Relationship between Organization Strategies and Organizational

Performance in Telecom Sector of Pakistan

Adil Tahir Paracha

051-12-16405

Dissertation Submitted in Partial Fulfilment of the Requirements for the

Degree of Doctor of Philosophy

Department of Management Sciences

Iqra University Islamabad Campus

2017

I

CERTIFICATE

It is certified that PhD dissertation titled “Relationship between organization strategies and

organizational performance in telecom sector of Pakistan” has been prepared by Mr. Adil

Tahir Paracha, Enrollment No. 051-12-16405 and approved for final submission.

Supervisor,

__________________

Dr. Robina Yasmin

Date:05-04-2017

II

ABSTRACT

The purpose of this study is to explore the impact of business generic

strategies on organizational performance by investigating the mediating role

of organization learning and innovation. The study addresses the questions on

Pakistan telecom sector organizations including the type of the generic

business strategies adopted by telecom sector organizations, the impact of

generic business strategies on organizational performance, the impact of

organization learning and innovation on performance and does organization

learning and innovation mediates the relationship with generic strategies and

organizational performance. The hypotheses of study include significant

impact of business strategies on organizational performance, organization

learning and innovation, they also included significant impact of organization

learning and innovation on organizational performance. Hypotheses also

included significant mediating relationship or organization learning between

business strategies and organizational performance, significant mediating

impact of innovation between business strategies and organizational

performance.

Study utilized quantitative approach, self-administered questionnaires were

employed. Various statistical techniques were utilized to compute the data.

The data was also triangulated through the help of interviews. The findings of

the study were that business strategies have significant impact on the

performance of the organization. Business strategies significantly impacts

organization learning and innovation. Organization learning significantly

mediates the relationship between organization strategies and performance.

III

Innovation significantly mediates the relationship between organization

strategies and performance.

IV

DEDICATION

This effort

is dedicated to my Mother, my Wife and my Teachers

V

ACKNOWLEDGEMENTS

I bestow all praises, acclamations and appreciation to Almighty Allah. At this

finishing point of my thesis, I am indebted to many people and organisations; I pay

my gratitude to them. I pay my gratitude to my supervisor Dr. Robina Yasmin,

Assistant Professor, Iqra University, Islamabad for her guidance. Special thanks to the

support provided by Dr. Malik Faisal Azeem for sharing his skills and knowledge

during this whole PhD. I also thank my friends Dr. Hasnain Naqvi, Mr. Asif Shehzad,

Mr. Mohsin Zahid and all my contacts who stood me during the whole process of this

course. I am very thankful to the people in Pakistan telecom sector organizations for

giving me the information to carry out this research work.

My deepest gratitude is for my family for their unconditional love and support during

this whole effort. I am grateful to every person who helped me in this process and I

apologize those whom I could not mention personally one by one.

Adil Tahir Paracha

05-04- 2017

VI

LIST OF ABBREVIATIONS

R & D Research & Development

LIBOR Intercontinental Exchange London Interbank Offered Rate

GST General Sales Tax

WHT With Holding Tax

PTA Pakistan Telecommunication Authority

LDI Long Distance and International

FDI Foreign Direct Investment

IO Industry Organization

OECD Organization for Economic Cooperation and Development

TQM Total Quality Management

HR Human Resource

ROA Return on Assets

ROE Return on Equity

SMEs Small and Medium Enterprises

RBV Resource Based View

VII

TABLE OF CONTENTS

1 INTRODUCTION 1

1.1 Problem statement 5

1.2 Research gap 6

1.3 Research significance 7

1.4 Objectives of the study 8

1.5 Research questions 8

1.6 Hypotheses 8

1.7 Proposed managerial implications 9

1.8 Pakistan telecom sector view 11

1.9 Contribution towards research and management practices 13

1.10 Importance of study in Strategic Management context 13

1.11 Importance of study in Pakistan context 15

1.12 Limitations of the study 16

1.13 Definitions 16

1.14 Outline of the thesis 22

2 LITERATURE REVIEW 24

2.1 Strategy 24

2.1.1 Strategy process 34

2.2 Business strategy 37

2.3 Operationalization of strategy typologies 44

2.4 Risks and criticisms of Porter's generic strategies 57

2.5 Extensions of Porter's generic strategies 60

2.5.1 Limitations of resource based theory 66

VIII

2.5.2 Operationalization of organization generic strategy 72

2.5.3 Cost leadership Strategy 73

2.5.4 Differentiation strategy 78

2.6 Organization learning 81

2.6.1 External knowledge acquisition 86

2.6.2 Internal knowledge acquisition 89

2.6.3 Knowledge distribution 91

2.6.4 Knowledge interpretation 97

2.7 Organization strategy and organization learning 98

2.8 Organization learning and organization performance 101

2.9 Innovation 104

2.9.1 Technical definitions 108

2.9.2 Marketing Innovation 119

2.9.3 Process innovation 126

2.9.4 Management innovation 129

2.10 Organization strategy and innovation 136

2.11 Innovation and organization performance 142

2.12 Organization performance 146

2.12.1 Measurement of organizational performance 149

2.12.2 Financial performance 153

2.12.3 Non-financial performance 154

2.13 Organization strategy and organization performance 154

2.13.1 Empirical evidence of corporate effects 156

2.13.2 Normative models of parent, corporate advantage and performance 158

2.13.3 Implicit assumption of the link connecting corporate strategy and performance 159

IX

2.14 Linking cost leadership strategy with performance 163

2.15 Linking differentiation strategy with performance 164

2.16 Critical analysis of literature review 165

2.17 Theoretical foundations 167

2.18 Conceptual framework and hypotheses 169

2.19 Conclusion 169

3 METHODOLOGY 171

3.1 Population and sampling 173

3.1.1 Sample selection and sample frame 173

3.1.2 Survey response rate 174

3.1.3 Qualitative Research Design 175

3.2 Extent of researcher interference 176

3.3 Industry setting 177

3.4 Variable measurement 177

3.5 Description of the Instrument 178

3.6 Pilot study and questionnaire confirmation 182

3.7 Data reliability 183

3.8 Validation of constructs 186

3.9 Study Ethics 191

3.10 Data Screening 191

3.11 Data Analysis 191

3.12 Summary 193

4 DATA ANALYSIS AND INTERPRETATION 195

4.1 Sample characteristics 195

4.2 Data screening 196

X

4.3 Descriptive analysis 199

4.4 Impact of demographic attributes on research variables 201

4.5 Correlation analysis 209

4.6 Structural equation modeling (SEM) 214

4.7 Structural model 216

4.8 Hypotheses testing for direct relationships 219

4.9 Testing for mediation 222

4.10 Comparison of telecom organizations of Pakistan 225

4.11 Findings from Interviews 225

4.12 Findings fit with existing theories 226

4.13 Summary 230

5 SUMMARY AND DISCUSSION 237

5.1 Discussion and Contribution 241

5.2 Managerial Implications 243

5.3 Research Implications 245

5.4 Conclusion 246

5.5 Recommendations for future research 247

REFERENCES 249

APPENDIX I 306

APPENDIX II 308

XI

LIST OF FIGURES

Figure 2-1: Conceptual framework and hypotheses ....................................................................... 169

Figure 4-1: Structural model.......................................................................................................... 217

Figure 4-2: Hypothesis testing for direct relationships ................................................................... 219

XII

LIST OF TABLES

Table 3-1: Population and sampling .............................................................................................. 174

Table 3-2: Response rate of survey ................................................................................................ 175

Table 3-3: Differentiation strategy (OSDIF) items .......................................................................... 179

Table 3-4: Cost leadership strategy (OSCL) items ........................................................................... 179

Table 3-5: Management innovation (MnI) items............................................................................ 180

Table 3-6: Process innovation (PI) items ........................................................................................ 180

Table 3-7: Marketing innovation (MI) items .................................................................................. 180

Table 3-8: External knowledge acquisition (OLEKA) items .............................................................. 181

Table 3-9: Internal knowledge acquisition (OLIKA) items ............................................................... 181

Table 3-10: Knowledge distribution (OLKD) items .......................................................................... 181

Table 3-11: Knowledge interpretation (OLKI) items ....................................................................... 181

Table 3-12: Organizational performance (PERF) items ................................................................... 182

Table 3-13: Scale reliability............................................................................................................ 185

Table 3-14: Organization strategy (OS) dimensions’ factor loadings............................................... 186

Table 3-15: Organization strategy (OS) dimensions’ factor loadings............................................... 187

Table 3-16: Organization learning (OL) dimensions’ factor loadings ............................................... 188

Table 3-17: Organization learning (OL) dimensions’ factor loadings ............................................... 189

Table 3-18: Innovation dimensions’ factor loadings ...................................................................... 190

Table 3-19: Organization performance’s (PERF) factor loadings ..................................................... 190

Table 4-1: Demographic profile of the sample ............................................................................... 196

Table 4-2: Descriptive statistics of Organization strategy-Cost leadership (OSCL) items ................. 197

Table 4-3: Descriptive statistics of Organization strategy-Differentiation (OSDIF) items ................. 197

Table 4-4: Descriptive statistics of Organization learning (OL) items .............................................. 198

Table 4-5: Descriptive statistics of Innovation items ...................................................................... 198

Table 4-6: Descriptive statistics of Organization performance (PERF) items ................................... 199

Table 4-7: Dimension-wise reliability and descriptive estimates .................................................... 199

XIII

Table 4-8: Correlation among the study dimensions ...................................................................... 211

Table 4-9: Confirmatory factor analysis ......................................................................................... 215

Table 4-10: Mediation Analysis ..................................................................................................... 222

CHAPTER 1

1 INTRODUCTION

Analysis and connectivity between strategy and performance has been an area

of interest in research for the last few decades. The strategies proposed by (Miles,

Snow et al. 1978, Porter 1980) have been worked upon by various studies. Generally,

it appears that the literature supports the view that different competitive strategies

significantly influence performance of the firm (Porter 1980, Hashim 2000).

According to Porter and Millar (1985), business can gain advantage in competition by

following a well-planned strategy. Their study further states that the performance of

business is enhanced by positioning itself as a low cost producer or applying

differentiation strategy, in order to gain competitive advantage. Pakistan Telecom

sector is considered as one of the major industries of Pakistan, contributing Rs. 119

billion per year for last 5 years (PTA 2014). Auction of 3G and 4G licenses also

brought revenue of more than 100 billion PKR to National exchequer in the year

2015. Telecom sector is expected to open many avenues for e-businesses in upcoming

years, and is always in innovation process. Though the application of different

strategies can affect performance, organization learning is still a critical factor to

attain success in competition; thus it is an important strategic ability of firms (Bapuji

and Crossan 2004). Organization learning is the capability of developing advanced

customer value in the long run (Kandemir and Hult 2005). Organization learning

happens when the organization’s employees learn the solution to a challenging

problem (Morgan and Ramirez 1984). Organizations develop the most appropriate

learning process, considering the requirements and attributes of its own (Helleloid and

Simonin 1994).

2

Another area in the field of management, strongly tied with development and

success of organization, is innovation (Scherer and Ross 1990). Innovation generally

has a strong impact on competition (Tushman and Anderson 1986). Businesses are

expected to be more innovative regarding their overall management. The work on

innovation management has affected strategic management as a discipline (Drejer

2002). The focal area of research is now both strategy and the innovation, or in other

words, strategic innovation (Johnston Jr and Bate 2003). Innovation is a much

required theme in management, playing a key role in the success and development of

organizations (Hamel 2006). Considering the crucial effect of innovation and learning

on business performance, it is critically important to contemplate them while crafting

the management strategy. The current study therefore, introduces a framework linking

strategy, learning and innovation to observe there effect on performance.

Two topics which have been emerged in past decades, regarding strategy and

performance of the organization are 1) industry organization approach and 2) resource

based theory. The former is used to determine vital attributes of industry structure.

Industry-organization approach focuses on the attributes of the industry and

determines the differences among firms. These attributes may be economies of scale,

barriers to enter a market. Diversification determines the performance of an

organization in an industry (Seth and Thomas 1994). In contrast to industry-

organization perspective, there is resource based view which represents the firm’s

perspective, and considers resources owned by an organization to compete with other

businesses. According to resource based view, external environmental factors, like

market conditions, political factors, economy factors (e.g. interest rate and inflation

etc.) do not seem to create significant difference in firm’s performance. The view

3

suggests that the performance of a firm differs from other firms only because of the

distinctive resources and acquired capabilities.

Although innovation gives competitive advantage but gaining advantage

through innovation is a complex process. This complex process includes high level of

uncertainty and vastly multiple complicated combinations (Thamhain 2003).

Innovation includes key factors interrelated with development, distribution and

application of new knowledge. R & D is required to develop new ideas, skilled

people, and engineering & marketing services to put in the ideas into the systems. An

innovative firm needs skilled people, an acceptance for risk taking, access to finance

and an overall environment that should support entrepreneurial activity (Boyd, Inch et

al. 2003).

Minor innovations or incremental innovations happen almost in continuity.

Such minor innovations occur by learning or by doing and are countless (Rosenberg

1994). However, radical or major innovations usually happen irregularly and may

change the rules or form of the competition in an industry (Hart and Milstein 1999).

The purpose of innovation is to decrease cost and to enhance productivity &

competitiveness of a firm (Mitropoulos and Tatum 2000). The competition with other

firms mainly force an organization to seek cost advantage and differentiate itself by

innovating (Mansfield 1983). Innovation brings many important changes that

determine the growth, profitability and success of a corporate firm. Innovations with

technology focus bring many new opportunities and develop threats for the

competitors as well. Innovation is the key driver of competition in the industry and is

important for the success of the company (Porter 1985). The connection between

technology and innovation has been the focal point in the literature (Sharpe 2003).

Innovation is viewed as a key factor in growth and has long lasting impact on

4

productivity. The connection between innovation and performance is strong, however,

the kind of relation that exists between them is quite complex (Rao, Ahmad et al.

2001). Thirty three per cent of USA’s economic growth was credited to the

technological progress in innovation (Morck and Yeung 2002). The countries, rich in

innovation, show comparatively faster growth (Morck and Yeung 2002). Furthermore,

the use of innovative techniques causes an increase in corporates’ rate of return

(Mansfield and Lee 1996). The literature even provides evidence of the direct impact

of innovation on performance (Heintze and Bretschneider 2000).

Learning is the key factor to stay competitive in the industry (Leavy 1998).

Learning is considered as a prime component of strategic management process and is

considered very useful during organization transformation. The importance of

organizational learning for organization performance is well-thought-out in literature

(Alegre and Chiva 2008), however, there is still plenty of gap for the research on

organization learning and its ability to enhance the performance of the firm. There is a

need for in-depth understanding of how organization learning along with its

dimensions, contributes to organizational competitiveness.

Ford (2009) determines the significance of organization learning during the

process of restructuring of industries. He focused on the importance of organization

learning in order to gain competitive capabilities. The dynamic environment of

contemporary world is considered as a strong reason to gain more intelligence

(Pinchot 1996). Organizations have to learn to acclimatize for their survival and

growth in this ever changing world. Casey (2009) considers organization learning as

the key component for the sustainability of the organizations. Learning includes

knowledge acquisition, attitudes, values and responses. Huber (1991) considers

knowledge as an insight of possible activities that an individual or organization can

5

absorb. Considering Huber (1991) as the basis, knowledge acquisition, knowledge

sharing and knowledge utilization were used to study the dynamics of learning in

different organizations (DiBella, Nevis et al. 1996). In order to gain superior

performance in an industry, an organization needs to gain unique resource strengths

which are hard to imitate or substitute. Such resource strengths can be attained

through organization learning (Hamel and Prahalad 1990).

1.1 Problem statement

The telecom sector is rapidly growing sector with very sharp growth of 2.9 percent

and and Rs 322 billion revenues (Wasti 2014). The telecom sector organizations in

fierce and brutal competition need to focus on their competitive strategy along with

the critical factors of organization learning and innovation. Efforts on organization

learning and innovation required to be placed in appropriate combination in order to

reap maximum organizational performance.

Pakistan telecom sector organizations face the issue of fierce competition. The

factors linked to organizational performance have been investigated in the current

study. Dynamics of organization learning and innovation in severe competition has

made the competitive strategies and organizational performance more important to the

knowledge based organizations. Although the competitive strategies and

organizational performance have been tested in numerous studies but actual

underlying forces of competitive strategies into organizational performance are far

more complex. It is argued that they have not been tested with the mediation of

organization learning and innovation.

The factors linked with the organizational performance have been investigated in the

current study. These factors are interlinked with each other as the links of strategies

6

with organization learning, innovation and performance have been highlighted in the

literature. The deficiency in understanding the roles of organization learning and

innovation may leave the generic strategies of the organization inefficient.

Organizations will be able to better plan and implement generic strategies for the

purpose of enhanced organizational Performance.

1.2 Research gap

The current research has intensively studied the links used, among theories,

frameworks and constructs, to ensure gaps in the literature. The relationship among

the key variables i.e. organization’s generic strategies, organization learning,

innovation and firm’s performance, has been studied in the past, but in bits and

pieces. This research aims to investigate the links among the above mentioned

variables in a single study, in order to find out how these variables can be manipulated

to gain competitive advantage. The generic strategies, organization learning, and

innovation have been found that they significantly influence the performance of an

organization. All these factors are the key to gain competitive advantage and

therefore, have been given a considerable importance in the management literature.

Study (Jarrar and Smith 2014) showed the importance of innovation in connecting

strategy and performance of business. According to D. Banker, Mashruwala et al.

(2014), the key measures that help in differentiating a business from the other

businesses applying low cost leadership and stuck in the middle are the marketing

skills, innovation & learning capabilities and business scope. Hussein, Mohamad et al.

(2014) focused upon organization learning by encouraging resource allocation and

efforts to inspire learning in the organizations. Less interest was shown by

professionals and academicians but still it appears as a key word in publications from

7

huge organizations. The current study not only examined the direct impact of strategy

on performance but also evaluated the mediating role of organization learning and

innovation on the direct relationship.

1.3 Research significance

Although generic strategies have been researched extensively in different

scenarios but not in relationship with the variables of the current research i.e.

organization learning and innovation. This study brings a new dimension in the

management literature by examining a rare blend of variables. Generic strategies,

organization learning, innovation, and performance are yet to be investigated in a

single frame work and this research fills up the said gap. The objective of this

research is to deeply analyse the combination of these variables in order to enhance

the performance of organizations in today’s competitive environment. The distinctive

conceptual model will serve as a configured way for implementing generic strategies

with the right mix of efforts and investments in organization learning and innovation.

Thus, it will help the organizations in enhancing their performance.

The current research investigated the link between generic strategies and

organization performance in new ways; with the intention to further develop the

understanding of said relationship. The direct relation between generic strategies and

organization performance has been examined by various studies, however, the role of

organization learning and innovation as mediators on the direct relationship between

generic strategies and organization performance has been explored for the very first

time in this study. This is a valuable addition in the management literature.

8

1.4 Objectives of the study

The following research objectives were set to answer the questions listed above.

To study and find out the most commonly used generic strategies.

To develop a validated research model that evaluates the impact of generic

strategies, on organization performance and the impact of organization

learning and innovation on organization performance.

To examine the mediating role of organization learning and innovation

between the relationship of Generic Strategies and Organization Performance.

1.5 Research questions

The proposed research questions for the current research are as follows:

1. What is the type and extent of generic strategies adopted by the telecom

organizations?

2. What is the impact of generic strategies on organization performance, learning

and innovation and the impact of organization learning and innovation on

organization performance?

3. Does organization learning and innovation act as mediators between generic

strategies and organizational performance relationship?

1.6 Hypotheses

The following hypotheses were tested in this research:

H1a: Cost leadership strategy has a significant and positive impact on

organizational performance.

H1b: Differentiation strategy has a significant and positive impact on

organizational performance.

H2a: Cost leadership strategy has a significant and positive impact on

9

organization learning.

H2b: Differentiation strategy has a significant and positive impact on

organization learning.

H3a: Cost leadership strategy has a significant and positive impact on

innovation.

H3b: Differentiation strategy has a significant and positive impact on

innovation.

H4: Organization learning has a significant and positive impact on

organization performance.

H5: Innovation has a significant and positive impact on organization

performance.

H6a: Organization learning significantly mediates the relationship between cost

leadership strategy and organization performance.

H6b: Organization learning significantly mediates the relationship between

differentiation strategy and organization performance.

H7a: Innovation significantly mediates the relationship between cost leadership

strategy and organization performance.

H7b: Innovation significantly mediates the relationship between differentiation

strategy and organization performance.

1.7 Proposed managerial implications

The study will help in finding out the relationship between the said variables

i.e. strategy, learning, innovation, and organizational performance. Although the

impact of generic strategies on firm performance has been examined a number of

times, this study will help in finding out implications regarding the role of

10

organization learning and innovation while focusing on a particular generic strategy.

As discussed above both mediating factors taken in this study i.e. organization

learning and innovation are an important source of advantage in competition. This

study explored their role in different scenarios. For instance, when a firm is pursuing

a cost leadership strategy, it will help in understanding the dynamics and usage of

Generic strategies of Porter along with organization learning and innovation. Most

importantly, this study determined the extent of focus to be given on mediating factors

while pursuing a particular generic strategy in order to enhance advantage in the

competition. Another very important factor was the constructs of mediating variables

and organization performance. The constructs will provide in-depth implications like

for instance, if a firm is majorly following a focused differentiation strategy then

which area of organization performance can be directly affected by the mediating role

of both the selected mediators. This study is an important step in understanding the

complexities between four very significant variables i.e. strategy, learning,

innovation, and performance. These variables are the key to competitive advantage.

The in-depth understanding of these important variables would help the management

of organization in analysing the current situation of organization in terms of

strategies, innovation and learning. Moreover, they would be able to carefully craft

strategies for the future keeping in mind the important role these variables can play in

keeping business ahead of other firms in this fierce competition.

The prime reasons for choosing this study are:

This study has been conducted for the very first time in Pakistani

Environment.

This type of study has hardly been conducted in the telecom sector, or in other

words a single study considering organization strategies, innovation,

11

organization learning and organization performance was almost never

conducted before.

1.8 Pakistan telecom sector view

The telecom sector is growing rapidly and is positively contributing to the

economy. This not only is causing the growth of its own sector, but also helping the

country in terms of taxes, regulatory fees, license fees, activation tax and other

charges. On the average, it has been providing 124.8 billion PKR annually. Last year,

it contributed 243.8 billion PKR, which is the highest amount ever achieved from a

sector. The main reason for such a huge contribution is the public sale of 3G/4G

cellular mobile permits in April 2014. The total amount earned from the licenses was

US $ 1.1 billion, from which 96.5 billion PKR has already been deposited in the

government treasury, and the remaining US $147.5 will be paid in equal instalments

in the next 5 years with a mark-up rate of LIBOR+3% pa. The telecom sector is also

categorized as the highly taxed sector in comparable countries. Effective from 1st July,

2014, the GST and WHT have reduced from 19.5% to 18.5%, and from 15% to 14%

respectively (PTA 2014).

Although the revenues from telecom sector had an annual growth of 5.6% in

2014, it was still slower than 2013, because in 2013 it was 7.6%. However, the figures

have significantly increased from 440 billion PKR in 2013 to 465 billion PKR in

2014. This is because; the telecom operators are competing in the market through

smart packages, latest features (for instance: 4G technology), and other value added

services. The cellular mobile segment has a huge share of 69.7% in the telecom

sector. It has achieved growth of 6.1% in total revenues, from 2009 and onwards. Due

to low international traffic, LDI’s share has declined from 14.4% to 8.7%, since 2009.

12

Even though we have a slow growing economy and at a low level purchasing power

of greater part of the population, the telecom sector was still able to achieve positive

growth in the past few years. Telecom industry has two major sources of revenue i.e.

voice and data. The revenues would grow further in future due to the increase in the

use of technological gadgets, like iPads, tablets and smart phones. Due to

technological advancement, 3G/4G service, and other internet services, the data

revenues earned in 2014 have doubled from those earned in 2013. During the year

2014, data revenues showed a growth of 47.4%. Data revenues grew from 16.4% to

19.3%, and cellular data revenues grew from 10.1% to 7.3%, in the years 2013 and

2014 in totality. Relaxation in government policies for instance ‘allowing the foreign

investors to own all the shares and repatriating all the profit’, have attracted generous

proportion of FDI. Investment of US $ 1,789.7 million was made for acquiring 3G/4G

services. Investment made in telecom sector, in 2014, was almost three times more

than the year 2013. Furthermore, this industry drew US $ 903 million of FDI in 2014,

which was 34.2% of the whole FDI of Pakistan.

In the year 2014, 3G/4G services operators upgraded their systems, and the

customers were excited on the new service experience. They had to switch to smart

phones in order to enjoy this technology. Moreover, there was also an increase in

imports of smart phone and telecom equipment. The imports of smart phones were

worth US $ 544 million, and the imports of telecom equipment were worth US $ 682

million. This resulted in significant growth in imports, 20.7% due to smart phones and

30.3% due to telecom equipment respectively. Overall telecom imports in 2014 were

US $1.23 billion. Pakistan desires to build up its own business for telecom equipment

and handsets, through strategic partnership and regional cooperation with telecom

13

manufacturing industry. Ministry of IT and PTA are taking some steps for investors to

invest in these projects.

All the above facts about Pakistan’s telecom sector show its importance to the

economy of Pakistan. Research in this sector will not only contribute to this particular

industry but also to the economy of Pakistan.

1.9 Contribution towards research and management practices

This research aims to analyse a model for practitioners who investigate

organization strategies by using its two types i.e. differentiation and cost leadership

(Porter 1980). There is a need for a study that should encapsulate organizational

generic strategies, organization performance, organization learning, and innovation.

The current study would help in understanding of how an organization’s generic

strategies lead towards organizational performance, keeping in view the mediating

role of two very important variables i.e. organization learning and innovation. Such

research has not been conducted in Pakistan’s telecom sector. The results of this

research will be helpful for management in making decisions about how much efforts,

time, capital and other resources should be invested in strategy making, innovation,

and organization learning with the purpose of attaining maximum organizational

performance. Moreover, the conceptual model devised in the study will help

businesses to rightly focus on generic strategies, organization learning, and

innovation, in order to gain edge over competitors in the industry.

1.10 Importance of study in Strategic Management context

The results of this research is an important addition to the strategic

management literature that helps in understanding the link of organization strategies

14

with performance, while considering organization learning and innovation as well. In

today’s world, the competition in telecom industry is fierce and brutal. With the

purpose of staying competitive, organizations have to react efficiently to competitors’

moves. Innovation is believed to be a major key success factor in this modern world

(Feigenbaum and Feigenbaum 2005). To gain competitive advantage, organizations

direct their resources on innovations that are hard to replicate

A number of scholars focused on organizational learning and suggested that

improved learning at individual, team and firm level results in enhanced

organizational performance (Ellinger, Ellinger et al. 2002, Egan, Yang et al. 2004).

