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CHAPTER 4 TOWARDS A CONSOLIATED, ACCUMULATED, AND COMPREHENSIVE THEORY OF STRATEGIC BALANCE
The pursuit of being legitimate and dominant is a critical aspect of modern business. The conflicting pressures to conform and to differentiate are important and persistent, exerting significant influence on organizational outcomes. To make progress in understanding in how firms can best strategically balance these pressures to obtain better performance, we need to create a more consolidated, empirically accumulated, and integrative knowledge base. This dissertation consists of two essays to meet this end by (at least partially) addressing the three problems inhibiting research progress on this research stream.
To underpin the knowledge base and to reduce ambiguity caused by various conceptualizations and operationalizations, we adhered to Deephouse’s (1999) conceptualization and operationalization and replicated his seminal work in 155 manufacturing industries in the first study. Such replications show that the generalizability of strategic balance perspective is limited and only 45 percent of manufacturing industries in China provided supportive evidence. Given that being moderately distinctive from competitive is not often an optimal strategy, one should be extremely cautious to apply strategic balance perspective to a variety of contexts with competing demands from social norms and competition. Since strategic balance perspective has limitations with regarding to industrial contexts, exploring the boundary conditions by systematically accumulating empirical evidences becomes important.
To accumulate empirical knowledge, we further explored the potential influence of some industrial variables as boundary conditions of strategic balance perspective.
The exploration suggestes three sets of boundary conditions. The first set of factors is
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competitive pressures and institutional pressures which are the underlying mechanisms of strategic balance perspective and jointly affect the benefits of strategic positioning. Once the dual pressures are not strong and equivalent, the premises of strategic balance perspective may be not held. The second set of factors is triggers that encourage firms to behave similarly rather than differently in order to win the competition. For example, firms in industry with higher ratio of export must behave similarly to meet the expectation, requirements, and regulations from worldwide customers. Also network externalities constitute a winner-takes-all context where firms have to embrace aggressive and similar strategies to win the leading position of the mass market. The third set of factors is related to the presence of multiple reference points in an industry. For instance, firm size may reflect a firm’s belonging to specific strategic group. Likewise, foreign firms may develop an identity and social norms specific to the foreign group, creating an emerging reference point. The three sets of factors are not only constrains of the validation of strategic balance perspective, but also opportunities to motivate integrative efforts, especially for those related to multiple reference points. Multiple reference points reflect the complexity of environments and the variety of stakeholders who grant legitimacy to firms. Exploring the influence of strategical similarity in such markets extends understanding of strategic balance perspective.
Therefore, to broaden the knowledge, we focus on foreign firms in China as members of emerging groups who face two reference points and desperately seek legitimacy from both local stakeholders and foreign stakeholders. By integrating the recent development of collective identity and organizational legitimacy theory, the second study suggests a multifaceted approach of organizational legitimacy which is granted by various groups of stakeholders with their own collective identity. Firms in
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an emerging group have to consider two interdependent decisions of strategic positioning, to what extent to be similar to within-group peers and to what extent to be similar to across-group peers in order to gain legitimacy and competitive advantages both within group and across group. This integrative progress extends the research boundary of strategic balance perspective to a multi-group context and sheds light on a more complete picture of competition-legitimacy tension in such context.
This dissertation not only has contributions on consolidation, accumulation, and advancement of knowledge base of strategic balance perspective, but also has several implications for future research. First, we advocate a multifaceted approach of legitimacy and multiple levels of legitimacy may affect the strategic similarity and firm performance simultaneously. The second study has shown that group level legitimacy alters the influence of be similar due to the legitimacy spillover and resources crowding effects. The first study also reveals that some spatial interference may affect certain section of firms’ positioning strategies and performance. For example, regional government (such as state government) in China often grants regional legitimacy in exchange of the conformity to regional rules and requirements by firms operating in its region. Although this dissertation has examined the legitimacy spillover effect, our understanding of the interplay among cross-level legitimacy issues is still limited.
Second, theorizing competitive pressures and institutional pressures and examining their influence on positioning strategies and firm performance may allow us to develop a more generalizable theory, since the two pressures are not only the underlying mechanisms, but also the boundary conditions of strategic balance perspective. For example, in a context where competitive pressures and institutional pressures are both weak, does the influence of positioning strategy become weaker or
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trivial? Moreover, the strategic balance point may depend on the relative strength of these two pressures. The development of measurement for the two pressures allows managers better understand and scan their competitive and institutional environments, facilitating their decisions to be optimal distinctiveness.
Third, we value the role of collective identity in the emergence of a reference point and indicate that foreign status is one of the central characteristics as a common identity base. While central characteristics which are distinctive, enduring, and critical may become a collective identity base, future studies could explore other identity bases and whether different identity bases constitute different multi-group contexts reaching different conclusion. For example, product or service attributes may be another identity base. Scottish knitwear manufacturers only recognize who produce high quality knitwear as competitive and develop collective norms (Porac et al., 1989).
Australian coaching industry distinguishes itself from consulting industry by developing collective identity work emphasizing on the distinctiveness of services provided (Clegg et al., 2007). Moreover, the knowledge about when and why these central characteristics become identity bases helps us understand the dynamics of strategic group which managers based on compare with each other.
Forth, we suggest exploring the evolution of the emerging group and the change of optimal distinctiveness strategy during the evolution. Although this dissertation has demonstrated that whether an emerging group obtaining group legitimacy or not affects the benefits and costs of being distinctive, how such group of firms build group legitimacy collectively and how they manage the tension between borrowing local legitimacy for short term performance and building group legitimacy for long term performance remains unexplored. During the group legitimacy building period, the relationships among firm-level positioning strategies, group-level heterogeneity,
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and firm performance are complex and dynamic.
Fifth, the second study focuses on the competition-legitimacy issues faced by firms in an emerging group because they often seek legitimacy from the established stakeholders, but how an emerging group affecting the benefits and costs of positioning strategies of firms in the established group is also worthy for further investigation. When a new social group emerges in an industry, the incumbent firms may confront exceptional competition and reduced institutional resources (because these resources shared by some firms in the emerging group). As a result, the competitive environments and institutional environments become more stringent toward the incumbent firms, changing the strategic balance point within established group. In addition, the incumbent firms have to consider the competition across group before making positioning strategies. Such investigation will contribute a more comprehensive picture of the multiple-group contexts to strategic balance perspective.
In summary, we believe that it is important to consolidate, accumulate, and broaden the knowledge base of strategic balance perspective. In doing so, we also map out a research agenda which provides opportunities for scholars systematically expand the theoretical boundary of strategic balance perspective and integrate organization theory and strategy management.
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