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A Study of the Role Played by Manufacturing Strategic Objectives and Capabilities in Understanding the Relationship between Porter's Generic Strategies and Business Performance

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  • The authors gratefully acknowledge the financial support of the Spanish Ministry of Science and Technology (Research Projects SEC 2001-1756 and SEJ 2004-03888/ECON) and the FEDER funds. The authors also acknowledge the efforts of Fundación de Cajas de Ahorro (FUNCAS) to stimulate Spanish research; this paper is based on working paper number 299, prepared by the authors for the Working Paper Collection of this non-profit organization.

Abstract

An appropriate alignment between business strategy, manufacturing strategic objectives and manufacturing capabilities reportedly influences business performance positively. However, few papers empirically analyse this proposition for the case of Porter's generic strategies of cost leadership and differentiation, and none jointly considers all four elements. This paper integrates strategies, capabilities and performance in a single model and proposes that both manufacturing competitive priorities and capabilities, articulated in terms of cost and flexibility, are essential for explaining the link between generic business strategies and business commercial and financial performance. Within this analytic framework, we test whether companies that emphasize one business strategy rather than another achieve a better alignment and superior performance. The analyses conducted with a sample of 148 Spanish manufacturers provide general support for these propositions and contribute to a deeper understanding of the role played by functional strategies in understanding the outcomes of business strategy.

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