Organization learning results in enhanced actual output via improved knowledge

capacity (Mansfield 1983). The capability of firm employees to learn, generates

potential in an organization to add knowledge and improve innovation efforts

(Dodgson 1993). Through innovation, a firm may bring new innovative products in

the market and in early stages of competition when a new radical innovative product

is launched; the competitive forces for the product are generally weak. This scenario

helps organizations in earning huge profits. As competitors replicate the innovation,

the profit of the firm starts diminishing. However, continuously bringing new

innovative products in the market may help firms in making profits for a longer

duration (Sharma and Lacey 2004). One of the prime reasons of directing firm

energies in innovative activities is to improve firm performance (OECD 2005).

To stay competitive, organizations have to perform in critical success areas of

the industry and organization learning & innovation are those critical success factors

(Thompson, Strickland et al. 2008).

15

1.11 Importance of study in Pakistan context

In order to make sure that the study is important for this country and the

telecom sector, brain storming sessions were conducted with the employees of the

selected organization. The competition between the organizations in the telecom

sector is intense and a huge amount is invested to keep organizations competitive in

this industry. To stay competitive in an industry, organizations must focus on learning

and innovation. Forces that drive the competition must be understood and taken care

of with the aim of staying competitive in the industry. As the telecom organizations

are operating in an industry that are highly characterized by technology, innovation,

and learning, it becomes a necessity to perform in these critical success areas for them

in order to stay competitive. Above mentioned informal sessions were conducted with

employees who were working at different managerial positions. They were asked

about continuous process improvement, provision of facilities & quality services,

differentiation of products and services, tight cost controls, knowledge acquisition,

knowledge sharing and distribution, and innovation. Also these managers were asked

about the relationship between organization strategies, learning, innovation and

performance. The answers ensured that the organizations operating in Pakistan’s

telecom sector focus in these areas. In the early session of brain storming, managers

from these organizations were asked about the links between organization strategy,

organization learning, innovation and performance; most of the respondents were of

the view that in order to stay competitive, an organization must have a strategy

coupled with right mix of efforts in the area of learning and innovation. Few focused

more on innovation as a critical success factor in severely competitive industry and

few were of the view that organization learning is very important to stay competitive

in the industry. To conclude these brainstorming sessions it was decided that in order

16

to see the impact of organization strategy on performance, organization learning and

innovation should be focused on.

1.12 Limitations of the study

Getting data from employees who were serving at some kind of managerial

role was not easy specially getting data from senior management was a challenging

task. Another challenge was collecting data from different cities as head offices of

telecom companies were not located in same city. There was resistance from

employees in filling questionnaires then permission letter was taken from IQRA

University showing data is required for research purpose only. Employees in telecom

sector have very busy schedule that is why it was very hard to get an extensive

questionnaire filled by them. In early attempts, the questionnaires were not

completely filled but later it was planned to get the questionnaire filled during lunch

break. Employees were also contacted in smoking zones of their organizations and in

parking areas of organization especially when they were leaving for their homes. The

purpose was to get the questionnaires filled when they were not engaged in

organization work. Employees were also told about the aim and importance of this

research to ensure that the data provided by them is correct to their best of knowledge.

1.13 Definitions

The study includes four major concepts that have been addressed in relation

with each other. These concepts include 1) Organization’s generic strategies 2)

Organization learning 3) Innovation 4) Organizational performance. The three, among

the above mentioned four concepts have been further categorized as:

Organization generic strategies into cost leadership and differentiation.

17

Organization learning into external knowledge acquisition, internal knowledge

acquisition, knowledge sharing and knowledge interpretation.

Innovation into Management innovation, Process Innovation, Marketing

Innovation.

These concepts and their types have been defined as under:

Strategy

Strategy is about selecting different activities that carry exclusive blend of

value (Porter 1991). Strategy focuses on three parts. First the fit between company

and its competitive environment second the resource allocation in between investment

opportunities and third the willingness to take strategic view that is making

investments earlier and expecting huge returns in long term (HAMEL 1993). Strategy

is considered as a long term plan that connects goals, approach and means. The

challenging part is the development of plan which considers uncertain and unclear

future environment (Jacobs and Jaques 1990). The framework of alternatives that

decides the path of an organization is called strategy (Freedman and Tregoe 2003).

The ‘strategic’ term links with strategy concept (Guillot 2003). It simply refers to plan

of activities to achieve goals. The term is usually used in wider sense as strategic

planning (Guillot 2003). Two types of strategies have been taken in the current study.

Differentiation Strategy

Differentiation is offering products or services in distinctive ways to create

value for buyers (Porter 1985). Differentiation may be successfully achieved in

numerous distinctive ways (e.g. the product or service itself; how marketing of

product or service is done; how the product or service is delivered to its customers).

18

The purpose of differentiation is keeping itself unique in some way in order to gain

edge over its competitors in the industry.

Cost leadership Strategy

Cost leadership is aiming to operate at the lowest cost in the industry to

develop competitive advantage (Porter 1985). Organization aims to achieve status of

cost leadership by focusing on efficiency, economies of scale, scope and learning

curve effects. Cost leader may operate at lowest cost but not necessarily be offering

its product or service at lowest cost in the market. However most of the times, cost

leaders try to gain advantage in the industry by bringing their products or services at

lesser prices than their competitors.

Innovation

Developing, recognizing and putting into practice of new ideas, processes,

services or product is known as innovation (Thompson 1965). According to Wong,

Tjosvold et al. (2009), Innovation is successful implementation of processes and

products that are new to business and intend to profit business and its stake holders. A

detail innovation definition is given by Damanpour (1996), quoting innovations as

source of an organizational change in response to organization competitive external

environment or as an attempt to influence the environment. Innovation consists of

different types containing new product or service, newness in process, administrative

system or organization structure.

19

Process Innovation

Process innovation is defined as ‘executing new technique which is

considerably better, intending to enhance quality or reduce cost or notably improved

the methods of production or delivery of services (OECD 2005).

Marketing Innovation

The carrying out of new marketing process including considerable

modifications in the packaging or design of the product, product promotion or pricing,

product placement is known as a marketing innovation. The purpose of marketing

innovation is to address the needs of customers in improved ways, targeting new

markets or identifying new position for the product with the goal of enhancing

business sales.

Executing a new way of marketing a product or service that should include

considerable developments in design, placement, promotion or pricing of the product.

Market innovation intends to serve wants in better way, targeting new markets,

introducing new use of the product aiming at increased sales of the firm.

The unique characteristic of a marketing innovation in comparison with business

other marketing methods is the execution of marketing method not employed by the

firm before. Marketing innovation must be considerable different from organizations

current marketing methods. The firm may be the developer of new marketing method

or the firm may adopt from other businesses. Application of new marketing method

can be on existing or new products (OECD 2005).

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Management Innovation

Management innovation is considerable change in management work to

efficiently achieve organization goals. In simple words management innovation is

changes in ways of managers’ work to enhance organizational performance

(Birkinshaw, Hamel et al. 2008). Management innovation comprises of setting

objectives for managers, how managers take decisions and how their activities are

managed. These change result in novel managerial practices, processes or structures

(Vaccaro 2010).

Organization learning

Organization learning is defined as the means by which firm construct, add on

and manage knowledge in its actions and culture to improve efficiency. This general

definition encompasses that learning has overall positive impact even following this

process firm may make mistakes but again organization learn by mistakes. Prime

entity of learning is individuals in organizations (Dodgson 1993). Innovation has been

taken in the following contexts. Learning Variable includes four dimensions which

are as under:

External knowledge acquisition

External knowledge acquisition refers to the acquisition of knowledge through

sources that are external to the organization. One of the reasons of obtaining external

knowledge is to improve internal knowledge of the organization. Sources of external

knowledge may be acquiring professionals from other firms or making alliances with

other businesses, universities, suppliers, distributors etc. (Hagedoorn and Duysters

2002, Møen 2005).

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Internal knowledge acquisition

Internal knowledge acquisition refers to the acquisition of knowledge through

sources that are within the organization. Learning from internal knowledge sources

appears when it learns from the source within organization such as knowledge

possessed by employees of the organization, knowledge gathered in organization

systems (Mu, Peng et al. 2008).

Knowledge sharing

Knowledge sharing refers to the transfer of knowledge across employees and

units of organization. The key objective of knowledge sharing is the growth of

individuals and the organization. Knowledge sharing is considered as a prime source

of making an addition in knowledge application and innovation (Jackson, Chuang et

al. 2006).

Knowledge Interpretation

The course of action to arrange, classify and giving meaning to information is

called as knowledge interpretation (Daft and Weick 1984). The goal is to extract

information from organization’s internal and external environment, refining the

information to bring it in the form so that alternatives may be made for decision

making.

Performance

Organizational performance is outcome of an organization computed against

its objectives (Richard, Devinney et al. 2009). Organizational Performance has been a

22

contentious issue for organizational researchers (Barney and Wright 1997). There has

been variation in Organizational performance definition. Few definitions of

performance are as follow:

Daft (2000) explains organizational performance as capability to achieve its

stated objectives by utilizing organizational resources efficiently and effectively. A

simple definition given by Wade and Recardo (2001) is that the organizational

performance is the capability of the organization to attain its aims and goals and it

comprises of efficiency, economy and effectiveness of a specific program or activity.

The problem is that there is hardly any consensus developed on the definition of

organizational performance.

1.14 Outline of the thesis

Chapter one gives a general idea about this study by identifying the gaps in the

area of strategic management and points that contributes to body of knowledge. The

objectives of this study are outlined and present each chapter subject matter.

Chapter two takes into consideration several strategic frameworks and gives

reasons of preference to Porter generic strategies. It discussed porter generic strategies

in detail and their link to organizational performance. Organization learning and

innovation are explained. The link of strategies with organization learning and

innovation has been described. Organization learning and innovation links with

organization performance have been described. Organizational performance has been

discussed in detail. Chapter two investigates a number of gaps in the literature, studies

in favor and against Porter’s generic strategies have been presented. To bridge the

gaps, identified in the literature a theoretical framework is demonstrated. Various

dimensions of organization learning and innovation are explained. The relation

23

between generic strategies, organization learning, innovation and organizational

performance was explained.

Chapter 3 of this study covers the research methodology and investigates

issues behind chosen research approach. The study employed a quantitative approach

to cover the issues mentioned in the literature review. The study administered a

survey questionnaire to gather data from telecom sector. Reliability and validity of

questionnaire was ensured through pilot study measures, hypothesis testing and factor

analysis.

Chapter 4 comprises of data analysis process with its interpretation. Different

statistical techniques were employed and a detail analysis was carried out to evaluate

the applicability of porter generic strategies in telecom sector of Pakistan.

The thesis concludes at chapter 5. The chapter summarizes Porter generic

strategies applicability in Pakistan telecom sector. It examines the combination of

generic strategies in link with organization learning and innovation leading to better

organizational performance and how the study adds to body of knowledge. The

remaining chapter addresses the study limitations and includes discussions and

directions for future research.

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CHAPTER 2

2 LITERATURE REVIEW

Chapter two includes the literature review of the research variables;

organization’s generic strategies, organization learning, innovation, and

organizational performance. This chapter also provides the literature regarding the

dimensions of the said variables, the relationship encompassing the above mentioned

variables and the telecom sector of Pakistan. The three of the above mentioned four

variables have been further categorized. This chapter also contains the literature on

the categories of organizational generic strategies, which are cost leadership and

differentiation. Furthermore, the past literature of the categories of organization

learning; external knowledge acquisition, internal knowledge acquisition, knowledge

sharing, & knowledge interpretation, and the categories of innovation i.e. marketing

innovation, process innovation, and management innovation have also been reviewed.

A lot of literature has been written from different aspects on competitive

strategy in connection with organizational performance; however, it is in bits and

pieces. This study emphasizes generic strategies followed by the telecom

organizations of Pakistan in connection with organization learning and innovation.

Organization learning and innovation have been considered as mediating variables.

This study is also different because it provides a deep focus on organizational generic

strategies and organization learning & innovation by taking account of its types.

2.1 Strategy

Strategy is defined as an arrangement of plans and policies that direct an

organization to achieve advantage in competition (Skinner 1969). A few authors

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define strategy as asking exactly “where to go “ and how to get there” (Eisenhardt

1989); however, this is a more in-depth approach. Strategy generally involves

deciding the objectives and the series of actions that is taken to accomplish those

objectives. Generally, management of the organization is asked to shape the strategy

for the organization. According to Birkinshaw and Dearlove (2008), strategy is the

subject of deciding the future, and it is an effort to achieve desired or stated objectives

with on hand resources. Competitive strategy in business context is defined as the

level where business can take competition, with the goal of not only achieving

growth, but also sustaining the achieved growth (Hayes and Wheelwright 1984).

Strategy is also defined as the harmonization between internal resource strengths and

weaknesses, with the risk and opportunities prevailing in the external environment of

the organization (Hofer and Schendel 1978). This definition of strategy considers the

dimension of matching organization’s internal and external environment.

Beamish (2008) defines strategy in three vital aspects. First one is to identify

the aim, scope and long term duration prospect of an organization. Second is to

identify various stake holders that are important to create value for the organization.

Third is the need to gain advantage over competitors must be a part of the strategy of

the organization. The objective of the strategy is to explain alternatives that lead to

competitive advantage or superior performance (McGrath, MacMillan et al. 1995).

For management the quest is the development and the competitive advantage because

the source through which competitive advantage is achieved, is unique and hard for

the competitors to imitate or substitute (Dess 2007).

According to Rumelt, Schendel et al. (1994), strategic management,

previously called “policy” and in past few decades normally called “strategy” mainly

works as a direction for organizations and most commonly works for the firms. This

26

field of management discusses areas which are of great importance to senior

management and helps in finding the reasons of any firm’s success or failure with

respect to its competitors. Choices have to be made by the firms in case they want to

last in the market, and choices which are related to strategy are SMART goals

selection; services and products which they want to offer in the market; design and

implementation of guidelines that determine the position of the business among

competitors and how it can compete with them (e.g. “competitive strategy”);

selection of an opportunity and diversity; defining firm’s administrative system, and

its structure and policies used to define and organize tasks. These are the strategic

choices which influence the success or failure of any firm, and it depends on how well

these choices are integrated. These choices can create an effective strategy when

properly integrated.

Strategic management, due to the said reasons is considered as a very

important factor for any organization’s performance. In modern industrial society

wealth can only be created through strategic direction of the business. Unlike political

science which has evolved from the roots of ancient philosophy and economics which

attracts scholars due to its theoretical foundations, the field of strategic management is

different in nature. On the contrary, strategic management, like the field of medicine

and engineering, explains how to organize, teach and expand what is known about the

trained performance, goals and tasks that are necessary for any organization. As the

strategic management roots lie in theory and codification, the advancement in this

field depends upon building a theory of how an organization can explain and predict

its success or failure. A tested theory is necessary in the sense of codification,

expansion and teaching, so that the prediction about the business can be made.

Strategic management serves as the study of organization’s creation, its success and

27

survival. Moreover it helps in understanding failure, what it costs and what lessons

can be learned (Rumelt, Schendel et al. 1994).

Due to its importance for the survival of an efficient and well adapted

organization, strategic management has a long and rich history of educating this field

in the business schools to individuals. . Before the era of 1960’s, the most common

image of this teaching field was “functional integration”. Then a field called “business

policy” and a broader perspective, which came through the integration of specialized

knowledge, added value in this field.

Another metaphor was introduced in the era of 1960’s, called as “strategy”.

Strategy was much more than the functional integration, as it involved the joint

selection process of product-market grounds in which competition in market exists.

Strategy not only consists of single decision or primary action, it is also a collection of

decisions related to resource allocation and reinforcement of those decisions and

implementation of actions.

Hansen and Wernerfelt (1989) studied that in the era of sixties, the primary

concept of “strategy” was given, however, the decade of 1970’s brought strategy

advancement and application into use, and this practice eventually encouraged

researchers to research in the said field, that we now witness. The era of seventies was

known for the rapid expansion of firms focusing in strategy and the formation of

societies which included professionals and enhanced journal publication work on

strategy. There were factors which helped strategy to flourish in the period of 1970’s.

The first factor was the “hostility and instability” of the environment which led to the

need of “planning” and search of new methods and techniques which could be useful

for understanding adaptation and taking benefit from unexpected. The strategy

guidelines of the seventies explained the concept of alternative choices and building

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and protecting strengths, that how these strengths may be employed in development

of the new products and the services as market shifts. The second factor that

contributed in the flourishing of strategy was ‘strategic consulting practices’ which

were gradually expanding and increasingly developing, and were based on analytical

tools and techniques. The Boston Consulting Group initiated the “experience curve”

in this regard, and also developed the “growth-share matrix”. The last factor was the

“maturation and prevalence” of the expanded firms. Top level management started to

consider their organizations as portfolio of business units and their basic concern was

how to allocate capital among different business units. As the new system called

“strategic management” evolved, it forced managers to properly plan their actions and

goals and implement them, because it now depended on how well they can work in

the competitive environment. This increased the demand of studying and

understanding the strategic tools and analysis techniques.

In 1980’s, the era of increase change in markets, the most noticeable work was

Competitive Strategy, presented by Porter (1980). In short span of period, porter’s

work was remarkably used in coaching, discussions and research projects. Porter

explains the “mobility barriers, industry analysis, and generic strategies”. As Porter’s

approach regarding strategy, which studied the market power, was based on the

structure-conduct-performance tradition. The University of Chicago introduced

another tradition, which was not based on the market power. It rather stated that the

structure of industry reflects the efficiency of its outcomes. This tradition explains the

concept that difference in performance indicates difference in resource results.

Another approach emphasizes the position of exclusive, hard-to-copy resources in

maintaining performance. All these traditions have moved together within a firm and

are commonly known as resource-based view (Wernerfelt 1984).

29

During 1980’s, researchers used economic theories like for example, the

financial economics event-study methods were exercised for analysis of changes at

strategic and organizational level and also strategic fit of acquisitions. Measures like

‘market security were used to analyse diversification’; ‘its effect on performance’ and

‘the link between performance and market share in addition to new zones’ were under

questions. Transaction-cost view point was adopted as opportunity and new theories

about efficiency of social connection progressed, and the study of innovation took

place. Agency theory was used in studying the size of the organization; top

management payment and rewards; diversification of an organization and growth of a

firm. The latest game-theoretic approach has educated industrial organizations how

reputation of producers, entry and exit of major competitors, technological change in

the environment, and the implementation of standards, can be studied.

The aspects of strategy have been generally recognized in the past studies e.g.

(Pettigrew 1997, Chakravarthy 2001). The dimensions of strategy are process of the

strategy, content of the strategy and context of the strategy. The above mentioned

aspects of the strategy mutually depend on each another so it may be inferred that

content of the strategy will be influenced by the process and context of the strategy.

The dimensions of the strategy have been are defined in later sections of the study..

The way in which strategy is executed is the strategy process. Strategy process is

linked with the ‘who, when, and how’ of the strategy (Wit and Meyer 2004). Strategy

process attempts to answer for instance when and what kind of strategies should be

developed, how and when they should be analyzed , formulated , implemented and

evaluated, the prime actors included in the process, and the schedule of the activities.

The outcome of the strategy is content of the strategy and that outcome of the

strategy is linked with the explanation of ‘what’ of the strategy. It describes what will

30

be the organization strategy and what will be the strategy of organizational divisions.

The factors of a particular situation determining the process and content of the

strategy, is known as context of the strategy. The strategy context is linked with the

‘where’ of the strategy. The business context of an organization considers both its

internal and external environment (Chakravarthy 2001).

The definition of the external environment is the organization interaction with

political, economic, socio-cultural, technological and environmental forces. The

organizations internal core competencies define the internal environment of the

organization (Hamel and Prahalad 1994). Organization financial performance is

impacted by the internal as well as the external environment. Understanding strategy

is critical. Before exploring more frameworks of the strategy dimensions, the strategy

will be discussed here. Number of dimensions of the strategy has been proposed and

there is hardly any consensus among them. According to Chandler (1962), strategy is

defining the long term goals of an organization and choosing the course of actions and

the resource allotment required to achieve those goals. Pettigrew (1977) defines

strategy as consequence of incomplete objectives because of organization and

environmental problems and in addition to that strategy is the process to fix these

problems which are impacted by the organizational, environmental, cultural and the

political factors inside as well as outside the organization.

Strategy is linked with the development of suitable fit between the

organization resources, capabilities and the external environment factors an

organization is facing (Hofer and Schendel 1978). Corporate strategy consists of the

decisions in an organization which ensures its goals. It also includes crafting of the

plans and policies to attain those goals (Andrews 1980). Strategy is a plan that

consolidates major objectives of an organization, its policies and the course of actions

31

into a unified total (Quinn 1981). Strategy is the method in which an organization

struggles to differentiate itself from its rival firms by employing its strengths to satisfy

the customer needs in a better way (Ohmae 1982). According to (Mintzberg 1987)

strategy is well computed organizational behavior in a non-programmed

circumstances.

Strategy as a plan consists of determined course of actions or a collection of

processes to manage a situation and guide an organization to reach its stated

destination from its existing status (Mintzberg 1987). Strategy as a policy consists of

particular moves of an organization to outperform its rival firms so that the

competition in the industry moves in favour of the organization (Mintzberg 1987).

Strategy as a pattern is a pattern in flow of actions of the organization and the strategy

should demonstrate behavioural consistency whether it was intended or not

(Mintzberg 1987). Strategy as a position is locating itself as a mediator between

organization itself and the external environment it is facing (Mintzberg 1987).

Strategy as a perspective is the manner in which an organization perceives the

external environment and recommend strategy as a concept (Mintzberg 1987).

According to Barney and Hesterly (2008), strategy is the theory of organization that

explains how to gain competitive advantage.

Strategy is a construct that is dynamic as well as multidimensional and its

purpose is to bring into line the organization, its business and its operative dimensions

with added effectiveness to achieve advancement in terms of its stated objectives

(Ghobadian, O'Regan et al. 2007). (Hanson, Dowling et al. 2001) defines strategy as

a consolidated and organized set of actions and obligations with a purpose to get

maximum from its core competencies and to achieve competitive advantage. (Robert

2009) defines strategy as the way to achieve goals of an individual or an organization.

32

Corporate strategy is defined as the scope of an organization in terms of markets and

industries in which an organization is competing its rival firms.

Business strategy is linked with the way of firm competing in a particular

industry. According to Johnson, Scholes et al. (2008), strategy is the path for an

organization to attain competitive advantage in the long term by configuring its

resource strengths and competencies to satisfy stakeholder expectations in a dynamic

environment. corporate strategy application is at the enterprise level in which an

organization competes with a purpose to attain competitive advantage with the help of

its distinctive competencies (Andrews 1980) . Business strategy comprises of

decisions to choose the product and market of single business and determining the

course of action for a given business and how the business will position itself in the

industry among the rival firms.

There is a lot of variations in the definitions of strategy mentioned above for

instance Hofer and Schendel (1978) take into account environment in their definition

of strategy and (Pettigrew 1977) focus on elements like culture, politics and

leadership. It is noticeable that (Pettigrew 1977) has employed the word ‘evolves’ this

means that strategy is not one hundred per cent planned in advance. A crafted strategy

aids an organization to locate itself in a distinctive position among the rival firms by

allocating its resources based upon its core strengths and the weaknesses, predictable

variations in the external environment and the predictable moves of the rival firms

Quinn (1981). Quinn (1981) focuses on consolidation of the organization’s goals and

its activities. Competitors have significant impact on the strategy of the organization

and the major objective of strategic planning is achieved by sustainable competitive

advantage in the industry where organization is doing its business (Ohmae 1982). Van

Cauwenbergh and Cool (1982) argue that strategy is not the only worry of the top

33

management of the organization. Overall strategic behaviour is critical and to develop

adequate strategic behaviour in an organization, motivation is critical not the

information. The whole organization’s association in strategy linked activities

conform the developing strategy perspective.

The definition of Mintzberg (1987) displays the complicated description of the

strategy. In support of visualizing the strategy as a perspective, it entails that strategy

only exists in the minds of the concerned individuals; thus distribution of the

objectives and implantation of objectives at the organizational level consistently

become a challenging task. The later definitions by the authors e.g. (Hanson, Dowling

et al. 2001, Ghobadian, O'Regan et al. 2007, Barney and Hesterly 2008, Johnson,

Scholes et al. 2008, Robert 2009) are wide-ranging and consider the key factors like

core competencies, resource configuration, competitive advantage and satisfaction of

stakeholders expectations.

The comparison of definition from previous decades highlights the evolving of

strategy as a field. This research investigates the business level strategy which is

defined as competitive methods employed by the business to minimize their

operational costs, differentiate their products from the products of the rival firms and

finally minimizing the operational cost while differentiating the products from the

rival firms. The goal of going through different definitions of strategy was to exhibit

the number of factors having an impact on the strategy and how challenging it is to

encapsulate the whole concept of the strategy in a specific definition. The challenge

was developing the definition of strategy that should encapsulate its concept with

numerous contributing factors towards its complex nature that makes the strategy

developing process a complex phenomenon.

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2.1.1 Strategy process

Different authors have suggested multiple approaches to the process of

developing strategies in order to investigate different dimensions of the strategy

process. The clear understanding of strategy process is quite critical. Definitions of

strategy process given by Shrivastava (1983) and Van de Ven (1992) have been

discussed here for the development of understanding of the strategy process. The

definition of Shrivastava (1983) is in agreement with strategy making classical

approach and reveals the rational process entailed. According to Shrivastava (1983),

strategy process is the set of procedures and routines to develop the understanding of

opportunities and threats that organization may face, then choosing alternative options

to efficiently utilize skills and resources of an organization. The two prime factors

having impact on the process of making strategy are factors that prevail in the

environment and resources internally possessed by an organization. Definition of the

strategy process provided by Shrivastava (1983) appears to be simple, uncomplicated

and basic. The steps of the strategy process included in definition seem to be well

defined. More or less similar definitions of strategy have been given in the past

studies e.g. (Chandler 1962, Hofer and Schendel 1978, Andrews 1980). The definition

of strategy process given by Van de Ven (1992) appears to be more in depth as far as

concept of strategy process is concerned in which the strategy process has been

described in three different dimensions.

First, it is a logic that describes the cause and effect link involving the

independent variables i.e. inputs and the dependent variables i.e. outputs in the

process model. Second it is a group of the individual variables and the organization

actions like work flow, techniques for decision making and the way strategy is

crafted, implemented and evaluated. Third it may be the activities or the events

35

arrangement that explains the transformation in the happening over a period of time.

