlation
coefficients for each of the study variables are presented
in Table 3. From this Table, it is clear that the variables
are positively and strongly correlated (P
In this paper relating to organizational strategy and firm performance a test of miles.
Journal of Research in International Business and Management (ISSN: 2251-0028) Vol. 2(6) pp. 170--178, June 2012
Available online @http://www.interesjournals.org/JRIBM
Copyright ©2012 International Research Journals
Full Length Research Paper
Organizational strategy and firm performance: a test of
miles and snow’s model using 34 paint manufacturing
SMES in South-western Nigeria
*
Ade Oyedijo and Akewusola RO
Department of Business Administration and Management Technology, Lagos State University, Ojo, Lagos, Nigeria
Abstract
This paper provides a systematic empirical evidence obtained from 34 paint manufacturing SMEs in
South-Western Nigeria in support of Miles and Snow’s model that prospectors and anxious analyzers
perform better than domain defenders and reluctant reactors. Primary and secondary data were used
for the analysis. Using the ordinary least square (OLS) regression technique and correlation matrix to
analyze performance data covering a period of three years, significant performance differences were
found between prospectors, analyzers, defenders and reactors. A negative performance was found to
be associated with a reluctant reactor strategy and this was significant at 0.05 level. The study found
out that SMEs compete in different ways thus allowing for their classification as prospectors, analyzers,
defenders and reactors. This result has brought additional fresh evidence to dismiss the speculation
that Miles and Snows typology is a sequential stage of strategy development in which defender
strategies are linked to small firms and prospector strategies to larger firms. The overall evidence in the
study suggests that organizational strategy plays an important role in explaining the relative success or
failure of SMEs and that SME managers can make a significant difference to the performance of their
organizations through the type of strategies that they use.
Keywords: Organizational strategy, organizational performance, prospectors, anxious analyzers, domain
defenders, reluctant reactors.
INTRODUCTION AND PURPOSE
One of the core functions of top managers is to shape a
company’s strategy. A strategy may be defined as a
pattern of decisions that are selected and implemented to
achieve a long-term goal and a sustainable competitive
advantage. Grant (1991) defines a strategy as the overall
game plan for deploying resources to establish a
favourable industry – market position. Many studies have
contended and demonstrated that the type of strategy
that is used by a company matters and makes a big
difference to performance (e.g. Ketchen, et. al., 1996;
Miles and Snow, 1978; Slater and Olsen, 2000). Thus, a
major issue for managers is ensuring that they have the
right strategy in order to perform and compete effectively.
The purpose of this paper is to provide a systematic
empirical evidence on
*Corresponding Author Email
[email protected]the validity or otherwise of this proposition by testing
Miles and Snow’s model using multiple-informant cross-
sectional survey data from 34 SMEs in South-Western
Nigeria.
The performance of Nigerian SMEs has been a major
focus of research by many scholars. While much effort
has been made to determine the influence of many
variables on the performance of SMEs in Nigeria, such as
owner-motivation (Ogundele and Opeifa, 2003), ethical
practices (Ogundele, Olajide, Hassan and Ashamu,
2008) strategic planning intensity (Akewushola, 2010),
and marketing orientation practices (Oyedijo, Idris and
Aliu, 2010), no work has been done to examine and
determine the impact of the type of strategy that is used
on the performance of these organizations. This paper
provides the first empirical test of the relationship
between strategy type and firm performance in Nigerian
small and medium business organizations.
The paper is divided as follows. In the next section,
Miles and Snow’s strategy types are presented. The
literature is then reviewed and the hypotheses on the
relationship between strategy type and firm performance
are presented. This is followed by a discussion of the way
the variables are operationalised and measured and the
methods used to collect data for the analysis. The
interpretation of the statistical findings and the limitations
and suggestions for future research are presented in the
concluding section.
LITERATURE REVIEW
Based on three studies in four industries (College
textbook publishers, electronics, food processors and
health care), Miles and Snow (1978) concluded that four
types of viable SBU strategies can be identified. They
are: prospectors, anxious analyzers, domain defenders
and reluctant reactors. At a conceptual level, these seem
to cover all the major possible organizational responses
to new circumstances: innovate (prospector), follow
promising new developments (anxious analyzer),
consolidate (domain defender) or wait for the unfolding
developments (reluctant reactor). Miles and Snow’s
(1978) model which is perhaps the best known and most
widely used SBU typology has proven to be very robust
and adaptable as evidenced by its successful application
to the study of a wide variety of strategic issues. It has
been used to examine changes in R and D intensity
(Hambrick, MacMillan and Barbarosa, 1983), distinctive
competence and performance (Snow and Hrebiniak,
1980); manufacturing and service strategies (Adam,
1983); strategic awareness (Hambrick, 1981);
environmental scanning (Hambrick, 1982); strategic
choice (Burgleman, 1983; Seger, 1989); and
compensation strategies (Broderick, 1986; Gomez-Mejia,
1992). Empirical results also provide strong support for its
reliability and validity (Shortell and Zajac, 1990).
