Porter´s (1980) Generic Strategies (PDF)

nothing. R&D intensity reflects the extent to which a company chooses to develop new products. Uncertainty about the successful development of new products is twofold.
First a firm does not know specifically the relationship between R&D investments and the actual introduction of new products. Second the firm does not know specifically if rivals introduce products that affect the value of the R&D investment. R&D intensity is measured by the ratio of R&D expenditures to sales.
- Stock returns and financial ratios cannot be taken into account in this investigation due to a lack of financial data about capital structures or stock prices. Therefore the study focuses on the third group of risk measures: Income stream uncertainty. Income stream uncertainty includes historical returns variability and measures derived from analyst’s forecasts. In strategy research, historical fluctuations of income streams are among the most common risk measures, because reductions or fluctuations in revenues often result in unpleasant managerial actions, such as lay-offs or reductions in capital investments. Stable revenues though, result in the adequate implementation of corporate strategies and increase the stability of employment, which reduces the firm’s risk. Risk measures derived from analysts’ forecasts interpret deviations in earnings per share as an indicator about the uncertainty for future income streams.
Miller and Bromiley point out that the best proxy for measuring risk is revenue volatility, because stable revenues make it easier for management to deal with different stakeholder groups. The greater the amplitude of fluctuations, the higher is the probability that a firm will come in financial distress in the future. This can be examined by measuring the fluctuations of revenues from past years.
The survey (Appendix I, question 1.6) provides data about revenues from three years. These revenues form the basis of the risk variable, because the fluctuations of the revenues are measured on behalf of a variance formula.
Main Variable:
According to Porter’s taxonomy strategic memberships of firms (Appendix I, question 10.1), form the foundation for the independent variables of this study. Firms are categorized among cost leadership (‘cost leadership’), differentiation (‘technological leadership’, ‘industry leader in bringing new products to market’, ‘industry leader for the implementation of new processes and practices’) and focus (‘individualized solutions to customers’, ‘specialization on market segments’).
A fourth group is implemented, which represents those firms that do not have a clear strategic orientation towards one of Porter’s strategies (‘stuck in the middle’). Since firms rate for themselves which strategy they pursue, it is assumed that strategic membership is precisely examined.
Firms can choose among four scales in how far they pursue a strategy. Porter’s strategies are detected if a respondent ranks its strategy on one of the three possible categories at the highest scale. If there is no clear categorization possible than a firm comes in the fourth group, stuck in the middle. This procedure helps to clearly separate those firms that concentrate their strategic orientation towards one of Porter’s strategies and those firms that have multiple strategic orientations.
- Figure 4 shows the distribution of strategic choices among the sample under investigation. From the 3.606 firms 152 can clearly be characterized as firms with a differentiation strategy, 392 firms have a cost leadership strategy and 334 firms have a focus strategy. The biggest fraction is the fourth group, stuck in the middle with 1836 firms. Firms that are neither considered as firms with a Porter strategy, nor stuck in the middle (n=892), have strategies that cannot clearly be assigned to one of the four groups. Examples include firms that have their main competencies in forming alliances, or reacting to innovations from competitors. These firms are not considered for further analysis."