Van de Ven (1992) notices that the previous method discloses numerous things

between the inputs and the outputs for directly noticing the variations in variables

over a period of time and this has been least considered or least understood part of the

strategy making process. Mintzberg, Ahlstrand et al. (2005) propose ten different

schools of strategy formation. First is design school which is considered as a process

of conception. It takes process of crafting strategy as trying to attain fit between the

internal strengths, weaknesses of the organization and the external environment

opportunities, threats. The Strengths, Weaknesses, Opportunities and Threats (SWOT)

is considered as a critical tool utilized in the process of strategy making and is in

agreement with the design school assumptions. Second, the planning school is taken

as a formal process. The planning school comprises of mostly the assumptions of the

design school, the concept also adds that process is intellectual as well as formal.

The process is categorized into distinctive steps; strategy making is backed by

techniques to achieve objectives. From the view point of professionals senior

managers have been replaced by the staff planners as main players. Third the

positioning school as an analytical process was dominating view of strategy making

process in 80s. the major contribution in this concept was by Porter (1980). The

generic positions were based on the analysis of industry situations. The positioning

school also contained strategic groups, game theory and value chain. In this school

from professionals’ point of view the planners became analyst. Fourth the

entrepreneurial school as a visionary process, the strategy process is primarily the

responsibility of chief executive; the process is complex and is dominated by

anonymities of instincts. There was a shift of strategies from straight forward plan,

design to vague visions. The focus was on particular areas such as start-ups, niche or

36

turn around. The chief executive was supposed to execute his or her vision. Fifth is

the cognitive school as a mental process. A more subjective and interpretative view is

adopted by strategists in which cognition is utilized to develop strategies as creative

interpretations instead of just mapping the actuality in objective way. Sixth is the

learning school as an emerging process. It is the most dominating of all the schools

and from this perspective strategies may be developed at any organizational level and

strategist may be identified from anywhere in the organization. Common

characteristics may prevail in strategy making and in its execution. Seventh is the

power school. As a negotiation process, the focal point of strategy making in this

school is based on power. Power is categorized into micro and macro power. Strategy

making inside the boundaries of organization is a political process. It includes dealing,

influencing, and threatening the actors who become the source of division of power.

Macro power considers the organization as a unit that utilizes the strengths on its

partners or other set of connections relations to bargain strategies in its own interest.

Eighth is the cultural school as a social process with the focus of power on self-

interest keeping in view the importance of culture of common interest and integration.

Process of strategy making develops into a social process based on the culture. Ninth

is environmental school as a reactive process. It comprises of contingency theory,

institutional theory and population ecology.

Contingency theory comprises of expected response from the rival firms

facing some kind of environmental factors. Institutional theory is a blend of cognitive

school and power dealing with the organizations institutional pressures and

institutional pressure of other organizations. Tenth is the configuration school as a

transformation process. Process of transforming the organization is considered in this

37

strategy. Specific strategies are recommended in specific context to specific structure.

The transformation may be brought via incremental approach or radical approach

2.2 Business strategy

Strategic management as a field, searches for description and prediction of

firm’s success. Strategy process includes decision making. The purpose of strategy

making is that these alternatives are the key to the organization’s failure or success

and must be consolidated. It is the consolidation among the alternatives that develops

a set of strategy (Rumelt, Schendel et al. 1994). As Carroll (1993) recommends that

the prime purpose of strategic management i.e. to explain the difference between the

firms who are successful and who are not. According to Rumelt, Schendel et al.

(1994), strategic management is about allocating the resources and harmonization

within the organization.

As the purpose of strategic management is to explain the difference between

organizations’ performance, it may be argued that strategic management uncovers the

drivers of organization’s success which help an organization to consistently perform

better in the industry. There are organizations which consistently perform better than

others, it is usually assumed that organizations which consistently perform better than

their competitors have sustainable competitive advantage (Powell 2001, Wiggins and

Ruefli 2002). The perspective of Hofer and Schendel (1978) on sustainable

competitive advantage is that an organization’s core competencies are key basis of

competitive advantage. Moreover the perspective of Porter and Millar (1985) on

sustainable competitive advantage is that strategy may be utilized as a tool to

maneuver the competition in a way that it develops sustainable competitive advantage

for the organization.

38

Organization strategies may be widely categorized into business, functional

and corporate level strategy (Bourgeois 1980, Grant and King 1982, Hax and Majluf

1984). Corporate strategy deals with selecting of domain e.g. the level of integration

in multiple businesses, vertical, horizontal and market scope (Rumelt 1974, Bourgeois

1980). Business level strategy is about how a business competes its rival firms in a

particular market segment (Hambrick 1980, Beard and Dess 1981). The focus of

functional level strategy is resource maximization in each function. Function level

strategy is primarily developed from business strategy (Schendel and Hofer 1979).

Corporate strategy is very collective to develop understanding of strategic

reaction to environmental factors such as technological advancements, competitor

actions, entry or exit of major competitors. The strategy’s prime role is to put together

activities of various functions (Venkatraman 1989). Business strategy contributes

mostly to strategy research. Investigating business level strategy reveals the market

position held by different firms in their chosen industry. These market positions are

linked more with performance than corporate strategy and focus of this research is

also business strategies. Business strategies may be categorized into typologies and

taxonomies. Typology is basically derived from qualitative traits of an organization’s

strategic behaviour. Numerous typologies have been identified in strategic

management literature for instance (Miles, Snow et al. 1978, Abell 1980, Porter

1980). Taxonomies are experimentally developed by measuring few indicators of firm

strategic behaviour. Major taxonomies are (Miller and Friesen 1978, Galbraith and

Schendel 1983). The promotion of taxonomies by these authors is delicate to the

options of underlying aspects and also on the analysis techniques to obtain

taxonomies (Hambrick 1984, Miller and Friesen 1984). At the same time as the

purpose of taxonomies is to encapsulate the wide-ranging description of strategy

39

through its inside consistency, they lack in revealing inside the group differentiation

beside the basic aspects (Venkatraman 1989). Typologies demonstrate aspects of

strategy derived from the theory which depends on identification and measurement of

the prime characteristics of the strategy and evaluating the differentiation and

resemblances through a profile containing group of traits that explains the strategy

(Robinson and Pearce 1988, Venkatraman 1989). This kind of categorization of

strategy has received much consideration for the reason that it helps in

comprehending and concentrates on the organizing of the information.

Researches have utilized the generic strategies of the business and they have

been published in academic journals (Hambrick 1982, Dess and Davis 1984, Miller

1987, Conant, Mokwa et al. 1990, Jennings and Lumpkin 1992, Marlin, Lamont et al.

1994, Frambach, Prabhu et al. 2003). Among these studies, majority of studies have

employed either Porter (1980) typology or Miles, Snow et al. (1978) typology. The

intensive utilization of these typologies in the studies indicates that typologies are

convincing to evaluate business level strategies. The literature indicates that Miles,

Snow et al. (1978) typology has a lot of interest and investigation (Conant, Mokwa et

al. 1990).

Buzzell, Gale et al. (1975) typology was categorized into 1) building 2)

holding and 3) harvesting. Building is linked to enhancing market share by intensive

market efforts and launching new products into the market. Holding is associated with

the sustainability of the current market share of the firm where as harvesting is the

achieving of high level of short term earnings by allowing market share to deteriorate.

Utterback and Abernathy (1975) give typology which is divided into three types i.e.

cost minimization , sales maximization and performance maximization. In cost

minimization, the focus of the firm is on reducing the overall cost of operating the

40

business by focusing on process innovation, technology and R &D. In sales

maximization, the focus of the firm is on improving the sales and market share of the

business. In performance maximization the focus of business is on product or service

performance, technology, and innovation. Taxonomy of Hofer and Schendel (1978)

comprises of six types i.e. share increasing; growth; profit; market concentration;

turnaround and liquidation. The share increasing firms increase their investments to

improve their market share. The growth firms try to hold their existing market share

position in growing markets. The profit businesses invest according to the norms of

the industry and control costs of the running business. In market concentration and

asset reduction the focus of business is on repositioning of the resources, the purpose

is to target the minor segments. In turnover, the focus of the firm is on improving its

strategic posture and it may need investments. In liquidation, firm may produce cash

by divesting from the market.

Miles, Snow et al. (1978) typology consists of only two types that are domain defence

and domain offence. Domain defence is defending the product market through making

and controlling of important information and getting on board of people having strong

influence. Domain offence is bringing improvement in traditional market through

innovating products and market segmentation. Miles, Snow et al. (1978) typology

comprises of 1) defenders 2) analyzers 3) prospectors 4) reactors. Defenders are the

firms having limited product market domains. Analyzers are the firms operating in

two kinds of domains, first where domain is relatively stable and second where the

domain is dynamic. Prospectors are the organizations which aggressively look for the

new market opportunities. They keep taking risks and frequently test with probable

reaction to emerging environmental trends. Reactors are the businesses where top

managers perceive uncertainty and change in the internal environment of the

41

organization as well as in the external environment of the organization but respond in

reactive way.

Vesper (1979) typology comprises of Multiplication, monopolizing, Specialization

and Liquidation. Multiplication is the growth in the market share by increasing the

existing market structures. Monopolizing is about reducing or eliminating competition

by developing entry barriers for other potential competitors and taking control over

the resources. Specialization is trying to gain competitive advantage by developing

expertise in product or production processes. Liquidation is divesting from business

and giving up the market position.

Abell (1980) typology comprises of three types i.e aspects of scope of offerings, level

of differentiation across product market segments and the level of differentiation

between the company and its competitors. First type is scope of the firm related to

customers it serves, its customer function and employment of its technologies. Second

one is related to firm differentiating its offerings across technologies, customer groups

and customer functions. Third one is related to how a firm maintains its differentiation

level from its competitors.

Wissema, Van der Pol et al. (1980) view comprises of six types i.e. are explosion,

expansion, continuous growth, slip, consolidation and contraction. Explosion is where

focus of the firm is on improving its competitive position in the short term. Expansion

is where focus of the firm is on improving its competitive position in the long term.

Continuous growth is where firm upholds its existing market share position in

growing markets with normal levels of investments. Slip is the divestment from a

particular market to generate cash and giving up market share in growing market.

Consolidation is giving up market share in stable market with the purpose of

42

generating cash. Contraction is liquidation of the assets and bringing to an end its

market position. Porter (1980) famous typology consists of three types i.e 1)

differentiation 2) cost leadership and 3) focus. Differentiation is bringing one of its

kind product or services to the consumers. Cost leadership is reducing costs by

bringing efficiency, utilizing experience curve effects, overhead control and other

procedure to decrease costs. Focus is targeting a particular group of buyers or market

segment.

Galbraith and Schendel (1983) taxonomy consists of six categories i.e. 1) harvest 2)

builder 3) cash out 4) niche 5) climber 6) continuity. Harvesting is the strategy of

divestment. Builder is the strategy where focus of the firm is product innovation and

R &D. Builder strategies are utilized by the firms who are trying to improve their

sales or enhance their market share. In the cash-out strategy, firms employ

advertisements and promotion to inflate the perceived value of their products to

charge higher prices in order to make higher profits. Specialization strategy is where

firm develop its expertise in quality products or highly courteous services. Climber is

where a firm demonstrate a narrow product line and charge lower prices. Continuity is

where a business keeps in touch to continuity or strategy of keeping the existing

status. Herbert and Deresky (1987) typology consists of four types that are develop,

stabilize, turnaround and harvest. Develop is the growth strategy where a firm grows

by making use of new products and new market opportunities. Stabilize is the strategy

of defending existing market position by efficiently using its assets and market

segmentation. Turnaround strategy is reversing the ‘on its last legs’ situation of the

business as quickly as possible. Harvesting is the strategy of taking out cash while

keeping hold of provisional operational feasibility in order to achieve minimum

financial targets. Douglas and Rhee (1989) contains six types that are broad liner,

43

innovator, integrated marketer, low quality, nicher and synergist. In the broad liner

strategy focus of the firm is on provision of high quality product along with wide

product market scope. Firm following innovator strategies have mostly new products

in their product line and their focus is on the new product development instead of

marketing efforts. Integrator displays some traits of the broad liner but they also

display high level of customer attentiveness and highly vertically integrated

organizations. Low quality brings their low quality products into the market. Their

market scope is limited and possesses below average market share. Nicher focuses on

the niche of the market and target is small number of customers in a particular

segment. They bring high quality product and charge premium on that. Synergists

market scope is narrow and brings below average quality product and below average

new products in their product line.

The literature asserts that Porter (1980) typology has been widely tested empirically

and has the most theoretical refinement (Dess, Gupta et al. 1995). In the recent studies

on generic strategies (Mohsenzadeh and Ahmadian 2016) showed the mediating effect

of the competitive strategies in between production capability and export

performance. They also found out that competitive strategies do not mediate the

results of marketing competency and the export performance(Bayraktar,

Hancerliogullari et al. 2016)studied the link between competitive strategies,

innovation and firm performance , their findings showed that cost leadership strategy

and differentiation strategy enhances innovation consequently enhancing the

organizational performance. Pehrsson, Svensson et al. (2016) suggested a

differentiation strategy for an industrial firm and for a foreign subsidiary.

44

2.3 Operationalization of strategy typologies

Four distinctive approaches have been identified for operationalization and

measurement of business level strategies by Snow and Hambrick (1980). They are

investigator inference, self-typing, external assessment and objective indicators. In the

first approach, interviews are carried out with managers by the researcher. All the

available information of organization from different sources like annual reports and

press releases is utilized to evaluate the business strategy. In the second approach self-

typing managers of an organization are asked to categorize the type of strategy their

organization is pursuing.

According to Conant, Mokwa et al. (1990) self-typing approach may be

categorized into two approaches. First one is where managers of the business are

inquired to identify the strategy type their organization is following based on the

strategy typology explanations. Second one is where a strategy of an organization is

conformed to a particular category of strategy. The particular strategy type is

evaluated by utilizing multi-item Likert-type scales with the intention of measuring

every type of particular strategy typology. In the external assessment approach,

strategy measure of self-typing is affirmed by attaining the rankings of individuals.

These rankings are obtained by individuals external to organization for instance rival

firms, industry professionals and consultants. In the last approach that is objective

indicators, dependence on data from organizations managers or from the individuals

of rival firms/ industry experts is not there. Data is collected from objective

indicators, for instance published data resembling product market data.

Studies chosen particularly here in this section are those which have

employed either Porter's typology or Miles and Snow typology for operationalizing

business level strategies. The studies were investigated with the objective of

45

identifying the purpose of the study, organization types, and their results. Most of the

studies found for this purpose had employed Porter’s typology. Numerous studies

focused on identifying the particular ‘strategy type’ an organization is following and

its link with the organizational performance. There were few studies which investigate

the function of environment in the link between the type of strategy business is

pursuing, and organization performance for instance (Prescott 1986, Kotha and Nair

1995).

A few studies examined the role of organizational structure in between the link

of strategy and organizational performance for instance Miller (1987)and Jennings

and Seaman (1994). In number of studies the organization chosen for investigation

belonged to manufacturing sector or services sector. Dess and Davis (1984) employed

porter’s typology and their results were that organization following one particular

type perform superior than those organizations who are stuck in the middle. Karnani

(1984) utilized Porters typology and their findings were that businesses following

either differentiation strategy or cost leadership strategy were capable of improving

their market share and profitability. Hambrick (1983) employed Miles & Snoe

strategy type and concluded that the environment significantly impacts the relation

between strategy types and performance. Prescott (1986) also utilizes Porter’s

typology and the result was the environment moderation in the connection between

strategy types of the organization and the organizational performance. White (1986)

investigates porter’s typologies and they found that organizations’ following cost

leadership with low level of autonomy performed well, and organizations following

differentiation strategy with high level of autonomy performed well. Lawless and

Finch (1989) identified that variation is brought in between the link of strategy and

performance by the environment. Conant, Mokwa et al. (1990) employed Miles &

46

Snow typology and their findings were that marketing competencies possessed by

prospectors were better than rest of three strategy types but performance of

prospectors, analyzers and defenders was much better than those of reactors. Parnell

and Wright (1993) employed Miles & Snow typology and they found that

prospectors outperform rest of the strategy type organizations as far as revenues are

concerned. Analyzers outperform others as far as profitability is concerned. Reactors

were overall low performers and integrated strategies were identified as a better

approach to sustain competitive advantage.Wright, Kroll et al. (1991) utilized Porter’s

typology and found that organizations following cost leadership strategy or

differentiation strategy alone were better than the firms following alternative

strategies, only when they demonstrated superior cost leadership or differentiation

characteristics than other firms.

O'Farrell, Hitchens et al. (1992) investigated Porter’s typology in services

sector and found that firms adopting differentiation strategy performed better than

firms which are stuck in the middle or following the cost leadership strategy. James

and Hatten (1994) with Miles & Snow strategy type reported that strategy type has a

very little impact on organizational performance. Ramaswamy, Thomas et al. (1994)

identified that defenders’ performance was better than those of prospectors. Parker

and Helms (1992) investigated Generic strategies of Porter in textile mills industry

and identified that organizations pursuing mix of Strategies (differentiation and cost-

leadership) performed better than those firms following a single strategy. Cronshaw,

Davis et al. (1994) findings were somehow similar to Parker and Helms (1992). They

investigated Sainsbury and found that Sainsbury is following a mix of differentiation

and cost leadership strategy and Sainsbury performance was superior to its rival firm

by using hybrid strategies. Kling and Smith (1995) investigated the airline industry by

47

utilizing Porter’s typology and identified that firm following one of the three generic

strategies displayed enhanced performance. In addition to this, Kumar, Subramanian

et al. (1997) investigated Generic strategies of Porter in hospitals and found that firms

following focused cost leadership or focused differentiation performed better than

firms following mix of Strategies (differentiation and cost-leadership). Many other

researchers also investigated Poter’s generic strategies as Chan and Wong (1999)

investigated Generic strategies of Porter in Banks Sector and found out that firms

following more than one strategy performed better than the firm following a single

strategy. Huang (2001) found out that firms following differentiation strategy

performed better than the firms following cost leadership strategy or those stuck in

middle, however he was unable to found noteworthy variation in the performance of

businesses following cost leadership and businesses who are stuck in the middle

approach. Kumar, Subramanian et al. (2002) found out that the firms following

differentiation strategy have better market orientation than the firms following cost

leadership strategy.

As far as Cost leadership strategy is concerned, Powers and Hahn (2004)

investigated banking sector and identified that banks following cost leadership

strategy, performed better than firms following any other strategy. Also firms

following hybrid strategies or stuck in middle performed better than banks following

differentiation strategy or focused strategy. Kim, Nam et al. (2004) investigated

Generic strategies of Porter and found out that firms following mix of leadership

strategy and differentiation strategy exhibited peak performance and businesses only

following cost leadership strategy, they displayed the lowest performance of all.

Torgovicky, Goldberg et al. (2005) examined Porter’s frame work in health care

service providers and found that firms following focus or differentiation strategy

48

exhibited superior performance than those who followed stuck in the middle

approach.

When Performance was investigated in relation with strategies, Hoque (2004)

employed Miles & Snow framework in his study and found that strategy type

significantly relates with organizational performance. Koo, Koh et al. (2004)

investigated Porter generic strategies in online firms and explored that superior

performance was exhibited by the on-line firms following differentiation strategy. On

the other end, click-and-mortar firms exhibited better performance with focus

strategy. Moore (2005) findings displayed a consistent performance of prospectors,

defenders and analyzers on the other end inconsistent performance was displayed by

reactors. Performance of prospectors was better than analyzers, defenders and

reactors. Ge and Ding (2005) by employing Porter’s typology found a very strong and

positive connection between customer orientation, business level strategy and

performance. Andrews, Boyne et al. (2006) showed that prospector strategy positively

links organizational performance whereas a reactor strategy negatively links

organizational performance. Ghobadian and O'Regan (2006) investigated Miles &

Snow framework in manufacturing SMEs and found that performance of prospectors

is better than those of the defenders.

There were plenty of other studies which have employed these Porter / Miles

& Snow’s framework, but the selected studies (mentioned above) show that in

different industries the performance of a particular strategy type was better than the

other. In most of the cases firms pursuing differentiation strategy performed better

than those who followed cost leadership strategy or stuck in the middle approach but

there were cases where firms following cost leadership strategy performed better than

firms following differentiation strategy. A very small number of studies also showed

49

that firms following hybrid strategies or stuck in the middle approach outperform the

firms following differentiation strategy or cost leadership strategy. Tansey, Spillane et

al. (2014) investigated porter’s typology in construction industry during the time of

the recession wand identified that firm following cost leadership strategy in this

scenario better than the firms following differentiation strategy or stuck in the middle

approach. Collins and Winrow (2010) investigated generic strategies of Porter in

online retailers and findings exhibited that firms following integrative strategies

gained competitive advantage rather than the firms following cost leadership or

differentiation strategies.

González‐Benito and Suárez‐González (2010) investigated Porter generic

strategies in link with manufacturing strategic objectives and manufacturing

capabilities and their findings reveal that a suitable arrangement between Generic

strategies of Porter, manufacturing strategic objectives and manufacturing potential

seem important to enhance performance of the firm. Moreover, Meier, O’Toole et al.

(2010) investigated Miles & Snow typology in public sector organizations and the

results reveal that Miles & Snow strategy types do not hold for the public sector

organizations.

Porter (1985) emphasizes that the objective of strategy at organization level is

to develop difference between the position of the company and its rival businesses.

Thus, when the organization decides to execute its actions in a different way than

those of its rivals, it is the core of its organization level strategy (Porter 1996). The

selected strategy at business-level can help the company gain advantage in the

competition; however, this advantage is with-in a specific range of competition. A

firm with multiple strategic business units operating in different industries should

have a discrete business strategy for all the different industries in which its business

50

units are competing (Beard and Dess 1981). Köseoglu, Topaloglu et al. (2013)

suggested that cost leader ship and differentiation strategy, when selected solely, seem

more suitable than the combination of these strategies which is likely to result in the

middle approach. Distinctive competences and advantages in competition are the

critical factors that contribute to strategy at business level (Hofer and Schendel 1978).

Therefore, competitive organization strategy can be defined as the extent to which a

business can compete, keeping in view the objective of not only achieving but also

maintaining growth successfully (Hayes and Wheelwright 1984).

Competitive strategies can move in different directions and may have different

attributes. For example, businesses may achieve advantage in competition by cutting

its prices (Wheelwright 1978, Lee and Larry 2002), by attaining superior quality

(Wheelwright 1978, Hill 1993), through accurate deliveries in short time (Lee and

Larry 2002), or by extremely differentiating their products from the products of the

rival firms. (Porter 1980). Porter (1980) generic strategies have been considered as

dominant paradigm, but studies also identify short comings of generic strategies for

example Campbell-Hunt (2000) argued on generic strategies, that it is just a

discrimination of competitive strategy at high level, D'Aveni, Dagnino et al. (2010)

argued that it helps in achieving competitive advantage temporarily, and Rubach,

Cangelosi et al. (2015) stated that it does not explain difference in performance in

small and medium enterprises significantly.

The competitive advantage achieved through following differentiation strategy

is usually the result of management decision to develop new product or services, new

way of managing brand, providing better service than rival firms or by developing

new technologies and distribution channels. Studies (Dess and Davis 1984) utilized

Porter generic strategies to measure the performance in which the measuring approach

51

was self-typing and the managers were questioned to identify importance of 21

competitive methods. The analysis was done using ANOVA and the results indicated

three groups of consistent competitive methods in accordance to three generic

strategies of Porter (1980). The results also indicated that a firm following any single

generic strategy performed better than the firm not following any link of generic

strategy. The study was conducted in the United States where the industry was paints

and allied products. The respondents were managers of the firm and sample size was

78.

Prescott (1986) employed generic strategies of Porter to evaluate the

performance of the firm with environment as moderating variable. Miller (1987)

utilized Porter generic strategies, the purpose of the study was to link strategy

categories with organization structure and the results showed that strategies of market

differentiation, complex product innovations and market width have very distinctive

connections with organizational structures, dynamic environments, devices of

uncertainty reductions. Lawless and Finch (1989) used Porter’s typology to test the

propositions about fit between strategy, environment and performance. Miller and

Friesen (1986) constructs were used to make sure the validity of the constructs. The

results showed partial support for the proposition about the fit between strategy,

environment and performance.

Miller (1989) examined the link between Generic strategies of Porter and the

strategy making process. To measure strategies constructs suggested by Miller (1988),

Hambrick (1983) and (Dess and Davis 1984) were employed. The results showed that

differentiation is linked with processing of information and interactive mode of

developing strategy in successful organizations. Cost leadership strategy has very

small number of implications in link with strategy making and focus strategy relates

52

to information processing in reverse direction. Jennings and Lumpkin (1992) tried to

find out the link between generic strategies employed by different organizations and

environmental scanning activities. The results showed that firms with the focus on

differentiation strategy have put strong emphasis on opportunities scanning, on the

other end firms following cost leadership strategy have put lot of focus on scanning of

threats. Moreover Roth and Morrison (1992) examined the differences between

business level strategies of firms operating domestically and the firms running its

business domestically as well as internationally. Miller (1987) constructs were used to

ensure the validity. The results showed that strategic orientation differ for both types

of firms i.e. firms that are competing domestically and the firms competing

internationally.

Miller and Dess (1993) conducted the study to compute Generic strategies of

Porter with reference to its generalizability, simplicity and accuracy. The results

showed that Porter’s framework acquired major proportion of complexities linked

with generic strategies. Performance significantly varies on different generic

strategies and it seems hard to generalize Generic strategies of Porter and they appear

more contingent. Marlin, Lamont et al. (1994) investigated strategy and performance

relationship in different situation of strategic choice and environmental determinism.

The results displayed a higher level of performance in maximum and differentiated

choice situations; a lower level of performance was exhibited in minimum and

incremental choice situations. Differentiators and cost leaders performed much better

than muddlers in incremental choice situations, on the other end differentiator was

much better than firm pursuing cost leadership strategy in all scenarios with the

exception of only incremental choice situation. Kotha and Nair (1995) investigated

the strategy and environment impact on the organizational performance. The study

53

employed the constructs suggested by Hambrick (1983). The results exhibit that firm

profitability is highly influenced by the strategy and the environment, changes in

technology positively influences the development of the firm and there is no negative

relationship between technology and profitability or capital expenditures and

profitability.

Lee and Miller (1996) tested the relationship between strategy and the

environment in textiles, chemicals and electronics industries. The results showed the

relationship between strategy and environment is positively link with the performance

of the organization. The above mentioned relationship is stronger in technology based

industries as compared to industries that employ conventional technologies. Chan and

Wong (1999) investigated the link between competitive strategies and performance of

the firm. The results showed support for external validity of Porter’s framework. Bank

pursuing multiple strategies performed much better than the banks pursuing a single

strategy.

Homburg, Krohmer et al. (1999) also investigated whether strategic consensus

impacts differently on different strategy types and whether market dynamism act as a

moderator between relationship of strategic consensus and performance. Accord on

cost leadership strategies and differentiation strategy were evaluated. The results

displayed that strategic business unit performance is enhanced by strategic consensus

as far as differentiation strategy is concerned. Market dynamism negatively impacts

the link between strategic consensus, differentiation strategy and performance of the

firm.

