Chapter 3 The Theoretical Foundations of Strategic Groups: the Purdue Approach
3.3 The Purdue Approach to Strategic Groups Research: Methodological and Theoretical Issues
Researchers at Purdue argue that the proposed strategy model has clear advantages in terms of greater objectivity and rigour compared to other techniques used at the time. At a practitioner level, the advantages are:
1. the provision of a better understanding of the relation between the variables and performance;
2. the provision of the means for an ex-ante evaluation of proposed strategies. Given the accumulation of competitive information, the model could be used as a what if technique; and,
3. the acquisition of information on alternatives that could be used as strategy choices.
Having conducted the empirical analysis, Hatten et al (1978: 608) argue that the usefulness of the model have been proven:
“The research has shown that it is possible to build quantitative models of business strategy that go beyond qualitative statements of the basic nature of a business and reveal significant relationships between purpose, strategy and the environment in which a firm operates. ... While not substitutes for management
Chapter 3 - The Theoretical Foundations o f Strategic Groups: The Purdue Approach - page 56
judgement and decision making, strategic models can provide important help in assessing past strategies, defining new strategies, and evaluating proposed strategies before their adoption and implementation.”
However, having analysed the different papers published from the research carried out at Purdue, it is possible to identify weaknesses in both the theory and methodology, hence raising questions about the usefulness of the technique.
At a methodological level, although quantitative techniques can deliver more objective
results, the number and the type of variables to be considered is an important issue. This is particularly when we consider that a common criterion to cluster firms together has not been specified. Schendel and Patton (1978) use a geographical criterion and Hatten and Schendel (1977) and Hatten el al. (1978) cluster firms on similarities and differences in the variables, they identify. Although results tend to converge, it was expected that these researchers, using the same industry in the same time frame, would adopt similar methodologies. However, this has not happened, thus raising new questions about the ability of researchers to objectively identify the strategic variables responsible for firms’ performance. A final element, not considered by researchers, is that, in analysing the effectiveness of firms' decisions, it would have been sensible to analyse firms that have disappeared during the 20 year period they studied, and analyse the reasons behind their exit from the industry.
At a theoretical level, the first main issue concerns the fundamental ambiguity about what types of variables have an impact on performance: strategic, or strategic and
operational? Hatten el al. (1978: 598) make a distinction between strategic and
operational issues but only consider strategy variables as they assert that “over a long time period, strategy, whether good or bad, dominates operational efficiency.” This
Chapter 3 - The Theoretical Foundations o f Strategic Groups: The Purdue Approach - page 57
position is not shared by Schendel and Patton (1978), who show that operational inefficiencies have an important role on performance and can lead to exit from the industry.
A second weakness relates to the specification of the model. While Caves and Porter (1977) fall into structural determinism in their strategic groups theory, at Purdue, researchers assume independence between firms’ strategies and the industry structure. Nonetheless, in their analysis it is clear that firms’ strategies have consequences for the dynamics of strategic options available to firms over time. This leads directly to the third issue: the use of the model to assess the effectiveness of strategic options. The cornerstone of the Purdue approach is that the model may be used by senior executives to assess the effectiveness of their strategic options. The model uses variables related to past firms’ strategies to assess ex-ante strategic options available to firms. This position completely ignores the fact that the past strategies were also successful because external conditions were favourable to those strategies, as well as that the structure and nature of competition within the industry may have changed'.
The argument that the choice of the strategy to follow is the main factor responsible for performance and the relative insignificance of operational issues reproduces the neo classic economic view of a company as a “black box”, where the role of market mechanisms is replaced by the role of strategy decisions. Firms are now seen as playing a determining role of their performance, but this role is restricted to strategy choice and is only loosely linked to the inner context of the firm. Furthermore, it is possible to abstract firms’ strategies from their context without significant consequences.
Hatten and Schendel (1978) indicate that the effect o f some variables may vary over time, which again raises questions about the possibility of utilising the model to predict firms' future success and specifically about the effectiveness of the same strategy over time.
Chapter 3 ■ The Theoretical Foundations of Strategic Groups: The Purdue Approach - page 58
In management research, this view was, in the 1970s, not exclusively limited to strategic groups research. At Harvard Business School, Scott and his doctoral students built upon Chandler’s (1962) work and developed research which analysed the relationships between strategy, organisational structure and performance. This research also shared a similar view of “decision” being the single most important variable in determining performance differences. It has to be remembered that, at the beginning of the 1970s, SM was in its early stages as an independent research field. “Until the seventies, academic strategy research consisted chiefly of clinical case studies of actual situations, with generalisation sought through induction.” (Rumelt et al. 1991: 8). New concepts, models and methodologies, typical of Economics, were being introduced. Consequently, some of the economic views were also being transposed into business studies. This
economic view of strategy research has had an enormous influence in the strategy field,
with the nature of research, for a long time, being on strategic decision rather than on the strategy process. There has been, among some researchers, an implicit and naive trust in the company’s abilities to implement strategies. This view was successfully challenged during the 1980s building on conflicting results achieved by researchers trying to verify the existence of a relation between strategy and performance and on a large amount of research stressing the importance of processual characteristics (Mintzberg, Raisinghani and Theoret 1976; Mintzberg and Waters 1985; Pettigrew 1985).
By comparing the strategy model proposed by Hatten, Schendel and Cooper, and generally the tendencies emerging in the strategy field to what was happening in economics, a striking paradox emerges. In IO, there was a trend towards less deterministic approaches, highlighted by the modification proposed by Scherer to the SCP paradigm in 1970 and by the theory of firms' performance proposed by Porter in
Chapter 3 - The Theoretical Foundations o f Strategic Groups: The Purdue Approach - page 59
1979. This was driven by a growing dissatisfaction with the deterministic models that had characterised the field over the previous decades. In SM, the trend was in the opposite direction and researchers were moving towards more quantitative and deterministic cause-effect type of studies. This has led to deterministic and reductionist approaches (Bourgeois 1984).
3.4
Summary
The analysis of the Purdue approach to strategic groups concludes with the publications of Schendel and Patton (1978). However, research at Purdue continued throughout the 1980s. In 1987, Hatten co-authored an article (Hatten and Hatten 1987), stressing the differences between the Harvard and the Purdue approach and analysing the role of asymmetrical mobility barriers and contestability in the process of industry consolidation and concentration. Concepts and ideas generated at Harvard were used but the theoretical foundations of concepts were not considered, contributing to the ambiguity and confusion in strategic groups research which we shall analyse in the next chapter. In the first part of the 1980s, Cool completed his PhD at Purdue under the supervision of Schendel. However, little theoretical progress was achieved in his work (Cool 1985; Cool and Schendel 1987).
The initial objective of the research carried out at Purdue was to develop a model that can be used by top management to make decisions about their strategic and operational decisions. The problems both at a theoretical and methodological level raise serious doubts about whether this objective was achieved.
Chapter 4 - The Development o f Strategic Groups Research: a Critical Review - page 60