Prospectors according to Miles and Snow (1978) are
organizations which “almost continually search for market
opportunities and regularly experiment with potential
responses to emerging environmental trends”. Such
organizations are characterized by a strong concern for
product and market innovation, a visionary mode based
on looking ahead to break new grounds, a high risk
orientation, a search for new opportunities, a rapid
response to new circumstances, the invasion of the
markets of other organizations, devotion of more
attention to market changes than to improving internal
efficiency and an entrepreneurial organizational culture
with a calculative commitment (Thompson, 2003; Gomez-
Mejia and Balkin, 1992). A prospector organization
typically operates within a broad product-market domain
that undergoes periodic redefinition. The organization
values being “first in” in new product and market areas
even if not all of these efforts prove to be highly
profitable. The organization responds rapidly to early
Oyedijo and Akewusola 171
signals concerning areas of opportunity, and these
responses often lead to a new round of competitive
actions. However, this type of organization may not
maintain market strength in all of the areas it enters. The
strategic patterns of prospectors are opposite to that of
defenders. “Unlike the defender whose success comes
primarily from efficiently serving a stable domain, the
prospector’s prime capability is that of finding and
exploiting new product and market opportunities” (Miles,
Snow, Meyer and Coleman, 1978).
Anxious analyzers are organizations that are seldom
first in with new products or services but monitor
competitors and adjust their strategies as promising new
ideas are seen. Such organizations attempt to maintain a
stable, limited line of products or services while at the
same time moving out quickly to follow a carefully
selected set of the more promising new developments in
the industry. By carefully monitoring the actions of major
competitors in areas that are compatible with its stable
product-market base, an anxious analyzer organization
can frequently enter the market as a ‘second in’ often
with a more cost-efficient and superior product or service.
A defender does not strive to be a leader in the field,
but instead seeks to be a late adopter of innovations
taking a conservative perspective of new product or
service development and focusing intently upon a narrow
segment of the market to retain its existing core business
activities. Such organizations adopt low-risk strategies,
operate in secure markets, make a little search if at all for
anything really ‘new’ and develop considerable expertise
in narrow areas of specialism. Defenders, as Miles and
Snow (1978) argue, will “devote primary attention to
improving the efficiency of their existing operations”.
Such business organizations prefer to maintain a secure
position in a relatively stable product or service area.
Rather than emphasizing new product development, they
emphasize protecting the market share. According to
Greenland and McGoldrick (1994), defensive strategies
essentially seek damage limitation if a competitor
launches an innovation which cannot be copied or
improved upon quickly or profitably. A reactor is
characterized by an inability to respond effectively to
pressures for change. According to Miles and Snow
(1978), a reactor will seldom make adjustments of any
sort until it is forced to do so by environmental pressure.
In other words, adjustments are forced on the firm in
order to avert crises.
The central contention of Miles and Snow’s (1978)
model of organizational strategy is that prospectors and
anxious analyzers perform better than domain defenders
and reluctant reactors. This has been supported by
several studies (e.g. Hawes and Crittenden, 1984;
Shortell and Zajac, 1990; Woodside, Sullivan and
Trappey, 1999). A study by Conant, et al., (1990) found
that profitability is significantly greater for prospectors and
defenders than for reactors. However, a reactor strategy
is not always associated with poor performance. Snow
172 J. Res. Int. Bus. Manag.
and Hrebiniak’s (1990) study of four industries confirmed
Miles and Snow’s (1978) primary hypothesis except in
the case of highly regulated industries where reactors
outperformed prospectors and defenders. This finding
may have implications for the relative effectiveness of
different types of strategies in different institutional
environments and organizational contexts. For example,
a reactor strategy may be a deliberate and positive
choice for small and medium scale businesses who may
wish to watch the evolving business trends and wait for
them to mature fully before taking a decision on how to
respond.
Miles and Snow maintain that there are no
performance differences between prospectors and
defenders. This view was supported by the findings of
Slater and Olson (2001). However, the evidence on the
relative performance of prospectors and defenders is
neither comprehensive nor conclusive perhaps because
of the limited number of industries covered by Miles and
Snow’s (1978) study. A study of chapter 11 bankruptcy
by Evans and Green (2000) concluded that business
turnaround is more likely to be achieved by prospectors
than defenders. In an analysis of the relationships among
strategic types, distinctive marketing competencies, and
organization performance, Woodside, et. al., (1999)
concluded that prospectors outperform defenders, who in
turn outperform reactors. A test of the effectiveness and
functional attributes of Miles and Snow’s strategic types
in some U.S companies by Hambrick (1983) showed that
prospectors outperform defenders on market share
changes, although a reverse pattern was found for return
on investment.