Chang, Yang et al. (2003) investigated the link between business strategies

and alignment of various manufacturing alignment dimensions. To measure business

level strategies the framework of Chang et al (2002) was employed. The results

54

showed a necessary link between the strategy types and manufacturing flexibility to

enhance performance. Frambach, Prabhu et al. (2003) tested the link between business

strategies and product activity via its direct and indirect influence on market

orientation. The results showed that putting more energy on focus strategy results in

low level of importance on customer orientation. Product activity is negatively

influenced by Competitor orientation and customer orientation is positively

influenced by competitor orientation. Cost leadership strategy also positively

influences the customer orientation. Chan, Shaffer et al. (2004) evaluated the

contingent relationship between strategy and high performance human resource

practices by computing the moderating effects of differentiation strategy. The result

displayed no evidence to support the link between differentiation strategy and its HR

practices. Jermias and Gani (2004) investigated the type of connection among

organization strategies, configuration of organizations, its management accounting

system and the business unit effectiveness. Kim, Nam et al. (2004) investigated the

resemblances between types of strategy in on-line businesses and Generic strategies

of Porter. They also examined the performance differences among the firms following

different types of strategies. The results show the applicability of Generic strategies of

Porter on e-businesses. Porter‘s generic strategies helps in explaining differences

among on-line firms. The business strategies pursued by on-line businesses is similar

to the strategies pursued by traditional firms. The lowest level of performance was

exhibited by the firms following cost leadership strategy. Firms following hybrid

strategy i.e. a mix of cost leadership and differentiation strategy which outperformed

their rival firms. Auzair and Langfield-Smith (2005) examined the influence of

business strategy, service process kind and position in life cycle on management

control system in the organizations.

55

Ge and Ding (2005) investigated the link between market orientation and

performance with competitive strategy as mediator. Competitive strategy and

performance not affected by inter-functional coordination. Allen, Helms et al. (2006)

investigated the generic strategies implementation in Japanese businesses and

compared those with the businesses in United States. Validity was ensured through

the utilization of scale developed by Allen and Helms (2001). The results showed that

cost leadership strategy is employed by both Japanese and American firms. American

firms make high utilization of product differentiation strategy as compared to

Japanese firms. Thus concluded, the Japanese firms hardly employ focus strategy in

their businesses.

Study i.e. (Baack and Boggs 2008) conducted the study to address the

disagreement between Porter generic strategies and strategic contingency theory.

Porter suggests 3 generic strategies i.e. differentiation, cost leadership and focus and

assert that to be successful, an organization must follow only one of these generic

strategies. Strategic contingency theory infers that for a strategy to be successful

should be according to the environment. Moreover, different markets of the world

need different strategies. With the help of deductive reasoning and examples the

researcher tries to explain that why developed countries businesses are unable to

follow cost leadership strategies in emerging markets. The results showed that for

multinational companies running their business in emerging markets, cost leadership

strategy is ineffective and they may benefit by employing different strategies in

different markets. The research significantly contributes to the claim posed by

business strategy theorist that MNCs should follow a single strategy globally in order

to attain high organizational performance. Valipour, Birjandi et al. (2012) evaluated

the impact of business strategies on the link between performance and financial

56

leverage of the business. The results showed a positive link among cost leadership

strategy, dividend payout with performance. The results also showed a positive link

among product differentiation strategy, size of the organization and leverage but on

the contrary negative relative relationship between product differentiation strategy

and dividend pay-out with performance was derived

Oliveira, Rossi et al. (2012) did the research with the purpose to identify the

organizational values that are most strongly linked to cost leadership strategies of the

firms struggling to internationalize and running their business in Brazil. The results

also showed that these cost leadership firms may gain competitive advantage by

providing pleasant and enjoyable work environment. Kaliappen and Hilman (2014)

investigated the role of innovation as a mediator between differentiation strategy and

the firm performance. Results showed that hotels pursuing differentiation strategy

should also focus on service innovation in parallel to enhance their business

performance.

D. Banker, Mashruwala et al. (2014) investigated the strategic positioning of

the business with the sustainable performance of the business. The prime purpose of

the paper was to investigate whether cost leadership or differentiation leads to

sustainable performance of the business. The results showed that both differentiation

and cost leadership strategy positively influence the sustainable performance of the

businesses. However the differentiation strategy is more linked to risk but

differentiation strategy helps in sustaining the performance to a greater extent than

pursuing cost leadership strategy. Newton, Gilinsky et al. (2015) investigated the

influence of differentiation strategies on the financial performance of businesses

operating in winery. The results also indicated that supply chain choice sourcing has

positive impact on gross profit margin. (Ali and ZEHİR 2016) investigated the link

57

between cost leadership strategy, total quality applications and financial performance

of the firm. The results also displayed that noteworthy and positive correlation exists

relating cost leadership strategies and eight total quality management applications.

Positive relationship between cost leadership strategies and financial performance was

also found.

The purpose of above mentioned papers that employed Porter’s typology was

to justify the type of studies that have been conducted relating to business strategies,

how they have utilized Porter’s framework in their studies, how the business

strategies have been utilized as independent variables and how these business

strategies have been utilized as mediator or moderators i.e. What has been the impact

of these business strategies on performance of the business. It also showed that

Porter’s frame has been applicable to both manufacturing and services industries. The

above mentioned papers show the applicability of the said strategies in different kind

of industries. The above mentioned papers also highlight Porter’s framework

applicability in varied environments and in the different countries.

2.4 Risks and criticisms of Porter's generic strategies

Risk associated with generic strategies includes lacking to successfully

achieve or maintain the strategy and diminishing strategic advantage value the

industry in which business is operating evolves (Porter 1980). Failing to achieve or

sustain a particular strategy may lead an organization to a situation known as “stuck in

the middle” and firm may get stuck in between for couple of reasons (Kim, Nam et al.

2004). If organization is unable to successfully follow a particular strategy that is

either cost leadership or differentiation, it can get stuck in middle leading to the weak

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organizational performance. If an organization attempts to follow more than one

generic strategies simultaneously, it can stuck in the middle (Porter 1980).

The empirical evidence is in contrary which suggests that following both

generic strategies simultaneously i.e. differentiation and cost leadership, the firm can

earn above average profits (Kim and Lim 1988, Dess, Lumpkin et al. 1999). Number

of studies have raised their considerations on the Porter generic strategies’

effectiveness. Three limitation have been identified by Bowman (2008) on Porter

generic strategies. The first one is that there is ambiguity over ‘where to compete’ and

‘how to compete’. Secondly, it creates confusion between competitive strategy and

corporate strategy of a firm and in the last, it does not consider other feasible strategic

options.

Bowman (2008) confronts Porter generic strategies by identifying that if an

industry is not appealing for an organization then what it should do, should it pursue

Porter's suggestion and consider moving itself to another industry. Bowman (2008)

builds up an argument that definition of industry employed by Porter, is wide and the

decision to choose between generic strategies is more concerned with ‘where to

compete’ instead of how to achieve and maintain advantage. The second shortcoming

of Porter generic strategies is linked to Puzzlement between strategy at corporate level

and strategy at business level.

Porter (1980) suggests that a business operating in multiple industries should

pursue either differentiation or cost leadership in all the industries where it is running

its businesses. Bowman (2008) argues that since an organization is operating in

number of industries, its businesses in different industries should be considered as

strategic business units that may independently adopt cost leadership or differentiation

strategy according to the industry conditions. Bowman (2008) is also in favor of

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simultaneously following of both differentiation and cost leadership strategy. The last

shortcoming of Porter generic strategies is that it does not consider other probable

strategic options like a firm may possibly concentrate on product enhancement while

keeping its prices competitive. An organization following differentiation strategy may

also benefit itself by utilizing economies of scale and bringing its cost down. Bowman

(2008) build up its argument that Porter generic strategies primarily segments the

market in 2 parts. The initial segment is linked to normal producers where normal

producers produce the products to offer to the average consumers at average prices.

The second segment is where products are offered at premium prices to the consumers

who prefer better quality products. Bowman considers generic strategies framework

of Porter as a simple framework that does not take into consideration the complexities

of external environment.

According to Miller (1992) an organization just following a single strategy

i.e. cost leadership or differentiation strategy, may direct an organization towards

dangerous consequences. Focusing too much on a single strategy may result in:

Crucial inadequacy of offered product range of the business.

It may pay no attention to the important needs of the consumers.

It may weaken the defense of a business against its rival firms.

It may lead an organization to inflexibility to certain needs of

consumers.

And finally it may restricts an organization’s vision (Miller 1992).

Miller (1992) is of the view that the employing mix of cost leadership and

differentiation strategy is preferred for the reason that it minimizes the threats linked

with strategic specialization. Moreover, it develops capability in the organization to

develop capacities and generate opportunities to avail synergies along with various

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dimensions of strategy. On the other hand Miller (1992) recommends that for few

scenarios following a single Porter’s generic strategy be better than following a mix

of strategies (differentiation and cost-leadership). When too much focus of the market

is on single aspect e.g. price or quality, the recommended strategy will be either cost

leadership or differentiation. In scenarios where demand of the consumer is extreme

reliability, the business should not struggle for achieving low cost. On the other end,

if the consumers are extremely price sensitive, introducing differentiated products

may not appear to be a very attractive strategy. Strategy is not just about reducing

costs or differentiated products but it should also demonstrate a successful

configuration of organizations efforts and attributes of products and services (Miller

1992).

2.5 Extensions of Porter's generic strategies

Three strategic options have been empirically developed by Treacy and

Wiersema (1997) as a substitute to porter generic strategies. Their framework is based

on market segmentation theory. Their framework is that the industry may be divided

into three segments. First one is that there is demand of a standardized product at

comparatively lesser price, the needs of second segment are innovative product with

better attributes and they are ready to pay a premium price for such products, third

segment is looking for customized services and products. To serve the requirements

of the initial segment a firm opts for operational excellence to keep the cost of product

low so they can offer the products at lower prices to the consumers.

On the way to serve the need of second segment, a firm may become a market

leader by bringing new generation products into the market. To serve the third

segment a firm may adopt strategy of the customer intimacy. A blue ocean strategy

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was suggested by Kim and Mauborgne (2005), proposed a very restricted definition of

the competition, according to them the purpose of strategy is not to become the

highest performer among all the rival firms except to develop a another marketplace

for itself that is new and referred as blue ocean. The consequence of following blue

ocean strategy is that rival firms become irrelevant. This strategy backs the utilization

of differentiation and cost leadership strategy at the same time.

A well-known typology in the area of strategic management, proposed by

Miles, Snow et al. (1978), suggested that there is an equal chance of good

performance when using the three strategic types; prospectors, analyzers and

defenders. There is a fourth one too, named reactor but that does not appear to be a

high performing strategy (Snow and Hrebiniak 1980). Broadly, the literature supports

the Miles, Snow et al. (1978) typology, but there are studies with contradictory or mix

findings too (Parnell 2000, DeSarbo, Anthony Di Benedetto et al. 2005). Porter

(1980) suggested a frame work comprising of two dimensions i.e. strategic advantage

and strategic target. Strategic advantage is the lead in competition and strategic target

is the target market, which could be either narrow or broad. Based on the above

mentioned dimensions, four competitive strategies were identified by him i.e. cost

focus; cost leadership; differentiation focus and differentiation; Cost focus and cost

leadership strategies involve cutting down production cost. On the other hand,

differentiation strategies lead to production of contrasting items in order to charge

higher price in the market.

The literature suggests a number of other frameworks too. Richardson, Taylor

et al. (1985) acknowledged two types of main concerns in the competition among

each one having three different corporate missions. The two types as an advantage in

competition are based upon innovation skills and low cost production. Later, six

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generic strategies were suggested by Mintzberg (1988) i.e. image differentiation; price

differentiation; quality differentiation’ design differentiation’ support differentiation

and un-differentiation. Three competitive attribute dimensions were developed by

Wright, Kroll et al. (1995), that were low costs and low innovation/differentiation;

low costs and high innovation/differentiation and high costs and high

innovation/differentiation. Hooley, Broderick et al. (1998) suggested six business

positioning strategies based on the acquired resources of a firm i.e. superior service,

rapid innovation, low price. superior quality, tailored offering and differentiated

benefits. Thus, firms may have a few similar resources but they may compete with

one another in quite different ways (Hooley, Saunders et al. 2004).

One of the models in the strategic management area is the Resource Based

Theory (RBV) (Rouse and Daellenbach 2002). RBV was introduced by Wernerfelt

(1984) and further work on it was done by a number of studies (Wernerfelt 1995,

Grant 1996). RBV focuses on the significance of company’s distinctive competences

and resources (tangible or intangible assets, and organizational abilities) in crafting

strategy, implementing strategy and improving performance (Spanos and Lioukas

2001, Parnell 2002).

There has been a significant support for RBV in a number of studies (Grant

1991, Stalk, Evans et al. 1992) that showed the cases where businesses with specific

skill set and abilities were able to outperform their competitors. According to (D.

Banker, Mashruwala et al. 2014), the key measures that help in differentiating a

business from the businesses applying low cost leadership strategy and businesses

stuck in the middle are: marketing skills, innovation capabilities and business scope.

Robins and Wiersema (1995) conducted a study on eighty eight businesses, enlisted in

fortune magazine and operating in different sectors, and showed that RBV accounted

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for variation in financial performance. A very important step in examining business

strategies is the selection of framework which includes essential aspects and solid

theoretical and empirical foundation (Tan 1995). Intended for this study, researchers

examined the implementation generic strategies of Porter’s framework in telecom

sector of Pakistan for reasons explained below. In the following discussion, two

different approaches to competitive strategy were compared i.e. industry organization

perspective and firm-specific effects on performance.

The key objectives of resource based theory is the measuring of resources

possessed by an organization and disclose the cause and effect relationship between

the resources employed by the organization and organization performance (Ray,

Barney et al. 2004). Barney (1991) demonstrated two prime assumptions of resource

based theory. First there is variation of resources distributed in different departments

of an organization and second when resources move between the firms. Resource base

theory considers that different organizations possess different types of resources

(Scarbrough 1998). Resources possessed by an organization may be in the form of

cash, assets, abilities, knowledge, practices, processes and reputation. Resources are

considered as numerous inter linked features embedded in an organization for

instance it may be core competencies of an organization (Winter and Nelson 1982).

All the resources possessed by organizations are not tradable and not tradable

resources may be the one developed by organizations internal set of capabilities,

competences, technologies, information systems. These internal competencies and

technologies may be unique in the industry (Amit and Schoemaker 1993).

Capabilities are considered as organizational competence to organize its

resources by utilizing organizational processes to attain its stated objectives (Amit and

Schoemaker 1993). Development of capabilities takes time and involves continuous

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learning and building up knowledge. Amit and Schoemaker (1993) suggested that

development of capabilities demand strategic vision and continuous investment.

Considering the firm, just as bundle of resources has implications for instance

manager’s role is acquisition, development and management of resources (Harrison

2003). Resources may be utilized by adopting different methods in different ways.

Resources utilized in smart and efficient ways enhance the worth of the resource. A

more convincing view of an organization is described by resource base theory as

compared to industry organization theory (Scarbrough 1998).

Resource base theory predicts that organization may gain advantage over

competitors by attaining the rare resources, valuable resources, inimitable resources

and non-substitutable resources(Barney 1991, Priem and Butler 2001). Thus the type

or resource defends the competitive advantage of an organization by creating barriers

to imitation. The way these resources are developed, are predicted to be implicit with

tacit knowledge and expertise and these resources may be regarded as organization

specific. These types of resources can’t be easily traded and are hard for the

competitors to guess the built of them. Godfrey and Hill (1995) suggested that

consistency in performance is dependent on how long a resource takes to become

obsolete or imitate. Resource based theory predicts that the state of being harder to be

imitated from the resource perspective gives competitive advantage to the

organization in long run.

The objective of resource base theory is to justify that diversified resources

possessed by an organization are the source of competitive advantage, instead of

competitive position hold by an organization in an industry and economy(Das and

Teng 2000). Resource base theory considers that market and industry traits may be

modified by the decision of the organization(Hamel and Prahalad 1994); (Scarbrough

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1998). Resource base theory views strategy as distinctive to individual organization.

Resource diversification involves varied resource endowments. An organization’s

distinctive competencies are viewed to be developed in long duration; these

distinctive competencies are consequence of decisions made in organization. The

efficiency and effectiveness of strategic choices of an organization is dependent on its

visible and invisible assets (Jacobson 1992). Strategies without considering the

invisible assets may not be highly successful. Resource base theory asserts that

managers should differentiate the organization for the purpose of crafting the strategy

(Carroll 1993). Resource base theory prediction about environment is that it is

modified by the organizations action and decisions (Scarbrough 1998).

Resource base theory considers strategy as continuous struggle of

improvement. An organization may create barriers to imitation by competitors

through continuous improvements and innovation. Resource base theory not only

focuses on utilization of existing resources but also on creation of resources. The

kind of competition is considered as continuous process in which disadvantage of not

having economies of scale may be overcome by innovation or flexibility. Resource

base theory tries to explain how small and medium businesses successfully compete

large businesses. The resource base theory is highly focused on competitive strategy.

Hamel and Prahalad (1994) have asserted that prime focus of strategy research has

been on competition instead of pre market competition for instance the competition

for foresight or core competencies is a significant competition.

Resource base theory perspective on competitive strategy may be categorized

in two branches i.e. maneuvering and controlling the environment because of

organization level focus. Hamel and Prahalad (1994) made a case that successful

organizations reinvent the whole industry, create new industries that makes new rules

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of engagement and draw ne boundaries, because of corporate strategy initiatives,

radical innovations. Moreover, Resource base theory focuses on synergy i.e. the

coordination among units of business have positive impact on the organizational

performance (Robins and Wiersema 1995). The key to better organizational

performance is suitable sharing of critical resources among business units (Hamel and

Prahalad 1994). The strategy may be the development of core competence or

distinctive competence. The decision of concentrating on single core competence can

result in shortage of core competence in remaining areas, thus decision of choosing

focal core competence is of extreme importance for organizational performance

(SubbaNarasimha 2001).

2.5.1 Limitations of resource based theory

Resource base theory puts a lot of focus on organizational resources to gain

sustainable competitive advantage, but does not explain the source of getting these

resources. In addition to this, it is hard to locate the unique resources that become

source of sustainable competitive advantage. Resource based theory has been

criticized as tautological, only those resources that generate rent are considered

(Priem and Butler 2001). According to Arend (2003), valuable resources develop

value. An organization having the competence to develop capabilities will be ahead of

other competitors who only possess capabilities (Scarbrough 1998). However Barney

(2001) made a case that any criticism on resource base theory of being tautological is

flawed as theory function on various analytical levels, independent or explanatory

variable lies at functional level whereas end dependent variable lies on corporate

level for instance organizational performance.

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Resource base theory tautological aspects may be trumped by envisioning

resource base theory as an addition to equilibrium theories of zero economic profit

where market is key determinant of resource value. Tautological features of resource

based theory may be eradicated by the analysis of diversified type of resources that

can add to sustainable competitive advantage in different ways. The emphasis of

resource base theory has been on attaining competitive advantage by means of

competitive strategy. The dimensions of resource based theory in link with strategy

are discussed below, the theories’ group demonstrated by Hamel and Prahalad (1994)

supported organizational level analysis or it may be said that function of strategy on

organizational performance may be viewed as inter firm competition. They consider

that opportunities should not lie in the range single market or industry. Performance is

considered to be attained by employing the core competencies that are possessed by

different departments across the organization.

Core competency theory recommends that organization must possess the

forethought to distinguish existence of future markets outside the current industries.

For instance various studies recommend a connection between core competence and

product innovation (Dougherty 1992, Henderson and Cockburn 1994). Core

competencies are considered as interlinked assortment of technologies, capabilities

and learning possessed by an organization. Hamel and Prahalad (1994) supported that

core competencies are required to be evaluated, combined and their application made

throughout the organization. To achieve leverage from the core competencies, it needs

a corporate view of the organization. Researcher face it very challenging to

operationalize the concept of core competencies for instance (Henderson and

Cockburn 1994) categorized the core competencies into its components that are

knowledge and day to day skill and other competence is the art of integrating

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competences and utilizing them. They recommend that core competencies may be

demonstrated by finding out flow of information and organization promotion of

knowledge for instance a close link between businesses and organizations. Their

findings were that organizations differ in terms of their expertise. Mascarenhas,

Baveja et al. (1998) recommended three drivers of core competences i.e. ‘better

technical knowledge’, ‘processes reliability’ and ‘ the strong link with external

stakeholders’. In short core competence theory suggests the development and

utilization of them may result in better and consistent organizational performance.

Organizations should utilize the core competence approach to deliver better and

consistent performance. The identification of core competence is a complex process

because of the implicit nature of core competence. Industry foresight is required to

employ the appropriate blend of competencies.

The strategic management area has faced a main change concerning the

sources of competitive advantage achievement as of industry organization (IO) to

particular impacts of business itself. In the industry organization view, assumption of

the scholars was that the firm management does not have any major influence on the

industry conditions or the performance of firm (Bain 1956), because the firm’s actions

are controlled by the features of the industry in which it is operating and are not

characterized by management’s activities. The advancing framework presented by the

studies e.g. (Porter 1980, Porter 1985, Porter 1990, Porter 1991) is dissimilar as of the

IO theory in different methods. First of all, Porter’s focus is on performance of the

firm instead of performance of the industry. In Porter’s framework there is an explicit

recognition of firm’s behavior, in addition to industry features, in determining firm’s

performance. Porter (1985) took into consideration that in the long run, developing a

justifiable position in the industry is a critical success factor for a business with which

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it may win huge gain in competition. According to him Porter, by following any of

the generic strategies i.e. differentiation and cost-leadership, business can gain

competitive advantage over its competitors (Porter 1985).

The strategic management field was dominated by organization external

environment analysis to gain competitive advantage. The exogenous view tries to

describe the performance variation in different industries. The exogenous view also

attempts to disclose the mechanism of how an industry operates (Nelson 1991).

Industry organization contains numerous theories that try to explain how competitive

advantage is influenced by imperfect competition and organizations may enhance the

performance in such scenarios. Conner (1991) recommends five dominant

perspectives in industry organization view. First one is neo classical perfect

competition that considers organizations as entities trying their best to maximize

profits by finding out the right combination of inputs for their final products and

services (McNulty 1968). Second one is that organization profitability is described by

structure conduct a performance paradigm. Structure conduct performance contends

that competitive advantage develops from the features of the industry and the position

that an organization is holding in that industry (Mason 1939, Bain 1968). Third is that

Schumpeterian competition considers organization finding the ways to modify

industry forces through innovation (Schumpeter 1950). Forth is that Chicago school

considers the competitive advantage is attained through efficiency of an organization

instead of industry structure (Demsetz 1973). Fifth one is transaction cost economics

where organization identify most efficient outcome by find out the ways for minimum

costs of transactions (Williamson 1980, Williamson 1985).

As the objective of industry organization is to investigate variation in different

industries. The organization impact on industry is considered only in broad sense in

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industry organization perspective. Industry based description are provided by industry

organization perspective for sustainable competitive advantage. Industries struggle for

the resources and the new players are attracted to an industry where there is successful

competition, consequently resulting in raise in industry profits. Industry organization

perspective justifies that why some industries perform better than other. Assumptions

of industry organization contain rational behavior, market equilibrium and consistent

demand and supply. The shortcoming of industry organization perspective is

oversimplification of the organizations and the environment in which they are

working.

As the IO strategy lacks the firm perspective in crafting strategy, researchers’

focus started to move in the direction of the RBV model (Parnell 2000). However,

RBV treat a business as a compilation of resources, and the strategically important

resources are almost similar in competitive firms. Therefore, any generic relationship

between a particular resource and firm’s performance cannot be forecasted by RBV

(Lockett, Thompson et al. 2009). According to Porter (1991), strategy is an

arrangement of activities focusing on developing an explicit advantage in

competition. This defines the idea of generic strategies.

Industry organization and resource base theory are poles-apart frameworks

identifying ways of competitive advantage. On one end focal point of economists is

on the performance of the industries, on the other end strategic management area

focus on performance of individual firm. The industry organization paradigm predicts

that competitive advantage arise from industry structure, resource base theory predict

that competitive advantage arise from resources possessed by an organization. The

industry organization perspective of competitive advantage predicts that an

organization chooses market position from different strategies as established by

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structure of the industry, thus it may be inferred that firms will have same strategy

under the same industry conditions (Nelson 1991). Therefore firm differences are not

important when describing competitive advantage. It may be implied in the industry

organization paradigm that the impact of industry structure on organizational

performance is much higher than the impact of organization’s own action. It may be

inferred about resource base theory that impact of organization structure and action is

higher than the impact of industry structure.

Resource base theory takes into account the organizational characteristics and

considers that crafting organizational strategy has many implications. Resources are

different but these resources are interlinked abilities, assets, learning, processes

embedded in an organization. Organizations are considered as different entities

having different resources in possession that may be employed, to enjoy leverage in

other industries also. The resource base theory predicts that competitive advantage

arises from the individual actions of the organization in link with the environment.

Different organizations implement different strategies therefore resulting in

performance differences. Exogenous factors (industry organization theory) have

impact on organizational performance but they are not the only determinants. When

endogenous factors (resource base theory) are highly associated with organizational

performance, it indicates that strategy of an organization matter.

There are a number of strategic frameworks that come under the umbrella of

IO paradigm. The current study used Porter’s generic strategy framework, as it is tied

to firm performance. The literature also supports the linkage of Porter’s generic

strategy framework to other typologies i.e. (Miller and Friesen 1986, Lamont, Marlin

et al. 1993) ‘Innovators’ and Miles, Snow et al. (1978) ‘prospector’ appear analogous

to Porter’s strategy of differentiation. Miles & Snow’s ‘prospectors’ and Porter’s

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‘differentiation’ are inclined to focus on proactivity, on the other end Miles & Snow’s

‘defenders’ and Porter’s ‘cost leadership’ are inclined to focus on reactive behavior of

the business (Parnell 2002).

Four fundamental definitions of strategy were described by Mintzberg (1994).

First one, strategy is like a plan, second the strategy is like a pattern, third the strategy

is like a position and the forth is strategy is like a perspective. Strategy as a plan is

linked to organization future in a way that it entails actions or rules to be executed to

achieve organizational objectives. Strategy as pattern depicts an organization reliable

and steady behavior over the period of time. Organization pattern may be analyzed by

studying the past of the organization. A pattern of an organization appears from the

organization’s past, its present and its future course of actions. Strategy as a position

is linked to the present of an organization. An organization present may be analyzed

in the way that how the past of an organization has brought to its present position and

how this present will lead this organization into future. Strategy as a perspective is

linked to the present and future of an organization. Perspective is linked to the

fundamental objective of the organization or the purpose of existence of an

organization. Moreover the perspective may be considered as vision of an

organization.

2.5.2 Operationalization of organization generic strategy

Operationalization is the course of firmly defining variables into factors that

are measurable. With the intentions of operationalization, of the said variable, two

main strategies i.e. cost leadership and differentiation are included. The core reason

behind the adoption of these two strategies, out of so many, was the work of Porter.

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Porter’s key contribution is the identification of two ways i.e. cost leadership and

differentiation through which firms can achieve superior performance(Porter 1980).

The focus strategy has not been considered, as focus strategy aims on attaining cost

leadership or differentiation in distinctive ways that are not available to broadly

focused companies. “The focus strategy rests on the premise that the firm is able to

serve its narrow strategic target market more effectively or efficiently than

competitors who are competing more broadly. As a result, the firm achieves either

differentiation from better meeting the needs of the particular target, lower costs in

serving this target, or both” (Porter, 1980). Thus the focus strategy has not been

considered in this research

There has been an extensive support for usefulness of generic strategies of

Porter (Dess and Davis 1984, Sirmon, Hitt et al. 2007). In academia, there is a wide

acceptance of Porter’s generic strategy framework (Dess and Davis 1984). There is an

empirical evidence of usage of Generic strategies of Porter in various industries such

as: textile (Parker and Helms 1992); the electronics (Kim and Lim 1988); crystal glass

(Marques et al., 2000) and both manufacturing and service industries (Yamin,

Gunasekaran et al. 1999, Spanos, Zaralis et al. 2004). Porter identified the core of

developing a strategy in relation with the prime aspect, the industry environment in

which the firm competes (Porter 1980).

2.5.3 Cost leadership Strategy

Cost leadership or low cost provider strategy is among the generic strategies

that a firm can pursue to attain the status of a firm with the lowest cost production in

the industry (Porter 1985). There are various ways to achieve cost leadership, and

some of them are stated as getting access to raw materials, product or process

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innovation, exploiting economies of scale in areas of purchasing, transportation,

production and advertisements and making use of learning curve effects. Cost

leadership strategy is more appropriate in scenarios where external macro and micro

environment is stable up to some extent as high level of instability in external micro

and macro environment will sharply increase the costs of firms pursuing strategy of

cost leadership (Miller 1988).

In a scenario where firm attains cost leadership status and charges average or

less prices than its competitors, there is a high possibility that the firm will be an

above average industry performer. The vital features of cost leadership strategy that

should be considered in order to stay as an above average industry performer are: 1) a

cost leader must have level of differentiation somewhere near to its competitors and

2) in order to maintain its cost advantage, its sources of competitive advantage should

be hard to imitate or replicate (Kay 1993). An implication of this discussion is that,

even to stay behind the cost leader at second number may be sensible instead of

becoming cost leader (Dietrich 1993). The efficiency and effectiveness of generic

strategies is dependent on many external factors prevailing in the environment like

price sensitivity of the customer, brand loyalty etc. (Day 1984). There is a strong

relationship between cost leadership strategy and charging lower prices to attain the

customers who prefer low prices as compared to newness or representation (Miller

1988).

In a price sensitive market the cost leader is in a better position to get the

advantage. Murray (1988) adds a precondition to sustain cost leadership for a long

term and the condition is that the resources and skills that give a firm cost leadership

status should be very hard to imitate. Advantage in cost leadership is usually taken by

achieving efficiencies in operation management. The advantage sustains until the

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introduction of newer and better sources, that overcome the advantage, proving that

such an advantage in competition is temporary and long term profitability cannot be

sustained (Eisenhardt and Martin 2000).

If number of firms are pursuing cost leadership strategy and most of them are

in the position to attain cost leadership without keeping themselves at cost

disadvantage then it is very hard for any single firm to sustain competitive advantage

for a long term (Barney 2002). Small and medium enterprises usually follow cost

leadership strategy in mature industries through consolidation and applying the

economies of scale (Porter and Millar 1985, Porter 1998). SMEs usually follow

differentiation in mature industries through quality or innovation. Studies (Maruso

and Weinzimmer 2015, McGee and Shook 2015) identified that differentiation

attained through innovation is an encouraging forecaster of organizational

performance. The diffusion of applications and technology at a rapid pace quickly

erodes the competitive advantage. If strategy is built in a method that it’s not easy to

imitate the practices and technology, it will give advantage in the long run and this

advantage will not dissipate over time. Cost efficiencies attained through

improvement in processes hardly provide a source of competitive advantage in the

long run. Particularly if the suppliers are part of such process improvement,

competitive advantage will easily transfer to the competitors (Barney 2002).

Apart from process innovation, another source of cost advantage identified is

‘economies of scale’. With the plenty of resources this advantage is not hard to

duplicate (Barney 2002). Another source of cost advantage is bringing in use

experience or learning curve effects. One of the views about organization learning is

that it is an important resource to develop sustainable competitive advantage (Grant

1996) but on the other end it is also highlighted that despite the use of learning curve

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effects by firms in an industry and it is not developing a significant advantage because

of information diffusion across firms (Murray 1988).

Porter’s generic strategy may be viewed as guide to the organizations in

defining their strategic direction. It may simply be considered as the competitor

generating maximum profit in an industry. It also appears that the competitor is

producing at the lowest costs or it is buying from its suppliers, the product with

greater perceived differentiation (Christopher 2005). The goal of pursuing cost

leadership strategy is to maximize profits by increasing profit margins or to increase

market share by offering their products at lowest competitive price in an industry. The

ways of attaining cost leadership are through learning curve effects, experience,

investing in production plants, closely investigating the overall operational costs in

order to eliminate redundancies. One of the key reasons for pursuing cost leadership

strategy is to attain the competitive advantage by reducing its costs among the rival

firms (Barney 2002). Organizations following cost leadership strategy benefits from

enhance managerial efficiency which is observed by the lenders (Valipour, Birjandi et

al. 2012).

Jensen (1986) made a case that lenders bound managers’ choices by limiting

the available resources for discretionary spending. Jensen (1986) also suggests

controlling debts and organizations struggle to gain more efficiency. Porter (1985)

recommends for cost leader firm to strictly observe the costs, avoid spending too

much on innovation or marketing activities and reduce prices while selling the

products. By making application of cost leadership strategy, a firm may utilize its cost

leadership status as a defence against its rival firms. Another benefit of following cost

leadership strategy may be that firm following cost leadership strategy may earn in

the times when the rival firms are operating their business at breakeven point or at

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loss. An organization holding cost leadership status may exercise its bargaining power

with its suppliers and may bring down the prices close to most efficient competitor.

The contributing factors to achievement of cost leadership status also put significant

entry barriers for new players like economies of scale or cost advantages etc.

A cost leader in an industry is also in better position compared to its rival

firms when a firm is competing its substitute products (Valipour, Birjandi et al. 2012).

An organization may make profit by keeping low profit margin per unit and by

pursuing cost leadership strategy (Palepu, Healy et al. 2008). Cost leadership strategy

helps an organization in making products standardized and in high number thus

helping the organization to bring their products at most competitive prices in market

among its rival firms (Valipour, Birjandi et al. 2012). Organizations operating their

business in emerging economies such as Brazil, India and China may achieve higher

financial performance because of low cost in R&D and manufacturing (Aulakh,

Rotate et al. 2000). With small disposable incomes, consumers in developing

countries prefer cost leader offering their products at low cost among the competitor

firms (Li and Li 2008).

Cost leadership strategy explained itself better on short term performance.

Cost efficiency is the requisite for the business pursuing cost leadership strategy and

the 2008 economic recessions validates it (Valipour, Birjandi et al. 2012). On the

other end, value added creation is needed to justify the economic stability of the

business(Valipour, Birjandi et al. 2012). If an organization is pursuing cost leadership

strategy, the improvements in financial leverage and dividend payments will enhance

its organizational performance (Valipour, Birjandi et al. 2012).

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2.5.4 Differentiation strategy

The other generic strategy given by Porter (1985) is differentiation. This

strategy’s basis is that the product or service offered is unique in different ways

valued by buyers. There may be many successful differentiators in the industry

differentiating their products or services in many different ways. Status of

differentiation may be achieved through many possible means, like features of

product being offered, the way it is marketed and the way it is delivered. When a firm

wants to be a differentiator, the number of possibilities are huge however, customers’

and competitors’ reactions are hard to predict, making the industry environment too

difficult to cope with (Lamont, Marlin et al. 1993). Firms successfully differentiating

their products or services from other firms’ products or services are able to charge

premium prices and gain superior profits. To sustain this competitive advantage the

resources and skill set that help in achieving differentiation should be hard to imitate

or replicate.

In comparison to cost leadership, there appears a high chance of differentiation

strategy to be sustainable, because a unique product or service is hard to be imitated

by the competitors (Grant 1991). A differentiation strategy developed around product

innovation is particularly hard to imitate; competitors may respond quickly to pricing

moves but they will take time to respond against innovation through R&D. R&D is

considered to develop technological capabilities of the firm which are hard to imitate

and can give competitive advantage to a firm in the long run (Coombs and Bierly

2006). If the firm is able to sustain advantage in the competition for a long term, its

opportunity to create another source of competitive advantage also enhances (Porter

1985). Firms with their focus on differentiation strategy work in close relationship

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with their customers, thus resulting in better performance of the firm (Graham and

Bansal 2007) and also developing a hard to imitate resource (Carter and Ruefli 2006).

Differentiation is considered as a vital strategy generally applied in all

industries (Beal and Yasai-Ardekani 2000) but there hasn’t been a lot of work in

understanding the relation between differentiation strategy and performance

(Campbell-Hunt 2000). According to Mintzberg (1988), differentiation may be

achieved by its six types, that are: quality, design, support, image, price and

undifferentiated product. Differentiation strategy is regarding the level of distinctive

products and services, providing competitive advantage (Porter 1985). Differentiation

may be achieved through any part of the value chain (Porter 1985). Differentiation is

a deliberate act of placing a firm in the market in reference to its competitors.

Differentiation is developed through price differences, perceived variations and other

services given with the product. When a company improves the performance of the

product without adding new features, then it is trying to compete in quality. When it

competes by adding new different features, it is trying to differentiate itself

extensively through design (Mintzberg 1988).

Differentiation and cost leadership are equally good strategies with regard to

performance (Porter 1980) but according to Hambrick (1983) differentiation strategy

leads an organization towards more profitability than cost leadership. The findings of

Peters, Waterman et al. (1982) are also in agreement with Hambrick (1983),

according to which high performing organizations are tilted more towards

differentiation than cost leadership. Pursuing differentiation may prevent

organizations from achieving high market share as differentiation is usually perceived

as unique or exceptional and that is contrary with high market share (Porter 1980). A

justification of the above argument is that differentiation is generally costly.

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Differentiation strategy may also lead to cost leadership, which is contrary to Porter

(1980). Hill (1988) reasons that in the advent of higher sales, economies of scale in

different areas of business and learning curve effects may make an organization,

already a differentiator, a cost leader also. This case that an organization can be both

a differentiator and a cost leader is also supported by (Pitelis and Taylor 1996).

According to Dess, Gupta et al. (1995), differentiation may be combined with cost

leadership to attain competitive advantage.

Number of studies recommend that many firms consider a differentiation

strategy as better than cost leadership strategy in particular industries and the

differentiation strategy has different methods to attain competitive advantage (Miller

1988, De 1989, Kotha and Orne 1989, Kotha and Vadlamani 1995, Baines and

Langfield-Smith 2003). Lillis (2002) made a case about further categorization of

differentiation strategy, such as differentiation by customer responsiveness,

differentiation by image management, differentiation by marketing. Globalization has

made the competition more intense with enhanced consumer demands (Baines and

Langfield-Smith 2003). Differentiation strategy helps organization in making

products of greater value and with the features that meets increased consumer

demands. Cost leadership strategy in comparison may not be suitable to meet varied

and enhanced consumer demands in the long run (Kotha and Vadlamani 1995, Perera,

Harrison et al. 1997). It is generally accepted that organization and its management

systems are aligned with the strategy of the business so as to gain advantage in the

competition (Miles, Snow et al. 1978, Porter 1980, Dent 1990, Simons 1990, Hoque

2004).

Management literature recommends a better connection between non-financial

measures and differentiation strategy in comparison to financial or efficiency based

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measures connection with differentiation strategy (Porter 1980, Perera, Harrison et al.

1997, Bisbe and Otley 2004, Hoque 2004). Focusing on differentiation strategies,

studies recommend that financial measures are not suited for creativity and innovation

required for a firm following differentiation strategy (Perera, Harrison et al. 1997,

Amabile 1998).

2.6 Organization learning

The concept of organization learning is known for some time and has been the

focus of attention of management, academicians and practitioners. Great awareness

about organization learning has been raised in the literature (Senge 1990). However,

promoters of organization learning often face significant resistance in situations where

top management confronts critical business pressures. Learning as a related

organizational process was introduced by (Argyris and Schon 1974). The emphasis

was given to organization learning and learning organization in the decade of 90’s. A

significant number of articles, case studies and books were written on this topic in

90’s. The Fifth Discipline: the art and practice of the learning organization (Senge

1990) presented a better and more realistic vision of organizations focusing on

learning to gain advantage namely the learning organization. Managers took learning

as an approach to enhance the performance of their organization, in early 2000.

Hussein, Mohamad et al. (2014) focused on organization learning by encouraging

resource allocation and efforts to inspire learning in the organization. Less interest

was shown by professionals and academicians, but still it appears as a key word in

publications from huge organizations.

Learning is an area of psychology. Its individual level perspective was

thoroughly studied by a number of researchers (Weiss 1990, Huczynski and Buchanan

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2001). Kolb (1984) took learning from individual to organizational level by finding

about the extent of learning done by people collectively in an organization. Learning

at individual level for an organization is quite an old concept. The application of

learning curve in working environment has been supported by past studies. Arrow

(1962) focused on ‘learning by doing’ to improve efficiency in manufacturing.

Organization development philosophers have focused on significance of learning for

organizations. However, organization learning is not just an individual learning in an

organization. It consists of learning and sharing of knowledge between workers.

Learning happens at an organizational level it is about the organizations that learn.

Argyris and Schon (1974) had the distinction of explaining the various levels

of learning, their importance for an organization’s life, and the conditions required for

organizational learning. Hedberg (1981) brought the idea of unlearning, identifying

the barriers to unlearn the previous approach. Brown and Duguid (1991) and Cook

and Yanow (1993) brought in a cultural side of organizational learning. According to

them, focusing on significance of people sharing knowledge and ideas between them,

and making that part of the organization atmosphere, is the core of organizational

learning. Two dimensions of learning exist in the literature, namely organizational

learning and learning organization. The organizational learning view point involves

interest in the learning processes in the organization whereby the learning

organization view point assisted organizations to improve learning and get advantage

from it. In the current study the focus was on organization learning, which has been

further discussed below.

Organization learning happens when the organization’s employees learn the

solution to a challenging problem. Organizations build up the most appropriate

learning process considering the requirements and attributes of their own (Helleloid

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and Simonin 1994). Generally, two kinds of learning are conversed in the literature in

which the first one is exploitative (March 1991). Exploitative is the attainment of

performance capabilities that are imminent. This kind of learning is single loop

learning (Argyris and Schön 1978, Argyris and Schön 1996). The other type of

learning is explorative learning which happens when organization attain performance

capabilities that very much differ from the ones which are imminent. Exploration is

around deviation, efficiency, effectiveness, and innovation (March 1991, Weick and

Westley 1996). The second type of organizational learning is known as double-loop

learning (Argyris and Schön 1978).

Both above mentioned types of learning are appropriate for different types of

organization structure. Exploitative learning is appropriate for mechanistic structures

where hierarchy is well defined and there is a wide use of rules and standard operating

procedures. Explorative learning is appropriate for organic structures where focus is

on teams, the work process is unpredictable, and there is a lot of verbal

communication (Rowley, Behrens et al. 2000, Hansen, Podolny et al. 2001).

Organization learning has been centre of attention for academicians and

practitioners because of improvements it brings to the organization. There are

significant contributions in area of organization learning from organization

development, management and strategy literature (Easterby-Smith 1997). In this

dynamic and competitive world, one of the important sources to maintain advantage

in the competition is to learn better and earlier than competitors (De Geus 1988).

Organization learning helps in developing harmony between organization strategy

culture and environment (Lien, Hung et al. 2007).

The importance of organization learning concept has also been witnessed in

business strategies literature. The dynamic environment of contemporary world forces

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organizations to change themselves accordingly to sustain them self in competitive

business environment. To manage change ahead of competitors it becomes necessary

for organizations to learn and develop favourable conditions for learning in

organization. According to Senge (1990), organization learning is the tool to stay

competitive in the industry. Changing policies frequently also slows down the

learning process. On the other end maintaining the existing state of issues and

hesitating to change current policies also does not help in foster learning. A balance

between the above two states on policy making appears helpful in enhanced learning.

Organizational learning occur when the potential behaviour of organization is

changed through processing of information (Huber 1991). Organization learning

involves knowledge acquisition, knowledge sharing, and knowledge utilization

(DiBella, Nevis et al. 1996). The model proposed by Huber (1991) gives importance

to knowledge acquisition, knowledge distribution, knowledge sharing and

organization memory, for this research four dimensions of OL have been considered

they are external knowledge acquisition, internal knowledge acquisition, knowledge

distribution and knowledge interpretation.

Viewing organization learning from knowledge management perspective,

researchers have made their arguments on creation, maintenance, diffusion and

experimentation of knowledge as means to organization learning (King and Marks

2008). Knowledge management helps in embedding knowledge into organizational

processes to make continuous improvements in organization. Thus improving its

knowledge utilization, organization absorbs knowledge and information through

organization learning. Learning and knowledge are the sources which may be

developed, influenced and exchanged (Marsick and Watkins 1999) and core of

organization abilities is dependent on its knowledge integration (Grant 1996). To

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achieve competitive advantage through organization learning is a long run activity

that requires continuous commitment and effort from management (Goh 1998).

Learning occurs through experiments in organization. When people are

encouraged to explore new ideas and take risks then organization learning occurs

(Watkins and Marsick 1993). Learning also occur by gathering information about

competitors (Ulrich, Jick et al. 1993, DiBella 1997) and by following best practices

around the industry (Garvin 1993) learning occurs by monitoring competitors plan of

actions, business processes, use of technology by means of corporate

intelligence(Huber 1991). Organization learning is a process to develop awareness

about qualities and the cost of experiences. McGill and Slocum (1993) focused on

adaptive learning as mangers should take actions and gain experiences that aim

toward organization goal and encourage people to those changes that fit the current

structure. Organizations protect knowledge and share it across its departments.

Understanding the knowledge makes worth of information and then knowledge is

shared and the shared understanding is developed (Dixon 1997). These shared

understanding or meaning of information is considered private if not known to people

from other organizations. Learning occurs by data observation, experiences, shared

understanding, developing beliefs and pursuing beliefs (Senge 1990).

Organization learning is a source for strategic restoration of an enterprise

(Crossan, Lane et al. 1999). Framework presented by Crossan, Lane et al. (1999)

constitutes of intuition, interpretation, integration and institutionalization. Learning

initiates when individuals start recognizing patterns through intuition, others come to

know about this individual experience through interaction. In the next phase a

common interpretation is developed via dialogue and actions termed as integration.

Repetition of organized actions develops routines that are known as

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institutionalization. Crossan, Lane et al. (1999) concludes that established routines are

at source developed by informal insights, individual interpretation, development of

shared understanding by interacting with others and recurring the actions to make

routines is explained as complete learning process. Institutionalization is a result of

interpreted experiences and events and is occured in the established organizations.

2.6.1 External knowledge acquisition

Organizations pursuing the acquisition of external knowledge in order to

improve its internal knowledge and achieve its goals can be viewed from different

dimensions. With the perspective of transaction cost theory, risks and costs attached

to a knowledge source justify the decision to acquire external knowledge. In this

direction, a firm uses external knowledge to decrease its costs, and this process may

take a long time, lasting for years (Tsai and Wang 2009). By making contracts,

businesses may enter in a new market and it may also allow them to obtain new

specialized technologies (Tsai and Wang 2009). The objective of attaining external

knowledge can be accomplished by hiring people from outside the organization with

particular expertise but on the other end it should be considered that knowledge may

out flow from the organization with employees switching to other organizations

(Møen 2000). Another way of acquiring external knowledge is making alliance with

other firms. Alliances are defined as contracts with other organizations to gain, add or

produce knowledge (Grant and Baden‐Fuller 2004). Such contracts are made with

competitors, suppliers, distributors, or universities (Hagedoorn and Duysters 2002).

Alliances with competitors carry the risk of transfer of sensitive knowledge by which

the firm can lose its competitive advantage. This risk is reduced when alliances are

made with universities, suppliers and distributors (Chen 2004).

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With the perspective of resource based view, external knowledge acquisition

must be considered by a firm as an investment rather than cost, in the long run it will

prove to be beneficial (Martín-de Castro, López-Sáez et al. 2011). When the external

knowledge is acquired through hiring professionals from other firms, it helps in the

development of internal knowledge, particularly when the knowledge is possessed in

the experience of professionals (Rosenkopf and Almeida 2003). Still some knowledge

is hard to attain for the reason that of its nature is implicit, but alliances may help in

achieving that knowledge. Such knowledge may include competencies, skills and

strategic information about the partner firm (Zhang and Baden‐Fuller 2010).

When an organization makes a decision of acquiring external knowledge it

must know the importance of the base of the internal knowledge it possesses (Lane,

Koka et al. 2006). For this purpose firms keep on spending on research and

development regardless of their dependence on partner firms. The goal is to generate

new knowledge inside the firm to develop capacity, so that it can absorb external

knowledge from other firms (Dahlander and Gann 2010). The need to understand the

importance of knowledge in contemporary world comes from the knowledge base

view of the firm which portrays an organization as warehouse of knowledge (Spender

1996). Through this approach a firm can achieve its competitive advantage, by

developing competency in creation and transfer of knowledge (Kogut and Zander

1996). Knowledge based view considers knowledge as an important strategic

resource. It is also considered as an addition to resource based view. Knowledge

based view also addresses level of coordination among employees and the

management role in transfer of knowledge. Transfer of knowledge is important,

within the firm and also between different firms (Grant 1996). The capability to

collect knowledge at one place from different sources is also important (Cohen and

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Levinthal 1990). Both transfer of knowledge and the collection of knowledge are key

factors to determine the most favourable decision to be made by the authority of the

firm.

For the purpose of achieving strategic capability, reconfiguration is an

important and critical factor in external knowledge acquisition (Lavie 2006).

Acquiring knowledge from external sources widens the knowledge base of the firm,

giving it the advantage to better understand the opportunities and threats. In addition,

it also gives approach to new markets and technologies (Danneels 2008, Narteh

2008). The benefits of acquiring knowledge from external sources are important in

high technology industries, where industries are characterized by bringing new

generation products into the market (Uotila, Maula et al. 2009). Primarily, there are

two sources of knowledge. The first one is when the firm explores the hidden

knowledge with in it and the second one is that when the firm explores new

knowledge, from the external environment outside its boundaries (Mu, Peng et al.

2008).

External knowledge acquisition and performance:

The benefits of acquiring knowledge from external sources are important in

high technology industries, where industries are characterized by bringing new

generation products into the market (Uotila, Maula et al. 2009). Acquiring knowledge

from the sources that are external to an organization widens the knowledge base of the

firm, giving it the advantage to better understand the opportunities and threats. In

addition, it also gives access to new markets and technologies (Danneels 2008, Narteh

2008) Knowledge based view considers knowledge as an important strategic resource.

It is also considered as an addition to resource based view. Transfer of knowledge is

important within the firm and also between different firms (Grant 1996).

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The capability to collect knowledge at one place from different sources is also

important (Cohen and Levinthal 1990). Knowledge transfer and the knowledge

collection are the key factors to determine the most favourable decision to be made by

the authority of the firm. For the said purpose, firms keep on spending on research

and development, regardless of their dependence on partner firms. The goal is to

generate new knowledge inside the firm in order to develop the capacity so that it can

absorb external knowledge from other firms (Dahlander and Gann 2010). The need to

understand the importance of knowledge in contemporary world comes from the

knowledge base view of the firm which portrays an organization as warehouse of

knowledge (Spender 1996). Through this approach a firm achieves its competitive

advantage, by developing competency in creation and transfer of knowledge (Kogut

and Zander 1996).

2.6.2 Internal knowledge acquisition

Internal knowledge acquisition is required to enhance the current capabilities

of the firm, whereas external knowledge acquisition allows the firm to create an

expansive knowledge base (Bierly and Chakrabarti 1996). In this regard, Lavie (2006)

describes a method for capability configuration which has three phases i.e. capability

evolution, substitution and transformation. Capability evolution is the addition in

learning through exploration of internal sources. Capability substitution is the

improvement of competencies through extreme learning from external environment,

including competitors, recently possessed firms and recently employed experts.

Transformation of the capability is considered as the firm’s capability of putting

together the internal and external learning.

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Internal knowledge acquisition and external knowledge acquisition are both

vital for firm’s successful learning process. However, there is a continuous need to

learn from external sources as it not possible for a firm to rely heavily on internal

sources. This situation creates a challenging task for organizations to explore learning

by integrating current knowledge base of the business with the contemporary external

knowledge, in the long run (Sirmon, Hitt et al. 2007). Rapid changes in the external

environment may obsolete the firm’s existing knowledge base, wearing away its lead

in competition (O’Reilly and Tushman 2008). To keep away from this scenario, firms

require to focus on explorative learning to reorganize its abilities base (Danneels

2008).

Internal knowledge acquisition and performance:

Internal knowledge acquisition is vital for successful learning process of an

organization, but it is not possible for an organization to completely rely on its

internal resources. The competitive and dynamic environment of the contemporary

world forces an organization to consistently learn from the external sources but this

does not mean that acquiring knowledge from the internal sources is not important. To

take advantage of the acquired knowledge from the internal sources, it is highly

important to successfully integrate the sources of internal knowledge with those of

external knowledge, as the fast changing external environment may outdate the firm’s

existing knowledge base (O’Reilly and Tushman 2008). Therefore, both external

knowledge acquisition and internal knowledge acquisition are necessary to

successfully enhance the capabilities of the firm, in order to gain competitive

advantage.

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2.6.3 Knowledge distribution

Knowledge distribution is transfer of knowledge from management to

employees (Paulin and Suneson 2012). One of the goals of knowledge distribution is

the growth of both the individuals and the organization (Spender 1996, Teece 1998).