An analysis of U.S hospitals by Zajac and Shortell
(1989) found that the performance of defenders fell
behind other types of generic strategy when the
environment called for a more proactive approach. In
summary, existing literature reports that there is a broad
but mixed support for Miles and Snow’s model of strategy
and performance.
A test of this model in the small and medium business
sector in a developing country where SMEs struggle
seriously for survival may confound or strengthen either
of the contending schools on this subject. It is possible to
find that SMEs wait and watch the unfolding scenarios of
business regulations and competition and the responses
of larger firms before acting. The application of Miles and
Snow’s model to SMEs leads to the following
hypotheses:
H
1
: A prospector strategy and an anxious analyzer
strategy are positively related to organizational
performance of SMEs.
H
2
: Prospector and anxious analyzer SMEs outperform
defender and reactor SMEs.
H
3
: A defender strategy is positively related to
organizational performance of SMEs.
H
4
: Defender SMEs outperform reactor SMEs.
H
5
: A reactor strategy is negatively related to
organizational performance of SMEs.
H
6
: A reactor strategy is positively related to
organizational performance of SMEs.
Hypothesis 6 contradicts H
2
, H
4
, and H
5
but has
nevertheless been added because the distinctive
environmental context of small and medium scale
businesses in Nigeria which is characterized by the
dominance of large firms may predispose SMEs to adopt
a wait-and-see approach for handling strategic issues
imposed by changes in opportunities and threats
emerging from the external environmental domain. In
doing so, SMEs might hope to improve their chances of
survival and better performance by adopting a low-risk
strategy.
METHODOLOGY
Operationalisation and measurement of variables
Performance
Gross revenue and number of customers were used to
measure performance. In Nigeria, gross revenue and
number of customers are generally regarded as important
criteria for evaluating the success of SMEs and the
chances of their survival and growth. Besides, data on
gross revenue and number of customers are not
controversial and are readily available in the books of the
sampled firms although the firms had to be persuaded to
release them after explaining that the data were needed
for research purposes only. Performance data collected
covered a period of three years only (2009 – 2011).
Organizational strategy
One measure for each type of organizational strategy
was used in this study. The prospector strategy was
operationalised through a measure of product and market
innovation. This is considered central to Miles and
Snow’s (1978) definition of a prospector strategy which
includes risk-taking and proactive responses to new
external environmental circumstances as well as an
entrepreneurial organizational culture. Respondents were
asked the extent to which the business approach of their
firms displayed these characteristics. The informants
were asked directly the extent to which their
organizations were exploring new ways of developing
their products and markets. To explore the extent to
which the sampled SMEs displayed anxious analyzer
characteristics, informants were asked to evaluate the
efforts of their firms to get to the market first with new
products or services. It was reasoned that firms that did
not seek to get to the market first are most likely to be
monitoring their competitors with a view to adjusting their
strategies in response to new developments in the
market thus falling into the category of anxious analyzers.
To explore the extent to which the firms in the sample
displayed defender characteristics i.e. adopting
innovations late, focusing upon a narrow and secure
market segment, using tried and tested strategies and
making only a little search for things that are truly ‘new’,
informants were asked whether their company’s
approach to product and service development focused
exclusively on their core business. Theoretically, reluctant
reactors are expected to wait for product and market
innovations to fully mature and crystallize before deciding
how to respond to environmental change. The major
source of external pressure for change facing SMEs in
Nigeria is competition from large scale enterprises and
the other numerous SMEs as well as suppliers of inputs
to SMEs who often integrate forward into the businesses
of such SMEs and cart away their customers. The
informants were therefore asked about the extent to
which the activities of competitors affected their
approaches to product and market improvement.
Sample and data collection
A list of paint manufacturing SMEs maintained by the
Nigerian Association of Small and Medium Scale
Industrialists (NASMI) South-Western Zone was used to
identify the population and the sample for the study. At
the time of this study in 2011, there were 201 registered
paint manufacturing companies in Nigeria (Yusuf, 2011)
of which 148 were located in South-Western Nigeria. Of
this figure, 130 were in the SME category using the
official definition by the Small and Medium Enterprise
Development Agency of Nigeria (SMEDAN).