There are various elements that need to be considered in order to enhance knowledge

distribution in the organization. These elements can be divided into three levels i.e. 1)

Organization level 2) individual level and 3) knowledge level. There are a number of

barriers in knowledge distribution at organization level. These barriers have been

identified as culture, technology, organization capability, and climate and social

structure (Cowan, Jonard et al. 2004, Rycroft 2007). The reasons for distributing

knowledge at an individual level are increasing the motivation of employees,

conveying a feeling of trust (Hsu, Ju et al. 2007), developing the capacity to absorb

(März, Friedrich-Nishio et al. 2006) and building outcome expectation (Hsu, Ju et al.

2007). Knowledge is a key success factor for an organization to maintain advantage in

a competitive environment (Davenport and Prusak 1998, Foss and Pedersen 2002). To

gain advantage in the competition it is important to hire employees having particular

skills, knowledge and abilities, and it is also of high importance that organizations

manage to distribute knowledge from professionals to learners who require to learn

(Hinds, Patterson et al. 2001).

One of the key objective of having knowledge management system is to

promote knowledge sharing in the organization (Hefke and Kleiner 2005). Knowledge

sharing holds a key position in knowledge management life cycle as it encourages

distribution of knowledge with in employees as well as stakeholders of the

organization. If members of the organization are unable to get the knowledge

developed or gathered then knowledge is of no help to the business. Knowledge

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demonstrate one of the key factor to develop sustainable competitive advantage but

in most of the organizations, the distribution of knowledge is uneven (Nissen 2006).

One of the most challenging tasks is the distribution of knowledge to the right people.

According to Probst, Romhardt et al. (2000), more than fifty per cent of the on-hand

intellectual capital is not utilized and in many cases important factors of knowledge

were possessed by very few people in the organization. Also acquiring the knowledge,

particularly tacit knowledge is very challenging as organization members may find it

hard to articulate the tacit knowledge in the way that it may be utilized by other

employees (Srikantaiah, Srikantaiah et al. 2000). Thus it is vital for organizations to

distribute knowledge to other employees and departments that they already know.

Many employees are not interested in sharing of knowledge they possess (Hendriks

1999). Three reasons have been identified by Winkelen (2004) for reluctance of

knowledge sharing are

The thinking that sharing their idea will reduce the chances of their promotion

in the firm.

Unwillingness to execute the idea of other will make them appear less capable

than other.

It motivates people to behave in the best way

Because of the above mentioned challenges Kochikar’s knowledge

management maturity model positions knowledge sharing at the upper most point of

knowledge management opportunity obtainable by an organization. This includes the

culture of sharing to be institutionalized where sharing turn out to be subsequent

nature of all the employees working in the organization. There are no boundaries in

organization and knowledge flows smoothly throughout the organization (Liebowitz

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and Yan 2004). Knowledge sharing may appear in different levels i.e. at individual

level, at team level or at organizational level (Argote and Ingram 2000).

Knowledge sharing in organization may appear in two types. First one is

synchronous process where people become source for transfer of knowledge and

information, the second one is asynchronous processes where intermediary

technologies become source of knowledge and information. Most of the organizations

support knowledge sharing by utilizing knowledge sharing technology that is

component of knowledge management system. Knowledge management is developed

by utilizing intranet, shared databases that encourages people in the organization to

share their ideas and involve themselves in discussions (Cabrera and Cabrera 2002).

Knowledge sharing must be embedded in organizational structure to develop into

successful culture that promote knowledge sharing over knowledge acquisition such

culture will develop an environment that is more supportive to leverage knowledge

(David and Fahey 2000). When knowledge sharing activities are embedded in

business processes, it may result in superior knowledge management abilities

(Kulkarni and Freeze 2011). Knowledge sharing in contemporary world is important

because of growth share of global trade which has been transferred from products of

manufacturing economy to intangible ideas, processes of service economy.

Continuous innovation appears to be sustainable source of competitive advantage

which is highly dependent on application of knowledge. There is increasing rate of

employee turnover; people take away the knowledge with them when they leave the

organization. Large organizations or organizations operating in different regions of

the world don’t know about how much and what kind of knowledge they possess.

Knowledge possessed by a unit of organization in one region is not leverage by other

units of the organization.

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A strong link between knowledge sharing and organization ability to innovate

was found by Svetlik, Stavrou-Costea et al. (2007). They also identified knowledge

usefulness, management backing and enjoyment in helping others as key drivers of

knowledge sharing processes. Employee readiness to share and gather knowledge

enhances organization’s capability to innovate (Svetlik, Stavrou-Costea et al. 2007).

To ensure the appropriate execution of knowledge sharing, knowledge sharing should

take place at individual level, team level and business unit level.

Knowledge sharing measurement has been a challenging task for the

organization because of its intangible and complex nature (Huysman and De Wit

2002, Kulkarni and Freeze 2011). However when organization develops metrics to

successfully evaluate knowledge sharing in an organization, then it helps organization

in tracking how successfully it has implemented knowledge sharing and what is its

return on investments made in this area (Vestal 2002). Number of researchers have

categorized knowledge sharing in three categories, the three types include

infrastructure, knowledge sharing processes and knowledge sharing culture in an

organization (Huysman and De Wit 2002, Kulkarni and Freeze 2011). Technological

infrastructure includes knowledge storage areas, centres of knowledge and practicing

communities that links the knowledge of the employees in the organization

(Liebowitz 2008). While technology helps in identifying components of the

knowledge life cycle, process integration is ensured by participation in activities that

are linked to knowledge management. Also organization culture determines to what

extent knowledge may be shared (Kulkarni and Freeze 2011). These three

components have helped the organizations in developing few standardized

measurements comprising of system inputs, community practice activities,

information and success stories from other organizations (Vestal 2002). Also the other

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means to promote knowledge sharing are fairs and workshops on knowledge, mentor

programs and knowledge databases to encourage knowledge exchange and creation of

new ways to evaluate activities of knowledge sharing (Liebowitz 2008).

Organizations continuously face the challenge to measure knowledge sharing

activities, particularly linked to knowledge sharing culture as knowledge assets are of

intangible nature (Vestal 2002, Liebowitz 2008). Organizations whose objective is to

stay proactive in the environment highly depend on innovation for continuous

improvements (Azzone and Noci 1998, Porter and Linde 1999). Knowledge

management through effective utilization of knowledge sharing has positive impact

on innovation activities which aids in gaining competitive advantage (David and

Fahey 2000, Darroch 2005, Kulkarni and Freeze 2011). Knowledge sharing has also

been positively linked to efficiency of the organization and reduces the risks that an

organization may be facing (Von Krogh, Ichijo et al. 2000).

Learning organizations continuously possess and distribute the knowledge

about market place, products, skills and business processes (Slater 1995). No

reduction takes place when knowledge is shared with others (Hejduk 2005).

Professionals believe that when knowledge is shared, it keeps itself with knowledge

provider and also creates new components obtained during the learning period.

Knowledge act together with information to improve the gap for possibilities and

develops new information which may help in new knowledge generation (Varun

Grover 2001).

The dissimilarities between physical assets and knowledge assets were

described by (McKenzie and Van Winkelen 2004) as physical assets are scarce and

have real value, are scarce because of limited supply, reduced when they are used and

can only be utilized by the owner. In comparison knowledge assets have value but

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they are not limited, their supply is unending, they increase multi-fold when they are

utilized and they may be accessible to all concurrently. The characteristics of

knowledge resources are in connection with creation of unique resources that helps

organization in gaining competitive advantage when leveraged appropriately

(Jackson, Chuang et al. 2006).

Knowledge distribution among the employees and the teams helps to exploit

knowledge based resources possessed by an organization (Cabrera and Cabrera 2005).

A study reveals that knowledge distribution positively impacts reduced production

cost, improved process efficiency and organization performance (Collins and Smith

2006, Mesmer-Magnus and DeChurch 2009). Support by management to distribute

knowledge positively impacts the employee perception of knowledge sharing culture

(Lin 2007). Management support impacts level of knowledge distribution among

employees by controlling employee commitment to knowledge management (King

and Marks 2008). The social ties among employees can smooth the process of

knowledge distribution and improve the information quality received. (Cross and

Cummings 2004) findings on web based communities reveals that number of

relationship with other persons positively impacts the quantity of knowledge shared

(Chiu, Hsu et al. 2006). Studies on knowledge distribution emphasize on relationships

and findings suggest that network connections helps in the knowledge distribution

(Kankanhalli, Tan et al. 2005).

Knowledge distribution and performance:

Knowledge distribution is considered as an important driver to enhance

knowledge and innovation (Jackson, Chuang et al. 2006). To utilize the knowledge

base possessed by an organization, it is vital to distribute that knowledge among

employees. Distributing knowledge among employees may bring benefits like

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reduction in production costs, improved processes and improved organization

performance (Mesmer-Magnus and DeChurch 2009). Management’s determination

and support to distribute knowledge among employees is of high importance in the

development of knowledge distribution culture in the organization.

Researchers and professionals have both focused on importance of

organization’s capability to smoothing the progress of knowledge distribution as

important for organizational effectiveness (Nonaka and Takeuchi 1995, Bock and

Kim 2001). Particularly in distributed organizations of contemporary world,

organization effectiveness depends quality of knowledge distribution among teams

(Argote and Ingram 2000, Alavi and Leidner 2001). There is growing evidence on

organization productivity when organizations successfully develop the environment

which facilitates knowledge distribution among potential providers and receivers of

knowledge (Baum and Ingram 1998). Researchers from different field of studies have

focused on knowledge distribution connection with organization effectiveness.

Knowledge management has been studied at organization level by organization

learning and strategy researchers (Nonaka and Takeuchi 1995, Spender 1996).

Researchers in the field of organization design and information technology have taken

organizations as system that facilitate exchange of knowledge (Alavi and Leidner

2001). Researchers belonging to field of organizational behaviour have focused on

interpersonal issues and function of group dynamics in knowledge management

(Bartol and Srivastava 2002).

2.6.4 Knowledge interpretation

According to the study i.e. (Daft and Weick 1984), a process to sort,

categorize and giving meaning to information is known as knowledge interpretation.

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The critical issue in this area is the identification of the receptor that interacts with the

environment. Getting information within organization and its external environment

then filtering the relevant information and then bringing it in the mode so that choices

can be made. Knowledge interpretation is a critical element as organization must find

smart and efficient ways to know the environment (Daft and Weick 1984). Giving

meaning to information is known as interpretation. Interpretation encourages sharing

knowledge among employees which is not available to other employees. Gaining

knowledge through this channel promotes shared understanding and organized

decision making (Pérez López, Manuel Montes Peón et al. 2004)

Knowledge interpretation and performance:

Transferring the knowledge which is not common to other employees may

lead to better organizational performance. Knowing the environment is an important

factor to work in efficient way in contemporary world organizations. A study (Huber

1991) argues that organization learning occurs when a common interpretation about

knowledge is developed or when varied interpretation about knowledge is developed

across different units of organization. According to Huber (1991) more learning

occurs when varied interpretation is developed by different units of the organization

thus appear to lead towards better organizational performance.

2.7 Organization strategy and organization learning

According to the resource based theory, organization’s abilities and resources

are the source of plan of its competitive business strategies (Hunt and Morgan 1995).

Competitive business strategies bring into line the link between organization’s

external environment and its own resources and abilities (Grant 1991). To gain

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advantage in the competition through competitive strategies, organization’s must have

valuable, rare, inimitable, and non-substitutable abilities and resources (Barney and

Wright 1997). Organization learning is a valuable ability as it can assist in exploiting

opportunities and reduce the impact of threat, causing advantage in a competitive

environment (Hult, Ketchen et al. 2003). Organization learning helps to deeply

understand the macro and micro environment in which the firm is operating, so it can

more efficiently satisfy customer’s needs and enhance the effectiveness of this

process (Day 1994, Sinkula 1994). Organizational learning is difficult to develop,

since it requires generation of new knowledge which then leads to adoption of that

new knowledge (Huber 1991). It is not possessed by a lot of firms; therefore it is rare

(Slater 1995). Organization learning’s imitation or transfer is not easy as it is based on

organization processes and it is intangible. The current study has analyzed Generic

Strategies of Porter. Although Porter did not allow the use of differentiation and low

cost strategies in parallel (Porter 1985)who later accepted that businesses have

introduced ways of reducing costs while enhancing the level of differentiation. The

present research has put an endeavour to find the effect of organization’s generic

strategy on organization learning, also in cases where generic strategies are applied in

parallel.

Organization learning positions itself as a very important process in strategy’s

literature. Organization learning is considered as a strategic capability to gain

advantage in severe competition (Smith 1996). Balance score card, a popular tool to

measure performance and strategy, also contains the learning perspective (Kaplan and

Norton 1996). One of the key aims of balance score card is to develop a learning

organization. Employee’s capabilities, information system capabilities, motivation,

and empowerment are considered as important drivers of organization learning

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(Kaplan and Norton 1996). Learning also facilitates organizations in alignment of

intangible assets, people, technology and culture. Learning also helps in finding

variations from goals and causes of variations and in deciding the corrective action

(Kaplan and Norton 2006). Organization learning modifies the processes, procedures,

and activities by improving the performance of employees. Knowledge is a critical

resource (Drucker 1995) and knowledge is applied in processes, resulting in

efficiency and effectiveness. Thus knowledge is a resource of high importance and it

should be guarded from competitors (Bloodgood 2009).

Two factors mainly drive organization learning, first it may be reaction to

changes in the environment, and secondly it may be a requirement to achieve a

particular objective. The above two factors of organization learning may be mutually

independent or they may be dependent on one another interactively (Astley and Van

de Ven 1983). Environment force an organization to learn and it lessens the human

choice to simple react positively to environmental change (Bourgeois 1984).

Organizations are designed in a way that it automatically reflects to the complexity of

the environments and therefore may be acknowledged as a modus of environment

(Bourgeois 1984). As a modus of environment the number of choices a firm may have

to react to environmental changes become limited (Thompson 1967). The alternate

approach to environmental determinism is the strategic choice. From this perspective,

management becomes autonomous up to some extent regarding the selection of the

domain and industry, thus allowing the managers to respond to changes (Bourgeois

1984, Grandori 1997). Enactment of environment is generally considered as selection

or modification of environment and actions of the organization which causes changes

in the environment (Grandori 1997). There are limitations to existing alternative to the

strategic choice concept (Lado, Boyd et al. 1992). The limitations of strategic choice

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may be trumped by developing the concept of strategic choice (Lado, Boyd et al.

1992). Strategic selection is viewed as proactive position of top management.

Strategic choice and environmental determinism interact in four different

combinations (Hrebiniak and Joyce 1985). Minimum choice is where organization has

almost no control over environmental factors and just reacts and adopts according to

environmental changes. Differentiated choice is relation of organization with

environment in which organization have the power to influence through its choices.

Maximum choice is the scenario where organization is highly autonomous regarding

its behavior and decision making. Incremental choice is scenario where despite the

low impact of environment forces, organization has low level of autonomy in its

behavior and decision processes. Motivation and desire for change is provided by

environmental determinism and strategic choice. In the literature of strategic

management environmental determinism is utilized in industry organization approach

and strategic choice is utilized in resource bas theory approach. Analyzing the key

drivers of success for the organization has been a key area of research for the

researchers (Curado 2006). Organization learning has gained attention because of its

potential to bring competitive advantage to an organization (Bontis, Crossan et al.

2002). There is plenty of literature on strategy and organization learning, but both

have hardly been integrated in literature (Crossan and Berdrow 2003). Explanation of

integration required that how different strategies promote the process of organization

learning with its dimensions.

2.8 Organization learning and organization performance

There had been an extensive increase in the organizational learning literature

in 1990s (Bapuji and Crossan 2004). In spite of tremendous growth in the popularity

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of organization learning, very less empirical work has been done in this area (Tsang

1997, Dyck, Starke et al. 2005). There are a number of studies which give an idea of

cultures which encourage organizational learning, that has enhancing learning at

individual level, team level and organizational level and as a result performance of the

organizational has improved (Ellinger, Ellinger et al. 2002, Egan, Yang et al. 2004).

When the organizational learning enhances, the actual output through increased

knowledge capacity enhances innovation performance (Mansfield 1983). The

absorption and incorporation of internal information is increased through the learning

aptitude of the employees (Cohen and Levinthal 1990). The learning capability of

employees also develops organization’s capability to gain knowledge, and advance

innovation endeavour, competence, efficiency and effectiveness (Dodgson 1993).

The notion of organization learning has been examined for decades and

growth is seen in its literature base conceptually, theoretically and up to some extent

empirically (Lipshitz, Popper et al. 2002), there are very low number of studies that

have explored the connection between organization learning and its outcomes. Pérez

López, Manuel Montes Peón et al. (2005) has indicated towards the connection

between organization learning and innovation performance but there has been little

evidence empirically also there has been not a lot of research on learning processes

(Bapuji and Crossan 2004). Most of the research is focused on theoretical side of

organization learning (Saru 2005).

Vince, Sutcliffe et al. (2002) have admitted that due to complex process of

learning and with many potential levels to be explored. It is hard to build up

quantitative measure for organization learning. (Bontis, Crossan et al. 2002) have

accepted that there is conceptual connection between organization learning and

performance in literature. Researchers have explored the correlation between business

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performance and organization learning for example (Hult 1998) identified that the

organization learning strategy driven by market facilitate business in improving

customer loyalty and contentment. Moreover, positive impact has been explored by

Hult, Hurley et al. (2000) of organization learning on information processing of

purchases. This research aims to keep organizational learning as a mediator variable

to describe organization performance. The superiority of an organization based on

activities, skills and resources results in competitive advantage of the organization

(Day and Wensley 1988). Thus the skills, activities and resources possessed by an

organization demonstrate the possible capability of an organization that it may do

better than its rival firm in an industry.

Encouraging learning by developing connections with external stakeholders

has a positive impact on product and process innovation (Rothaermel and Deeds

2004). Organizations which focus on learning can analyze external environment to

identify new models of technology that causes innovation (Baker and Sinkula 1999).

Developing solutions for the problems is a process of learning that combines

knowledge of different types and provides foundation for creating knowledge

(Argyris and Schön 1978). Acquisition of new knowledge has been identified as the

prime source of innovation (Nonaka and Takeuchi 1995, Teece, Pisano et al. 1997).

When there is flow of knowledge and organizations use the current knowledge to

create ideas, consequently creativity accelerates (Davenport and Prusak 1998). A few

researches show a positive impact of new knowledge creation on organization

performance (Bontis, Crossan et al. 2002, Tippins and Sohi 2003)). This research

suggests organization learning enhances organization performance.

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2.9 Innovation

Generating, acknowledging and bringing into practice of novel ideas,

products or services process is called as innovation (Thompson 1965). A new product

or process to the business aiming to enhance profit is known as innovation (Wong,

Tjosvold et al. 2009). Damanpour (1996) considers innovation as a cause of

organizational change in reaction to competitive environment faced by an

organization. Innovation is introduced through processes, ideas or products so that the

organization can make a difference in society at large (West and Farr 1990). The unit

of adaptation highlights the teams or department which will benefit the most from

innovation. We can divide this definition into two parts. Firstly, every innovation

attempt is deliberate, however not every innovation proves to be a commercial

success. Secondly, innovation is something which carries its own value (Wijnberg

2004). If we talk about it from a learning perspective only thing that matters the most

is the learning intention. Certainly, even if the exercise of innovating something new

is not successful the underlining point is that one has done the exercise and that itself

is of great value. The aspect important in present research is that whether on

innovating something new, that innovation already exists or not, but if someone else

is innovating something which is new for him, it is certainly a great learning exercise,

and same goes to the beneficiaries of the innovation or 'adopts' in terms of (West and

Farr 1990).

The process of carrying new innovation by the organizations is called more of

a process of adaptation rather than the process of innovation. To portray the variety of

the description of innovation and to push the scenario for the progress of an

incorporated description, a small number of instances of definitions of innovation

have been given below that would also highlight different features of innovation.

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Thompson (1965) described innovation as creation, recognition and execution of

novel thoughts, methods, products or services. A related explanation of innovation

was suggested lately by West and Anderson (1996) and cited lately by Wong,

Tjosvold et al. (2009). Innovation may be described as the execution of methods and

products that are new to the business and they intend to profit the organization and its

stakeholders. Further, Kimberly (1981) classify innovation from a distinctive

viewpoint which accepts different types of innovation i.e. there are three phases of

innovation which are process innovation, product innovation or services innovation

and innovation as a trait of firms. Few researchers put stress on the level of novelty.

For instance, Van de Ven (1986) affirm that, as far as the concept is recognized as

novel to the stakeholders, it may seem as imitation to the world of some other product

or service at some other place but it is considered as an innovation. Novelty is also

linked with change. Damanpour (1996) provides a thorough explanation of

innovation, that is frequently stated as under:

Innovation is considered as a source of change in a firm, either as a reaction to

the changing external environment or as an anticipatory act to have effect on the

environment. Innovation includes a variety of forms, comprising new product or

service, new process expertise, new organization configuration or management

systems, or new plans for the stakeholders of the organization. Disparities in the

description of innovation arise from different disciplines. For instance in knowledge

management, the focal point is knowledge being fundamental for innovation or kinds

of innovation. Du Plessis (2007) describes innovation as the formation of new facts,

data and concepts to smooth the progress of new organizational outcomes, with the

purpose to develop organization’s processes and structures and to develop market

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driven products and services. Innovation covers both radical and incremental

innovation.

From technology perspective of innovation, the focal point is innovation as a

product linked to new technology (Nord and Tucker 1987). Scholastic sense about

innovation is noticeable from 1928 Schumpeter’s influential effort on the instability of

capitalism, that emphasized innovation in the role of key factor to drive capitalism.

From there on the succeeding researchers, the studies (Abernathy and Clark 1985,

Damanpour 1991, Tidd, Pavitt et al. 2001) employed the background of economic

units to discover the idea of innovation, and have encouraged the suggestion that

innovation directly impacts the organizational performance. In general, innovation

offer sources to organizations to familiarize themselves to the dynamic environment

(Greve 2007) and these sources are usually significant for organization’s prolonged

existence and accomplishments.

The subject of innovation is large and multifaceted within its different aspects

(Damanpour 1991). The organisation structure literature concentrates mainly on the

connection between structural forms and the organizational success in the area of

innovation (Kimberly and Evanisko 1981). With the earlier mentioned point of view,

the organization is considered as unit of analysis, and the prime objective of the

researcher is to recognize and find out the structural traits that have an influence on

organisation innovation. On the other end, researchers in the field of organisational

learning (Argyris and Schön 1978, Baker and Sinkula 1999) inclined to concentrate

on how businesses generate novel ideas to resolve problems. They believe that

innovation is linked with the learning. Research focus on new organizational shapes

to improve the innovativeness level of the organization (Hannan and Freeman 1984).

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The capability that innovation management build up over time and has got to

engage in the process of continuous learning (Craig and Moores 2006). Scholars

consider innovation as an active method or process in which knowledge and abilities

are building up because of learning and communication. The word innovation appears

from Latin, stand for creating something new (Tidd, Pavitt et al. 2001). As a matter of

fact, the concept of novelty is incorporated in some appearance in all definition

creation, recognition, and execution of new concepts, products or services and

processes. According to Rogers (1998) innovation is the implementation of novel

ideas into the product, service, process or any other feature of an organization’s

actions. According to Drucker (2002), innovation is a particular work of

entrepreneurship, the methods which helps the entrepreneur in either generating new

wealth creating resources or utilize existing resources with improved capabilities for

wealth creation. According to Dibrell, Davis et al. (2008), the innovations differ in

intricacy and may vary from small changes in existing products or processes to

revolutionary products and processes that bring in outstanding performance. In

general, these definitions highlight that innovation comes with newness and may have

different types, for instance innovation may be in products or services, in management

and in processes. Though the term “new” or “improved” are contextual for the

organizations as far as the concept of innovation is concerned, the scenario may be

that a process new to one organization may not essentially be new to another

organization; for that reason it is quite possible that the innovation levels or

innovation itself may be considered differently in two different organizations. This

reflection highlights the level of intricacy linked with the term innovation.

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2.9.1 Technical definitions

In addition to the definitions of innovations from theoretical perspective,

investigation of the definitions of innovation from technological perspective, assists

us in recognizing, how different organizations consider innovation for crafting their

strategies and for managerial reasons. In this scenario, the (OECD) definition of

innovation is extensively used in measuring innovative projects in the OECD

countries. The OCED divides innovation into its four types which are as under:

Product innovation

Process innovation

Marketing innovation

Management Innovation

Product innovation is the bringing of a new service or good that is appreciably

enhanced as far as its features are concerned. These incorporate notable developments

in technological requirements, parts, built-in software, or different other operational

features. Process innovation passes on to the execution of a new or considerably

enhanced manufacturing or delivery approach. This consists of considerable

modifications in methods, hardware and/or software. The process innovation

objective may be to reduce production or delivery expense, to improve quality of the

product or service. Marketing innovation is the execution of a novel method of

marketing, including major modifications in packaging or design of the product,

placement of the product, promotion or pricing of the product. Management

innovation relates to the execution of a new management method in the organization’s

business routines or new management methods in dealing with external stakeholders.

The definition of innovation given by The Business Council of Australia

(BCA) is ‘developing new things or doing new thing or doing old things in new and

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improved ways, taking into account, knowledge, creativity and cooperation, that

eventually add value to products or services and process’. Even though organizations

have described innovation in different perspectives a common theme in these

definitions is the concept of developing new and improved products, services or

processes. Study (Hsueh and Tu 2004) identified a positive link between innovation

and profits. A study conducted on small business owners in Indiana explored a

positive outcome of innovation on firm performance even in adverse environment

(Wright, Palmer et al. 2004). Chang, Memili et al. (2011) analyzed 500 fast growing

businesses and identified that firms applying incremental or radical innovations

displayed better sales than the firm which offer products similar to their competitors

in current markets. Stenholm (2011) also showed a positive connection between

innovation and sales growth rate. The critical asset for small and medium enterprise is

its distinctive competence which helps in exploiting opportunities and maximizing

return on investment (Newton, Gilinsky et al. 2015). The findings of Couderc, Viviani

et al. (2010) were that only the large organizations strive for cost leadership while

SMEs focus on differentiation strategy. SMEs in United States of America in wine

industry developed their differentiated strengths to compete the rival firms, the

strengths were quality control through vertical integration and extension in access to

customers through direct channels (Williamson and Zeng 2009).

There is a distinction between gradual improvement and radical innovation.

Studies (Tidd, Bessant et al. 1998, Francis and Bessant 2005) have advocated the

perspective that there are different forms of innovation, in terms of their degree. It is

more of a continuum, where incremental innovation is on one side of the spectrum

and radical innovation is on the other side of the spectrum. There are also some other

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degrees of radicalism which are radical innovation, reorientation and routine

innovations, and also ultimate and instrumental innovations (Damanpour 1991).

The contemporary research is of the view that there are two types of

innovations, gradual and radical in line with (Walz and Bertels 1995). Gradual

improvement process is created by employing things and making a combination

which already exists, whereas, radical improvements include things which are not

from the past but are entirely new. This distinction helps us in understanding that both

perspectives require a different set of learning process. Gradual learning involves

productive imitation, whereas, radical innovation is more inclined towards creative

learning. The choice of approach depends upon the organization as to what kind of

problem they are facing and which process is preferred by the employees (Kirton

2004). There are different types of cognitive styles used by employees with respect to

problem solving. They vary from highly adaptive to highly creative. Employees with

adoptive attitude prefer a more structured frame work, whereas, the innovators don’t

require that. This division is not absolute; it can vary because of the different

experiences employees have gone through.

Innovation, at a collective level, stand for the successful utilization of ideas

(Damanpour 1992, Johannessen, Olsen et al. 2001) as a result, the emphasis on

novelty, innovation add in level of ambiguity and risk-taking up to some extent. This

level of ambiguity, uncertainty and risk taking is not similar across all the innovation

activities. Scholars have classified innovation in a wide range, these include

evolutionary, modular, architectural, radical, incremental, innovative imitations

(Garcia and Calantone 2002). Among the above mentioned taxonomies of innovation,

radical and incremental innovation has been widely discussed in the literature

(Meyers and Tucker 1989, Henderson and Clark 1990, Chandy and Tellis 2000).

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Marketing innovation has been considered as a kind of incremental innovation

(Grewal and Tansuhaj 2001). Number of studies recommends that organizations

should focus on explorative and exploitative innovation in parallel and should made

attempts to strike the balance between these two types (Benner and Tushman 2003,

He and Wong 2004). An organization should maintain adequate income sources for

short term, on the other end it should maintain its competitive strength for the long

term. When there is excessive focus on exploratory innovation then organization may

waste its resources and income, on the other end when there is excessive focus on

exploitative type of innovation, it may risk organization growth in long term and may

bring rigidity and myopic views in the organization. It has been reasoned that

categorizing innovation into its types is essential to get know how of organizations’

behavior and finding out the stimulators of innovation (Damanpour 1991). In near the

beginning literature of innovation, Study (Schumpeter 1934) drew five groupings of

innovation: (a) bringing of a new product or a development to a current product (b)

bringing a new process or an enhancement to a current process (c) a new market

opening (d) creating new sources of supply for inputs, and (e) formation of a firm

holding monopoly or a modification in management structure. Studies (Abernathy and

Clark 1985) have categorized innovation in four separate types: (a) architectural –

new expertise that are different from well-known production systems and sequentially

opens up new associations to markets and consumers, traits of the development of

new industries in addition to the renovation of old ones, (b) niche – utilizing the

current technology to unlocking new market opportunities (c) regular – connecting

change that develops on recognized technical and production expertise and

application is made to current markets and consumers and (d) revolutionary –

innovations inclined to upset or outdate current models or technologies in an industry.

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Study (Tidd, Pavitt et al. 2001) classified innovation into its three types: (a)

transformational - when an institute does something that is primarily distinctive,

making application of revolutionary technology or processes to revolutionize the

organization (b) radical - converting the association between consumers and

suppliers, reforming economics of the marketplace, relocating existing products and

developing completely novel categories of the product (Salomo, Gemünden et al.

2007) and (c) incremental - when regular technology is employed in new ways, to

make improvements in the processes or when top existing technologies are employed

in new ways, introducing improved products or services by paying attention to clients.

From Schumpeter’s viewpoint, radical innovation develops main upsetting changes,

on the other end incremental innovation continually progresses the process of change.

The change through innovation is presented by Tidd, Pavitt et al. (2001) and it

is established on two types: the first one is the provision of products or services by an

organization, and the other one is bringing the change in the process of product

development and delivery. Damanpour (1991) is of the view that among number of

innovation frameworks presented in the literature, three of them have drew most

attention, these frameworks are: (a) administrative and technical, (b) product and

process and (c) radical and incremental. While an administrative innovation links to

administration leaning processes for instance organizational structure, human resource

management and a technological innovation is linked to the process for producing the

product by employing new or advance technology. Product innovations are outcome

of the business. A process innovation supports the business to make products or

deliver services in smart and efficient ways. On a scale, innovation may be portrayed

from incremental to radical, considering the level of variation needed to execute the

innovation.

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March (1991) defined exploratory and exploitive innovation, exploration was

defined as ‘investigate, deviation, risk-taking, carrying out tests, engage in recreation,

flexibility, finding, and innovation’ and exploitation was defined as ‘modification,

variety, production, efficiency, assortment, execution and implementation.

Establishing on preceding research, kinds of innovation are conceptualised as

exploration and exploitation: first one is exploratory innovation and it is among one of

kinds of radical innovation and it needs new knowledge from existing knowledge to

satisfy the requirements of developing markets and consumers (Levinthal and March

1993, Benner and Tushman 2002). In comparison, second one is exploitative

innovation, exploitative innovation is kind of incremental innovation that strengthens

knowledge currently hold by the organization, exploitative innovation also

strengthens the capabilities, products, and processes to satisfy requirements of

markets and clients (Abernathy and Clark 1985, Danneels 2002, Benner and Tushman

2003). The above mentioned two kinds of innovation are conceptualized as opposite

sides of scale (Zehir, Can et al. 2015). An organization should choose between

exerting more stress on either exploration or exploitation activities, as both types of

activities are opposite to each other and need scarce organization’s R &D resources.

Number of current studies relating to innovation have taken into account exploration

and exploitation activities as a continuum (Levinthal and Posen 2008, Wang and Li

2008, Uotila, Maula et al. 2009, Yamakawa, Yang et al. 2011).

Maintaining balance between firm’s explorative and exploitative activities, it

could be argued that an organization may easily engage in achieving performance in

short-term because of exploitative innovation by taking measures such as lowering the

risk and improving competence. On the other end if an organization put more

emphasis on exploitative innovation, it may lessen its capabilities to discover and

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avail new opportunities and react to radical changes of fast changing environment of

contemporary world (Ahuja and Morris Lampert 2001, Raisch and Birkinshaw 2008).

Thus it may be inferred that an organization’s short term measure to gain performance

may threatens its long term performance and existence. Organization over emphasis

on exploitative activities may to lead to rigidity of organization. Thus an organization

overly focusing on exploitative activities may become vulnerable to fast changing

external environment.

An organization need to improve its capabilities to react to fast changing

external environment and lessen the risk of obsolescence. An organization may

smooth the progress of creating new knowledge and technologies by involving itself

in exploratory innovation activities (Uotila, Maula et al. 2009). In comparison

explorative activities are more risky and uncertain than exploitative innovation

activities (March 1991). An over emphasis of the organization on explorative

activities may lead an organization towards a dead end where there are countless

cycles of searches and changes without any reward (Levinthal and March 1993). In

this scenario, March (1991) is of the view that organisations requires to strike a

suitable balance between explorative and exploitative innovation activities for their

existence and long term competitive advantage. Numbers of researchers have drawn

their attention on the advantages of striking an appropriate balance between

explorative and exploitative activities of an organization (Cottrell and Nault 2004,

Uotila, Maula et al. 2009, Kim and Huh 2014).

Organization’s external and internal conditions may be the determinants of the

firms balance between explorative and exploitative activities. Over emphasis on

explorative activities have negative impact on organization performance in dynamic

environment (Wang and Li 2008). Several studies in this area have taken into account

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number of factors as moderators, the moderators were competitive intensity in the

industry(Auh and Menguc 2005, Jansen, Van Den Bosch et al. 2006), absorptive

capacity (Rothaermel and Alexandre 2009) and market orientation (Kyriakopoulos

and Moorman 2004), by considering unforeseen events to highlight the usefulness of

organizations’ exploration and exploitation innovation activities in different scenarios

(Raisch and Birkinshaw 2008).

The notion that all innovations happen in a lab and by technical experts is

wrong and undermines the real life innovation (Jacobs and Brand 2007). Jansen, Van

Den Bosch et al. (2006) found in their study a fascinating insight that only 25% of

innovation is determined by technical knowledge. The rest 75% comes from changes

in management styles and organizational structure, because of this innovation can be

termed as both technical and administrative (Damanpour 1991). Technical innovation

deals with product, services and production process technology only. Administrative

innovation is all about changes in the structure of organizations. This leads to a broad

distinction of innovative product, services and production process technology. The

things which are created through technical and administrative innovative procedures

are new innovations which are created to meet an external need (Damanpour 1991).

Process innovation is a new way of organizations to create innovations. Although

innovations give us great financial reward, the thing of much greater value is the

innovator who innovate such things or processes. Since meta-cognitive skill is

important for innovation, applying meta-cognitive skills in an innovation process may

lead to new future innovations.

In this regard, Cohen and Levinthal (1990) talks about the capacity of

organizations and individuals to learn. It refers to absorbing new information,

articulating it and knowing the practical application of that information. In a nutshell,

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all these skills are innovative capabilities. According to Cohen and Levinthal (1990),

these traits are closely linked with the past knowledge, that includes both social and

technical knowledge. This indicates that more the information a person has easier it is

for him to innovate or apply that information in new situations. This proves the notion

that participation in an innovation process helps a person to innovate in the future.

Furthermore, the ability of learning and adaptation will also enhance. In order to

operationalize the said variable, it includes three main dimensions that is marketing

innovation, process innovation and management innovation (Atalay, Anafarta et al.

2013).

From the late 2007, the global economy went into economic crisis with a slow

recovery in late 2009. This economic crisis led many organizations to consider the

restructuring of the organizations for efficiencies and optimizations. This economic

crisis led to crisis in industries, the crisis in industries led economy into deeper crisis.

The economic crisis literature considers the requirement for better management for

survival of the organizations(Champion 1999, Goad 1999). Resource based point of

view focus on organizational capabilities and resources that an organization may

employ to manage itself in economic crisis and deliver better organizational

performance (Dickson 1992, Grewal and Tansuhaj 2001). The capability of an

organization to innovate has been considered as a critical skill that differentiate an

organization which does far better than its competitors (O'connor and Rice 2001,

Danneels 2002). Numbers of factors stimulate innovation in an organization

(Damanpour 1991) containing both internal and external environmental factors (Kim

1980, Kimberly and Evanisko 1981).

Kimberly and Evanisko (1981) argue that an environmental factor such as the

kind of the industry in which an organization is doing business has a considerable

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impact on its level of the innovation. Studies finding differ on subject of linking firm

size with innovation. Some researchers (Kimberly and Evanisko 1981, Cohen and

Klepper 1996) identify the size of organization positively affecting the Innovation

activities in an organization, others (Holmstrom 1989, Martínez-Ros and Labeaga

2002) have found no considerable connection between size of the organization and

innovation level in an organization. Studies (Ahmed 1998, Laursen and Foss 2003,

Bhattacharya and Bloch 2004) have acknowledged a number of aspects that

demonstrate a relationship with the acceptance of innovation in an organization.

Research illustrate that the companies, which innovate more, earn more than their

competitors who tend to innovate to a lesser degree (Jonash and Sommerlatte 2001).

Innovation carries a long history. Germany has the honour of establishing first R&D

laboratories in the nineteenth century in one of its chemical industry. Soon the trend

of setting up R & D laboratories was followed by USA (Basalla 1988). According to

Bush (1945), scientific research is one of the prime sources of technological

development, consequently leading to growth of economy and military strength.

Number of innovation management practices appeared later, innovation became

more complex with every new generation trying to fix the drawbacks of the earlier

generation (Ortt and van der Duin 2008). Large businesses have various kinds of

innovation processes in their organization (Van Den Elst, Tol et al. 2006, Verloop

2006). Organization can choose innovation process according to its requirements (Ortt

and van der Duin 2008).

Innovation deals with the unpredictable scenarios of future. Innovation of an

organization will be brought and marketed in future when changes in external

environment or developments by competitors have changed the market situation.

Innovation processes need time and in fact how much time is required, will depend on

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the type of innovation. An incremental innovation is slight modification or

improvement in existing product or service and generally requires 2 months. On the

other end a radical innovation is development with major modifications or

improvements , a new car development may take up to 7 years and a new drug

development may take up to 15 years(van der Duin and den Hartigh 2009). The result

of innovation actually turnout when the product or service is brought into the market.

The time between the first presentation of innovative idea and the implementation of

innovation is critical, if implementation takes more time, the market situation and

external environment may have changed in ways that envisioned benefits of

innovation may obsolete (Pohlmann, Gebhardt et al. 2005, Duin and van der Duin

2006). Changes in external environment and market situations may also outdate the

envisioned idea. Innovation is closely linked to future. Innovation contains the new

product development, new service development, includes giving up with old way of

doing things consequently getting away from old portfolio of an organization. These

innovations help an organization in shaping its future. Innovation develops a kind of

envisioned future for an organization, thus innovation help in predicting

organization’s future and thus may help to lure its stakeholders, the purpose of

generating future scenarios is to motivate innovators (Könnölä, Brummer et al. 2007).

Innovations are designed and developed in the ways to determine our

imagined future. The other and more realistic way to put this is to ask yourself that

innovations on which an organization is working is suitable for different scenarios in

future. The balance between connection of future research and innovation is

demonstrated by development of these two topics historically (Duin and van der Duin

2006). To determine that future research influences innovation or innovation

influences future research appears to be a hard task. It seems that future research may

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be utilized in innovation when two disciplines are compared. From the above

discussion it could be inferred that while working on development of innovation, a

technology forecast should be utilized. A contextual forecast may be employed for

technology forecast where the decision of how to execute future research is dependent

on the kind of innovation process being employed. Innovation includes rules that

should be focused on at organizational level. The studies made an effort to develop

the link between choice of strategies and environment (Child 1972, Bourgeois 1980,

Hrebiniak and Joyce 1985).

2.9.2 Marketing Innovation

Marketing innovation is bringing newness in the way the products or services

are marketed. The purpose is to please the customers by communicating on the

subject of the product or service in new ways, in order to develop awareness and

motivate them (Morrill 1959). Tellis, Prabhu et al. (2009) have suggested that the

radical innovations in marketing may help in becoming a market leader as their

impact on performance is huge. On the other end, innovation failures can bring down

business performance significantly (Tellis, Prabhu et al. 2009). Berry, Shankar et al.

(2006) defined market innovation as the process of developing a combination of

target markets and planning how to serve them. The first part of definition considers

finding choice of customer segments and the other part focuses on customers’

methods of buying. A business may differentiate itself by selling the same product in

different ways.

Firms focusing on marketing innovation, improve their capability of customer

correspondence with reference to their needs, thus resulting in increased customer

satisfaction (Schmidt and Rammer 2007). Marketing innovation results in enhanced

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profits in connection with its external links such as customers or competitors (Mothe

and Uyen Nguyen Thi 2010). For example, applying new sales or distribution

techniques that significantly enhance performance (Lau, Lee et al. 2001). Market

innovation is dependent on the features of the industry in which the business is

operating and the technological environment of the industry (Schmidt and Rammer

2007). Marketing innovation time and again make available rapid fix innovative

solutions focusing on product modifications, product extensions and modifications in

the design of the product involving low level of risk (Bennett and Cooper 1979,

Bennett and Cooper 1981). For organizations facing financial crisis and operating

business in economic crisis, marketing innovation may provide an attractive plan to

challenge the declining sales of the business. The reason behind success of marketing

innovation is its focus on growth of sales by moving demand of consumer from elastic

to inelastic markets, this may be achieved through delivery of better actual value or

better value to the customers (Bennett and Cooper 1981, Hurley and Hult 1998).

This reason or logic is critical for an organization operating in a business

environment where products or services demand is declining quickly and the business

requires to recreate the demand function of their products or services at a fast pace,

the purpose of recreating or reinventing the demand function is to make certain the

firm survival in short and medium term in unpredictable and unstable business

environment. This line of reasoning has been put forward by business critics (Sin, Tse

et al. 2003). Marketing innovation is considered as a critical resource to manage

organization in unstable and unpredictable business environment, marketing

innovation may help an organization to survive and perform in tough economic times

(Grewal and Tansuhaj 2001, Naidoo 2010).

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Marketing innovation is the capability to re- create the current industry model

in ways that create new importance for the customers, weaken the rival firms, and

create profit for all the stakeholders (Hanvanich, Dröge et al. 2003). Additionally, the

studies find that knowledge about marketing is a critical factor and a requirement for

marketing innovation. Marketing innovation is ―the development and executing of

new ideas to deliver value to consumers and manage relationship with consumers

(Tinoco 2005). The creation of new marketing instruments and approaches is

considered as marketing innovation. Two types of marketing innovation have been

considered particularly. First one is the capability to effectively gather data about

customer and the other one is reduction in transaction cost of customer (Chen 2006).

Marketing innovation is the execution of a novel process of marketing adding

considerable alterations in the packaging, design, placement or promotion of the

product. The academic literature on marketing innovation does not give description

related to its employability as a business term (Arrighetti and Vivarelli 1999,

Johannessen, Olsen et al. 2001).

Marketing innovation was initially termed as marketing imagination or

marketing myopia and formally the term was given by Levitt (1960). The new

procedure that a firm execute with the objective of meeting customer expectations

found out by market research is implicitly referred as marketing innovation(Levitt

1986). Marketing innovation need experimentation at radical level and exploratory

activities must be carried out in a way so that the outcome have huge impact and

amazing results(Levitt 1960).

Since there are very few innovations at radical level , that was one of the

cause that marketing innovation term went unnoticed in the literature. Marketing

innovation may be costly and organization may be at high risk (Levitt 1960). This

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again brings back the focus to radical requirement in definition of marketing

innovation and this requirement considerably develops difficulty for conducting

empirical research. Levitt (1960) utilized marketing imagination, developing one of

its kind mental pictures for better understanding of its consumers as precursor of

marketing innovation. Levitt (1960) pointed out that marketing imagination leads to

marketing innovation when the firm brings considerable add in existing penetration of

customers, identification of possible customers, efficiency in distribution methods.

The two main antecedents of marketing innovation are marketing insight and

marketing imagination. Both these insights of marketing innovation stand for abilities

or attributes of the organization that brings considerable input to creation and

promotion of marketing innovation. These antecedents are viewed as incidental as it is

challenging for an organization to bring change in them. They lie deep in an

organization and need loads of effort and time to modify. There are numerous sub

categories of these two antecedents of marketing innovation. For some specific sub

components of marketing innovation, solid theoretical support exists for them that

justify preconditions for marketing innovation. Six of major subcomponents are

Active scanning, market experimentation, marketing department architecture, lack of

marketing myopia, market research, permissiveness cultivation from marketing

imagination each of them is describe below:

The capability to continuously be familiarized with industry and market

trends, configurations by utilizing previous experience, perceptions and other data to

leverage arrangement of organizational resources (Roberts and Eisenhardt 2003,

Beck, Baruch et al. 2004). In more detail, marketing insight is in depth observation of

a situation and taking into consideration the internal nature and foundation of market

phenomenon that impacts the development, interaction and distribution of products

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and services (Roberts and Eisenhardt 2003, Linoff and Miners 2004). Firms having

good market insight have intuition of what is happening in existing markets and what

are about to happen in the future. Such organizations are also efficient in determining

the root causes of drivers of market phenomenon. This is a very critical capability for

marketing innovation as it analyzes in depth the current trends in the industry. This

capability helps organizations to react to the competitor actions in a meaningful way

instead of just reacting to competitors’ moves. The moves come from in depth

analysis of drivers behind the change. Market insight is somehow linked to market

foresight, market foresight helps a firm in understanding market phenomenon before

other rival firms operating in the industry take their moves (McCARDLE 2005).

Market insight appears to be a critical success factor for organization striving for

successful marketing innovation. Lacking market insight may cause mistakes that can

be very costly for the organization. Such mistakes can cause loss of customer

confidence and organizational performance.

The two important constituents of marketing innovation are active scanning

that helps an organization to gather information about external environment

continuously. The goal of gathering information is to get know how about market

conditions that may influence conditions of market and organizational performance

(Maier, Rainer Jr et al. 1997, Beal 2000). The other important constituent of

marketing innovation is market experimentation. Market experimentation is trying

new ideas on existing and possible future customers to gain information with the

objective of creating customer value(Slater and Narver 2000, McCARDLE 2005). It

appears that marketing insight is a critical ability for a successful execution of

marketing innovation.

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The second critical factor for execution of successful marketing innovation is

marketing imagination, marketing imagination is capability of the firm to disconnect

itself with the current procedures, processes and actions to visualize something that

has never been happened and experienced before. Marketing imagination while not

clearly defined has been accepted in literature as a constituent of marketing

innovation (Levitt 1960). Marketing imagination is key to foster idea generation and it

has been identified as most challenging part of marketing innovation (Hauser, Tellis

et al. 2006). Marketing imagination is considered above creativity as it includes

generation of newer and radical innovations (Amabile, Conti et al. 1996, Menon,

Bharadwaj et al. 1999). Marketing innovation also involves identification and

description of new ideas that are one of its kind and they have high level of utilization

(Higgins 2008).

Core of marketing imagination is the acknowledgment that end users are

looking for solutions, not things, successful organizations executes meaningful

solutions (Levitt 1993). There are number of constituents of marketing imagination

that are vital for generation and execution of marketing innovation in a business. first

constituent is marketing department architecture carrying out firm’s functional

activities of marketing (Sanchez 1999, Baldwin and Clark 2003). Marketing experts

dedicated to the task of creative idea development and building imaginary pictures of

firm’s market solutions should not be loaded with operational activities of marketing

department (Levitt 1960). Having a work force solely dedicated to idea generation

and imagination is critical in order to achieve solutions that are new to the world and

address the needs of the consumers (Levitt 1960).

When the sales target are given by organization to marketing people

responsible for idea generation and image building, such targets harshly limits their

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range of idea generation and image building, in return such actions keep an

organization dealing its day to day operational activities leaving behind what may be

achieved in the long term (King 1985). There are number of ways to build the

department architecture that is helpful to marketing imagination, however it seems

critical to separate idea generation and imagination tasks from financial pressures.

The other vital constituent of marketing imagination is marketing myopia.

Summarizing the marketing innovation antecedents it appears that these two

antecedents that are marketing insight and marketing imagination acquire the

important elements for an organization to develop greater value for its consumers with

the help of marketing activities. Marketing imagination appears stronger than

marketing innovation because of its efficient demonstration of an organization’s

marketing department architecture, be deficient in myopia, utilization of market

research and culture of open mindedness. These components of marketing

imagination are critical to development and execution of marketing innovation. Other

elements that influence marketing innovation up to some extent are intensity of

competition in an industry (Chandy and Tellis 1998) age of the organization (Heunks

1998) intensity of technology utilization in an industry (Chandy and Tellis 1998) size

of an organization (Hurley and Hult 1998) and employees’ level of education and

experience (Heunks 1998).

Marketing innovation positively promotes other kinds of innovations, such as

product or service innovation, by successfully conveying design and pricing of the

service to the customers (Filippetti 2011). Organization learning and knowledge

accumulation stimulates marketing innovation. A deep insight into particular

demands, standards, customs, and segmentations of the industry enhances marketing

innovation (Filippetti 2011). This also compliments the argument that a product or

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service should be based upon the needs of the customers (Kotler 2000). Keeping the

things from the beginning of the process of innovation enhances the chance of

successfully producing a marketable product (Becker and Lillemark 2006).

Marketing innovation and performance:

According to Tellis, Prabhu et al. (2009) the radical innovations in marketing

has very high impact and it may bring an organization at the position of market leader.

It may be considered as two way sword as failure in radical innovation may bring

down business performance considerably (Tellis, Prabhu et al. 2009). Marketing

innovation positively promotes other kinds of innovation such as product or service

innovation by successfully conveying design and pricing of the service to the

customers (Filippetti 2011).

2.9.3 Process innovation

The carrying out of new technique that considerably improves quality or else

reduce costs or else making better the production methods or services delivery

(OECD 2005). However an addition in existing production capacity similar to the one

already installed or minor change in process cannot be considered as process

innovation. It may occur with or without formal R&D. With the increase in cutback in

costs because of process innovation, it has become vital to identify the activities

which result in innovation, both of formal or informal nature. There are many types of

process improvements which seem individually small, but when combined may have

a great impact. Davenport (1993), with diffusion of innovation, considers process

innovation as an important advancement in operational performance. The origin of

process innovation can be drawn back to: “(1) the quality movement, (2) scientific

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management, (3) the socio-technical school, (4) research on diffusion of innovation,

and (5) research on competitive use of IT”.

Process innovation focuses on the stability of the process and changes in

incremental process that is bringing improvements (Davenport 1993). Process

stability is the root cause of bringing consistent improvement in the processes. In this

regard, Information Technology is considered as a driver of change and a source to

lessen dependence on unreliable man power. Process innovation focuses on

interaction between technology and people (Lewin 1951). Both humans and

technology are important drivers of change, and management of both is required in

parallel. Special focus is required in developing structured work processes by

integrating people and technology, to enhance overall performance. With the diffusion

of innovation perspective, especially process innovation, focus now prevails on the

adaptation of technology and organization structures. It is important to use

information technology as a competitive resource , because information technology

may bring radical advancements in organization’s work processes (Porter and Millar

1985). Process innovation often needs a low level of technological development and

strategic management as compared to product innovation (Tushman and Rosenkopf

1992). Process innovation is related more to learning curve effects (Cabral and

Leiblein 2001). It is usually more persistent in mature industries where organizations

aim at achieving cost efficiencies through innovating processes instead of innovating

new products (Klepper 1997). Process innovation varies in accordance with the

industry’s business cycle.

One of the objectives of process innovation is to reduce the time of process.

Process innovation also encourages cost leadership strategy as by reducing cost in any

part of the value chain of organization, through process innovation, the company can

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pass on its savings to its customers. Competitive pressure in the industry is the main

cause of company’s struggle for process innovation. Organizations in automobile and

retail industry have pushed their suppliers to bring efficiency in quality, pace and

suitability in manufacturing and distribution of their products. Process innovation can

even include newly designed processes for recently merged companies. A weak

information technology structure of an organization is also an opportunity for process

innovation. Process innovation addresses the need of better coordination among

departments. It directly aims at improving quality and customer services, which

further translates into higher sales or low cost production.

Process innovation and performance:

Various types of process innovations, when observed independently, may not

have a significant impact, but when integrated, they may influence performance

immensely (Davenport 1993). Process innovation, attained through diffusion of

innovation, is considered as a significant development in operational performance. To

attain a steady development in process improvements, process stability is considered

as a key factor. To attain process stability, use of information technology is a critical

factor, as it is important to reduce man power unreliability. The focal point of process

innovation is the interaction between humans and technology (Lewin 1951), and the

management of both humans and technology is considered as a critical success factor

for successful process innovation.

Advance technology brings many benefits like cost reduction, improved

services, enhanced efficiency and flexibility in the process (Zhao and Co 1997).

According to Somers and Gupta (1991), the major benefits of innovation are

improved quality and lead times. Investments in information technology controlled

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processes may result in a successful payoff, as information may be collected for quick

in depth analysis. Need a direct statement for the link between process innovation and

performance.