According to SMEDAN, a small enterprise is an
enterprise whose total asset including working capital but
excluding the cost of land is between N5million (about
US$32500) and N50million (about US$325,000) and or a
workforce between ten (10) and forty-nine (49) full-time
staff and or with a turnover of not more than N10million
(about US$65000) in a year. A medium scale enterprise
is defined by SMEDAN as a company with a total asset
including working capital but excluding the cost of land
and building of more than fifty million naira (N50m) i.e.
about US$325,000 but less than five hundred million
naira (N500million) i.e. about US$3.30 million and/or a
staff strength of between fifty (50) and one hundred and
ninety-nine (199) full-time workers and/or with an annual
turnover of not more than twenty million naira (N20
million) or about US$1.3 million. All the firms selected
were well within these definitions. 98 of the total number
of paint manufacturing SMEs in South-Western Nigeria
were registered members of NASMI at the time of this
study.
A convenience and judgemental sampling method
was used to select 58 paint manufacturing SMEs for the
study. In all, 39 of the 58 paint manufacturing SMEs
initially contacted for the study responded to the survey.
Oyedijo and Akewusola 173
After a thorough check, questionnaires obtained from 34
respondent SMEs were considered suitable for the final
analysis. All the 34 firms were registered as private
limited liability companies. The biggest of the firms
employed 98 workers while the smallest employed 45
workers.
A multiple-informant survey research method involving
staff members at senior, middle and low level
management positions in the sampled firms was used to
collect data on the organizational strategy of the
respondent firms. This is considered an improvement on
the earlier methods of conducting strategy research
which relied on a single source (the CEO and his
management team). The multiple-informant survey
reflects the voices of senior managers and junior
managers in the measures of organizational strategy as
against past studies in strategy that relied only on the
views of top organizational leaders. The scores of
respondents in each firm on a 5-point Likert type scale
were added together and averaged to obtain the final,
true score of a firm on each of the strategy types. A
cluster analysis was then performed to determine the
strategy category to which each firm belonged.
DATA ANALYSIS AND DISCUSSION
Analytical procedures
To derive a useful meaning from the data and examine
the proposition of this study, data from the survey were
analyzed using the Statistical Package for Social
Sciences Research (SPSS) which is very popular among
academics for this type of survey by questionnaire.
Primary and secondary data were used for the analysis.
Data collected were subjected to three main types of
analysis. In order to gain perspectives into the level of
adoption of competitive strategies by firms, frequency
distribution of firms was calculated while descriptive
statistics was employed in determining the type of
organizational strategies in the SMEs under study
according to Miles and Snow. Correlation matrix analysis
(i.e. pairwise correlation) was employed to show the
existence of relationship between organizational
strategies and the performance of the paint
manufacturing SMEs as well as the differences between
the performance of the SMEs that are using prospector,
analyzer, and defender or reactor strategies.
RESULT AND DISCUSSION
Of the total questionnaires distributed to 58 SMEs, a total
of 39 questionnaires were completed and after a
thorough check, questionnaires obtained from 34
respondent SMEs were considered suitable for the final
analysis representing a response rate of 70 percent
174 J. Res. Int. Bus. Manag.
of the sample.
To address issues of possible common method
variance, Cronbach Alpha reliability test was conducted
for all the measures. Reliabilities were checked and they
fell between 0.75 and 0.87, which is satisfactory for a
study that is exploratory in nature (Nunnally, 1978). The
overall Cronbach Alpha of the scales used in this study is
0.81. This indicates that reliability of the scales is
reasonably high thus depicting high internal consistency
among the measurement items. Validity checks were
made via assessment by a panel of experts in the field.
As can be seen in Table 1 and in accordance with
Miles and Snow, all the 34 respondent firms adopted the
four types of organizational strategies. The most common
strategy among the sample was the prospector strategy
(41.2%). The least frequent strategy among the sample
was the reactor strategy (11.8%).
The means, standard deviations and mean differences
from the test values are shown in Table 2. From this
Table, prospector strategy had a relatively high mean
(Mean = 4.3512). This is because firms that use
prospector strategy have a greater chance to perform
better than firms using other strategies. The mean scores
for analyzer, defender and reactor strategies are 3.8734,
3.3519 and 2.8921 respectively. These results give
additional evidence in support of Miles and Snow’s
contention that analyzers and prospectors are more
effective strategies in any business environment. Based
on Table 3, it is clear that the measures of organizational
strategy are weakly correlated with each other. This
suggests that the organizational strategies of
prospecting, analyzing, defending and reacting are both
conceptually and empirically distinct and can be treated
separately rather than combined.
The mean scores of gross revenue and growth in
number of customers were 3.9164 and 3.6798
respectively. They were relatively significant. The
Cronbach’s Alpha reliability scores of prospector strategy,
analyzer strategy, defender strategy, reactor strategy,
gross revenue and growth in number of customers are
0.92, 0.86, 0.82, 0.78, 0.93 and 0.94 respectively. All the
scales are above the generally accepted reliability level of
0.07 (Nunnaly, 1978). The reliabilities and correlation
coefficients for each of the study variables are presented
in Table 3. From this Table, it is clear that the variables
are positively and strongly correlated (P