2.9.4 Management innovation

According to (Crossan and Apaydin 2010), management innovation has been

a subject of low attention in the research studies; it should be of high interest as

Feigenbaum and Feigenbaum (2005) considers management innovation as the key

success factor for 21st century organizations. management innovation is also

considered as one of the most important source to sustain advantage in the

competition and to encourage and speed up technological innovations in the

organization (Mol and Birkinshaw 2006). As competition is increasing day by day,

apart from focusing on technical innovations, organizations should also consider non-

technical innovations that are difficult to imitate (Teece 2007). One of the non-

technological innovations is management innovation.

Technological innovation refers to advancements in technology in link with

the main activity of the organizations (Daft and Becker 1978), whereas management

innovation refers to the method of operations of the management and it includes: what

constitutes their job, what process they follow, what is their way to allocate

responsibilities and what procedures do they follow to achieve the goal (Birkinshaw,

Hamel et al. 2008). Management innovation is likely to come out through

requirements, contradictory to technological innovations which are made in labs and

their applications are explored later. In addition, because of its kind, management

innovation is hard to copy (Birkinshaw and Goddard 2009).

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Management innovation may be novel to the firm or may be novel to the

world (Birkinshaw, Hamel et al. 2008). It includes how managers set the goals, how

they manage activities and people and how they make decisions (van den Bosch

2012). Management innovation bring changes, these modifications disclose

themselves by new managerial procedures, structures, or methods (Vaccaro 2010).

The results of such changes in new management practices, processes and structures

which are situation specific is that they are hard to copy thus create a notable source

of advantage in the competition (Damanpour and Aravind 2012). Though a business

can try to imitate management innovation of the other businesses, its achievement in

the imitation is decided by the adaptation to the only one of its kind situation of the

firm (Ansari, Fiss et al. 2010).

Fresh examples of management innovation be total quality management

programs and self-managed teams (Zbaracki 1998, Vaccaro, Jansen et al. 2012).

Changes in management’s work do lead to innovation, for example: downsize or

upsize may cause modifications in the firm, but if management continues to work in

the same way it will not be considered as management innovation (Vaccaro 2010). A

true management innovation considers significant modifications in the ways an

organization is managed. In addition, such significant changes appear in the initiation

of new practices, procedures and processes. Most of the time the goal of management

innovation is to achieve enhanced efficiency and effectiveness (Walker, Damanpour

et al. 2010). Result of the management innovation be enhanced productivity and

competitiveness (Hamel 2006). However, creating management innovation is a

complicated process, as it needs input from various internal professionals, like:

managers and employees of organization, and external professionals like consultants,

professors etc. (Birkinshaw, Hamel et al. 2008).

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There is also an impact of change agents that are external for management

innovation. These external agents may be new practices, procedures or structures,

which are designed by consultants (Birkinshaw, Hamel et al. 2008). Consultants are

often considered as a prime source of getting new management thoughts and methods

of performing in the organizations (Sturdy, Clark et al. 2009). Drivers that enhance

management innovation get knowledge from external sources and learn from

associates (Hollen, Van Den Bosch et al. 2013). Other critical factors influencing the

adoption of management innovations are network position and social embeddedness

with in the industry or even outside the industry. Various components of management

innovation were identified by Mol and Birkinshaw (2009). Among these components

there are management practices that deal with managers’ day to day activities,

including: identifying goals and procedures associated with it, controlling people and

managing stake holders’ demands. The management innovation of self-managed

teams, initiated by Proctor & Gamble, revolutionized work of the managers for the

employees could now make goals at their own and choose how and when the job is

going to be done (Vaccaro, Volberda et al. 2012).

Processes of the management deal with practices that define managers’ work,

from generating ideas to their implementation. These practices are planned

strategically and involve managing projects and evaluating performance (Hamel

2006). Introduction of self-managed teams by Proctor and Gamble changed reward

and promotion system. Financial compensation was determined by skill levels and

evaluation was done by team members (Vaccaro, Jansen et al. 2012). Organization

structure is about the process of organizational communication and how the efforts of

organization’s members are tied together to achieve their goals (Hamel 2006).

Introduction of self-managed teams at Proctor & gamble brought significant changes

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in the organization structure. Layers were eliminated from the hierarchy after the

above mentioned management innovation. There is a positive impact of management

innovation on organization’s dynamic capabilities (Gebauer 2011), firm performance,

and organization efficiency and effectiveness (Walker, Damanpour et al. 2010).

Management innovation not only helps organizations in attaining profitability, growth

and competitive advantage but also helps in attaining low employee turnover

(Birkinshaw, Hamel et al. 2008), fuel the satisfaction of the customers (Linderman,

Schroeder et al. 2004) and high employee motivation (Mele and Colurcio 2006).

As defined by (OECD 2007), organization innovation is a new method in the

organization for business practices or in managing relations that are external to the

organization. The purpose of organizational innovations may be to enhance a business

performance by dropping transaction costs or administrative costs, enhancing

satisfaction at work place, getting approach to non-tradable assets or dropping

supplies cost. Considering this definition, management innovation has also been

referred as organizational innovation in the literature. Business practices involve

business factors, like: human resource management, performance, incentive systems,

and learning methods.

Management innovation is usually considered as novel to the business or new

to state of the art (Mol and Birkinshaw 2009). According to D. Banker, Mashruwala

et al. (2014), innovation capabilities directly impact the way a business is

distinguished by its customers, resulting in clearness of its market position.

Management innovation is considered as new to the business, as it is assumed more

frequently, thus giving the meaning that diffused organizational ideas could lead to

management innovations. In the other case, business will be the original inventor of

organization innovation. The scenario could be, if business is developing an

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organizational innovation or, if the business integrates different organizational ideas

from different organizational firms and then conveys or implements, there are chances

that it is ‘new to state of the art’. It can be concluded that the definition of

management innovation is that it is an organizational process in organization’s way of

doing business, at work place or with external stakeholders, that is new to the

organization, and with the objective of enhancing organization’s performance. Hamel

(2006) suggests three conditions that need to be met to achieve long term competitive

advantage, through management innovation. The conditions are the innovation

confronts orthodoxy of the management, it is organized comprising of multiple

methods and processes and it is component of incomplete invention program, where

development is after a while. Thus according to Hamel (2006), innovation should not

only be new to the business but also be new to the industry and it should have an

impact on major organization units, to gain long term advantage in the competition.

An example of this kind of organization innovation is implementation of quality

management programs, like: TQM, Six sigma, and Capability Maturity Model, in

which the objective of organizational innovation is empowerment of employees at

each level, to develop the innovative capabilities of the employees. These business

models are way different from traditional models in which employees were supposed

to do repetitive tasks as instructed by their bosses.

Efforts have been made to find out the concept of management innovations,

for example, Studies i.e. (Mol and Birkinshaw 2006, Birkinshaw, Hamel et al. 2008)

has concentrated on how to create organization innovations. According to them the

innovation model is impacted by factors such as: environment, organization and

internal and external agents of change. There are four steps included in the model:

motivating; inventing; implementing and; theorizing and labelling. The first step deals

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with the reasons that motivate the need to change organization. The next step is

invention that deals with carrying out tests to develop solutions, and thinking about

the increase in efficiency or effectiveness of idea. The next step is implementing the

idea, which is application of new management practices in real. The last step in this

model is theorizing and labelling which is a social process in which different

stakeholders validate the management innovation. The goal of this step is to develop

sense for innovation to be accepted.

Innovation is also dependent on size of the firm and monopoly power, it is

argued that big size firm can easily finance the costs associated to innovation

activities (Bajwa and Lewis 2003). In comparison to big firms, small firms have cost

disadvantage but they are more flexible, they have better management control and

may have better response time in managing customer needs. There are plenty of

studies on firm size and innovation but they have been inconclusive in finding a single

answer (Mazzucato 2000, Tang 2003). Innovation is also dependent on size of the

firm and monopoly power. It is argued that big size firm can easily finance the costs

associated to innovation activities (Bajwa and Lewis 2003) small firms have cost

disadvantage but they are more flexible, have better management control and may

have better response time in managing customer needs. There are plenty of studies on

firm size and innovation but they have been inconclusive in finding a single answer

(Mazzucato 2000, Tang 2003).

Although innovation is vital for the success of the organization, it is becoming

increasingly challenging for the organizations to develop profitable innovations

independently. A barrier in innovating independently is organization’s limited

knowledge and means (Leiponen 2000). There is a focus in literature on collaboration

as an important driver of innovation, industry university linkages helps in reducing

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R&D costs and gaining benefits of complimentary capabilities (Guan, Yam et al.

2005).

A key matter of management innovation is to what level, firm which has done

innovation, can further innovate subsequently. This persistence of innovation at

organization level has been addressed by several authors; (Peters 2009, Raymond,

Mohnen et al. 2010). Castillejo, Barrachina et al. (2004) investigated the innovation

persistence in Spain’s manufacturing sector with the help of probit model and panel

data. The findings were positive and significant between previous R&D experience

and present decision to undertake R&D. Apart from R&D internal activities including

design and marketing are also sources of innovation (Bodas Freitas, Clausen et al.

2008) but R&D brings more consistencies as compared to rest of internal activities

(Arora, Fosfuri et al. 2001). On the other end taking into consideration external

activities, strategic alliances whose aim is to jointly develop knowledge among firms

or collaboration with education or research institutes, investments may be high

initially but they are more durable in long term (Sampat and Mowery 2004).

Management innovation and performance:

Management innovation is considered as a major driver to gain success in

contemporary world (Feigenbaum and Feigenbaum 2005). Management innovation

also encourages gearing up technology innovations in the organization. The objective

of management innovation is to develop management practices that are new,

processes that are new and designed to deal with specific situations of the

organization. To gain advantage in the competition organizations focus on technology

innovations that are difficult to imitate, non-technology innovations that are difficult

to imitate also become source of competitive advantage and one type of such

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innovation is management innovation (Teece 2007). Another advantage of

management innovation apart from becoming source of competitive advantage is that

it enhances technology innovations which itself becomes source of competitive

advantage (Mol and Birkinshaw 2006). One of the key factors about management

innovation is that it is customized according to particular situation and structure of the

organization, so the imitation of such organization innovation is highly dependent on

familiarization to distinctive situation and structure of the firm (Ansari, Fiss et al.

2010).

2.10 Organization strategy and innovation

Many studies concur on the business requirement of moving up in the

technology (Abernathy and Clark 1985) and making it a subject of strategic concern

(Drejer 2002). A dimension related to technology is that, new technologies develop,

helping in innovation of ways of working and managing people, technology has a

generally strong impact on competition (Tushman and Anderson 1986). Businesses

are expected to be more innovative regarding their strategic management. Jarrar and

Smith (2014) confirmed the basic role of innovation in firms with strategic direction.

According to them, innovation in products and processes helps in exploiting new

markets and opportunities. The work on innovation management has affected strategic

management as a discipline (Drejer 2002). The focus of research has begun on both

strategy and innovation area or in other words strategic innovation area (Johnston Jr

and Bate 2003). Innovation is a much required theme in management, strongly tied

with development and success of the organization (Porter 1985). Knowing the key

elements of strategic innovation is vital for business managers. However, they still

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face difficulties in merging innovation into the business strategy in their board room

arguments (Tushman and Anderson 2004).

Considering the connection between competitive strategies and innovation, the

literature shows a positive relationship between competitive strategies and innovation,

with varying level of intensity (Carlucci, Lerro et al. 2010, Enkel and Bader 2012,

Karlsson and Sköld 2013). This study further investigated this relationship. The

literature in the area of strategic management finds out the resource strengths required

for innovation (Winter 2003). The resource strengths linked to innovation and change

within a firm are termed as dynamic capabilities (Rumelt, Schendel et al. 1994).

According to the theory, firms must try hard to attain these dynamic capabilities in

order to successfully innovate in the changing environment. Dynamic capabilities are

important strengths which help the organization in the continuous renewal of its

resources and knowledge base that helps in staying up to date with the market

demands (Winter 2003). It may be said that firms possessing dynamic capabilities

lead to innovation. Winter (2003) suggests that without a clear strategy, persistent

innovation is not possible. Innovative firms achieve higher sales and thus higher

profits from new innovations, this encourages organizations to promote innovations

in the future (Laursen and Salter 2006).

Differentiation strategy requires innovative techniques to bring new innovative

products or services in the market, it also need innovative techniques to bring

innovation in its way of working. Cost leadership strategy requires innovation in

processes in order to cut down costs, therefore both these strategies promote

innovation. To gain competitive advantage and later on to sustain it in highly

competitive environment, attaining a strategic fit between different activities of the

organization is critical. The success of the firm is not only defined by its strategy but

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also by choosing the suitable fit between system of activities and strategy to execute

the strategy (Porter 1996). A good fit of explorative and exploitative innovation

activities is considered as a critical success factor for an organization’s innovation

based viability(Zehir, Can et al. 2015). Exploitative innovation activities are in better

link with cost leadership strategy as it plays a crucial function to achieve maximum

from current technologies, thus helping organization in saving costs and achieving

efficiency in innovation activities.

Explorative innovation activities are in better link with differentiation strategy,

firm following differentiation strategy need to acquire only one of its kind

technologies to to gain competitive advantage. In this scenario to address fast

changing external environment of the organization, organization should consistently

focus on exploratory innovation activities (Zehir, Can et al. 2015).

Contingency theory states that contextual factors influence the innovation,

contextual factors impacts both explorative and exploitative innovation. Among the

contextual factors that have impact on innovation, business strategy is considered as

vital contextual variable. there is a link between an organization strategy and

innovation (Auh and Menguc 2005, Menguc and Auh 2008). Study i.e. (Auh and

Menguc 2005, Menguc and Auh 2008)have analyzed defenders and prospector

strategy given by (Miles, Snow et al. 1978). Menguc and Auh (2008) made a case that

prospectors give emphasis to exploration as exploration seems to be their critical

competence in market creation and product creation. In the similar method, defenders

put focus on exploitative innovation by emphasizing on particular markets and

products. Defender heavily focus on exploitative innovation thus leaving a narrow gap

to improve them through exploitative innovation, however there is a margin of

significant improvement through exploratory innovation for defenders. Similarly it

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appears that prospectors heavily focus on the exploratory innovation thus creating an

ample room for prospector to improve performance through exploitative innovation

also.

Study (Levinthal and March 1993, He and Wong 2004) are of the view that

prospectors as well as defenders may enhance organizational performance by

attaining the right mix of the exploratory innovation and exploitative innovation.

Miller and Friesen (1983) study has diagnosed external environment as a moderator

while linking innovation with organizational performance. The two main sub

variables of external environment are dynamism and competitiveness acting as

moderators between relationship of innovation and organizational performance

(Levinthal and March 1993, Lewin, Long et al. 1999). The level of instability in

addition to the speed of change in the environment is referred to as environment

dynamism (Dess and Beard 1984). The level of competition in the industry explains

the environmental competitiveness (Matusik and Hill 1998). In the fast changing

environment of contemporary world, advances in technology, changes in consumer

preference and variations in supply and demand of the products and services tend to

change the status of existing services and products as out of date (Jansen, Van Den

Bosch et al. 2005). Organizations are required to focus on exploratory innovation;

therefore they may leave from current conditions and identify market segments to

emerge within and to stay alive (Lumpkin and Dess 2001).

Exploitative innovation forces an organization to stick to its routines. This

scenario makes it harder for an organization to familiarize itself to fast changing

environment and enhances the organization’s risk of obsolescence. In the environment

of low level of competition, firm may stick to their existing business systems and

achieve the expected profits. Thus in a low risk environment, exploitative innovation

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suits organization in improving performance. With the raise in intensity of the

competition, exploitative innovation is not adequate to sustain competitive advantage.

Consequently, organization should focus on exploratory innovation for its

sustainability in the competition (Zahra 1993). Positive moderating impact of

environmental dynamism on business strategies has been identified by the study i.e.

(Jansen, Van Den Bosch et al. 2006). Jansen, Van Den Bosch et al. (2006) has

identified a moderate level of negative effect between environmental competitiveness

and results of exploratory innovation and exploitative innovation.

Auh and Menguc (2005) identified a positive impact of environmental

competitiveness on exploratory innovation results. Environment competitiveness

impact varies on exploitative innovation according to different business strategies.

Environmental competitiveness has a helpful impact on exploitative innovation when

a firm is following prospector strategy, on the other end environmental

competitiveness has negative impact on exploitative innovation when a firm is

following defenders strategy. Michael (2001) made a case that process innovations

which may rapidly diffuse among the competitors improves cost efficiency but the

cost efficiency of competitors also improves as it is easily imitable. Organizations

building itself on differentiation strategy tries to build products or services or bring

innovation in its different areas, which are hard to imitate by its competitors (D.

Banker, Mashruwala et al. 2014) Porter generic strategy applicability is still very

much relevant in contemporary world competitive industries (Kim, Nam et al. 2004).

The goal of firms pursuing cost leadership strategy is to improve their share in

the market by developing a low cost position in comparison with their competitors.

Organizations may allocate different resource methods to attain status of cost

leadership, these resource methods may be development of facilities at large scale,

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bringing improvements in processes, minimizing the costs, achieving six-sigma and

by following bench marked practices. The other generic strategy that is differentiation

strategy, the firms pursuing differentiation strategy tries to attain competitive

advantage by making investments in development of product or services that give

only one of its kind qualities required by the consumers. The exceptional product or

service offered by the firm empowers itself to charge premium prices on the products

or services offered. According to (D. Banker, Mashruwala et al. 2014), both generic

strategies that is differentiation and cost leadership are not the two different poles of

the same scale, firms like Caterpillar and Toyota had been successful in applying

differentiation as well as cost leadership (Hall 1980). Researchers have identified that

organizations pursuing differentiation or cost leadership are capable of achieving

superior performance in contemporary world (Hambrick 1983, White 1986). These

studies employed marketing strategies database to evaluate the influence of generic

strategies on organizational performance in terms of market share and profits. Study

(Dess and Davis 1984) evaluated that both generic strategies direct an organization

towards sales growth and better return on assets. The connection between type of

strategy and organizational performance has been identified by Hoque (2004). Studies

(Davis and Schul 1993, Nandakumar, Ghobadian et al. 2011) have found weak link

between types of strategies and organizational performance because of some

situational variables. The contradictions in above mentioned studies pave the way for

further research in the area of strategy types and its link with organizational

performance.

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2.11 Innovation and organization performance

The connection between the innovation and the performance lies on the

argument that when a business brings a new innovative product in the market, the

competitive pressure from the competitive forces is very low. This situation allows

the firm to earn high profits, however the profit diminishes when the competitor

imitates. Firms that continuously bring new innovative products in the market may

sustain their profits for a longer duration (Sharma and Lacey 2004). The key reason

for businesses to focus on innovative activities is to enhance opportunities of success;

consequently that improves the firm performance in the industry competition. The

influence of innovation on business performance is also focused in Oslo Manual

(OECD 2005). Jarrar and Smith (2014) showed the importance of innovation as a

connector between the strategy and the performance of the business.

Schumpeter (1934) identified innovation as the major factor for the growth of

the economy. Entrepreneurship has been recognized as the core motivating force that

helps in creating innovations which is believed to be highly responsible for the

economy growth(Sundbo 1996). Innovation be also thought to be the key driver

behind the growth of an organization (Hitt, Hoskisson et al. 1996). Organizations

making a higher revenue and taking a good part of market share is justified by

(Schumpeter 1934) which explains the monopoly that is created when new innovative

products or services are launched into the market. The above argument is also

justified by the five competitive forces that shape the strategy of the firm (Porter

1979, Porter 2008). When a firm successfully achieves innovation in its products or

services or processes or in their management activities, it appears as taking

competitive advantage. As most of the competitive forces, in the beginning, do not

exist or tend to be weak, giving power to the organization to charge higher prices for

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its new innovative products. In the other scenario if organization successfully

innovates a process its helps organization in significantly reducing its cost of

operating business. This may help the business in charging lower prices than its

competitors which in result may help business in improving its market share.

According to Barney (1991), a firm’s resource is the most valuable when that

particular resource holds the attributes of being valuable, non-transferrable, non -

imitable and non-substitutable and according to resource based theory, organization’s

resources become a source of its competitive advantage. Integrating the above

mentioned perspective it may be said that a resource holding characteristics of the

most valuable resource becomes a source of firm’s competitive advantage. A

successful innovation may possess the above mentioned attributes, which may give an

organization competitive advantage in the long term.

One of the gap, identified in the literature of strategic management, is the

unclear role of innovation in strategic management (Linderman, Schroeder et al.

2004). Organizations’ effort to relentlessly pursue innovation is justified by

innovation theories; as such efforts may result in development of superior resources or

capabilities that may give competitive advantage (Schumpeter 1934, Galunic and

Rodan 1998). One of the goals of this study is to evaluate the impact of innovation on

performance while also studying the mediating role of innovation on the link between

organizational generic strategies and organizational performance in telecom sector of

Pakistan. As rivalry among the organizations becomes fierce and brutal, organization

requires to revitalize themselves by exploiting the capacity available to them and by

exploring new capacity (Floyd and Lane 2000, Jansen, Van Den Bosch et al. 2006).

The terms of exploration and exploitation has increasingly appeared in

organization learning literature (Levinthal and March 1993, Vera and Crossan 2004)

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innovation literature (Danneels 2002, Rothaermel and Deeds 2004, Jansen, Van Den

Bosch et al. 2006) and entrepreneurship literature (Shane and Venkataraman 2000,

Chunyan and Shuming 2006). Earlier literature on innovation has recommended that

an organization must focus on explorative and exploitative innovation simultaneously

(Gibson and Birkinshaw 2004, He and Wong 2004). Firms need to acquire new

knowledge, work on development of novel market segments and products by

involving itself in exploratory innovation, organization also require to develop on the

available knowledge, improve their on hand products and services for their existing

consumers (Benner and Tushman 2003). The fit between exploitative and explorative

innovation and the fit between innovation and situational variables have been the

fundamental subject in implications of innovation and organizational performance.

Empirical studies done on innovation portray a fit linking explorative and

exploitative innovation (He and Wong 2004, Menguc and Auh 2008); studies on

innovation too demonstrates a fit linking innovation with situational variables like

business external environment of the organization and strategies(Auh and Menguc

2005, Menguc and Auh 2008). Innovation has wide range of contents from

development of novel services and products to development of new processes and

new managerial systems (Damanpour 1996). Innovation may be classified into

explorative and exploitative innovation on the basis of knowledge base and

innovation degree. Explorative innovations are considered as radical innovations, the

purpose of explorative innovation is to present new designs, development of new

market segments , creation of new distribution channels and delivery the services in

new way to existing and emerging customers (Danneels 2002, Benner and Tushman

2003, Jansen, Van Den Bosch et al. 2006). Exploratory innovations are inclined to

develop and absorb new knowledge and to stay itself away from current knowledge

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(Benner and Tushman 2002). Exploitative innovations are considered as incremental

innovations, the purpose of exploitative innovation is to bring improvement into the

situation (March 1991). Exploitative innovation brings improvement in established

design of the organization, widens the knowledge and skill set it already possess,

bring extension into available product lines, bring improvements in distribution

channels and delivery methods (Benner and Tushman, 2003; Jansen et al., 2006).

Exploitative innovations are inclined to develop on the already possessed knowledge

of an organization and its goal is to improve and consolidate the existing knowledge

(Benner and Tushman, 2002; Lewin et al., 1999).

Both exploratory innovation and exploitative innovation enhance

organizational performance but in dissimilar dimensions. Exploitative innovations

tend to improve competence (efficiency and effectiveness) of the organization for

short term whereas exploitative innovations tend to enhance competitive strength and

income of the organization for the long term (March, 1991). There is near relation

between efficiency and effectiveness, short term and long term, thus explorative

innovation and exploitative innovation portrays clear-cut influence on performance of

the organization. Empirical studies show convinced influence of innovation on

organizational performance with varying intensity and in different aspects for

example Auh and Menguc (2005) evaluated performance from its dimensions of

efficiency and effectiveness, the research demonstrates that both innovation types that

is explorative and exploitative have significantly positive impact on efficiency and

effectiveness of organizational performance. Later on Menguc and Auh (2008)

evaluated organizational performance on basis of wide ranging performance measures

, the results illustrated positive impact of innovation types on the organizational

performance.

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2.12 Organization performance

Evaluating the best typology, to gain lead in the competition, is the core issue

in the area of strategic management (McGee 2005). Yet, no agreement has been made

on the suitability of the performance measures (Beal and Yasai-Ardekani 2000,

Parnell 2000). Usually it is considered that performance is steady, determinable and

controllable (March and Sutton 1997). Performance is a complex construct

comprising of multiple dimensions for instance both exogenous and endogenous

variables may impact organizational performance in parallel. Number of hindrances

was identified by March and Sutton (1997) in evaluation of organizational

performance like the future performance may get likeness of past performance

secondly organizational performance may deviate significantly because of feedback

mechanisms and lastly long term and short term influences on organizational

performance may differ.

Regardless of these difficulties, there exist a number of definitions of

organizational performance. One of the most utilized definitions in the literature is

that of sustainable competitive advantage which consequently lead to organizational

performance. Numerous factors have been identified to influence organizational

performance. Organization social responsibility, R&D spending, heavy

advertisements, market share influences positively on organizational performance

(Capon, Farley et al. 1990). Bringing all variables in research will overshadow impact

of generic strategies on firm performance.

The complications of defining proper performance indicators, hinders the

empirical research of testing the success of strategic management in link with

performance (Beal and Yasai-Ardekani 2000). Different researchers used different

measures to evaluate performance in empirical studies. For example, financial

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measures of annual growth in sales and return on total assets were used to gauge

strategic performance by Dess and Davis (1984). In the same way, return on

investment and revenue growth were used as performance indicators by (Parnell

2000). Thus, it appears that studies based on the link connecting strategy and

performance, utilize diverse variables. few researches only used financial measures, to

examine firm’s performance (Yamin, Gunasekaran et al. 1999).

Contrastingly, a number of studies used both financial and non-financial

variables to measure firm’s performance (Dess and Davis 1984, Dyer and Reeves

1995, Parnell 2000). Non-financial variables used in these studies are: stakeholder

satisfaction link with performance, ethical behaviour, relative performance in

opposition to competitors. Performance is a multi-facet variable (Ostroff and Bowen

2000). Various appropriate measures for management research were identified by

(Dyer and Reeves 1995). The measures identified by Dyer and Reeves (1995) are: 1)

absenteeism, turnover, and individual or group performance for human resource

management 2) productivity and quality of service for organization performance 3)

profits or return on investment for financial outcomes and 4) shareholder return and

stock value for stock performance.

Researchers have presented varied arguments on performance. Performance is

an issue having loads of contents, for organizational researchers (Barney and Wright

1997). Daft (2000) explains organizational performance as the capability to achieve

its stated objectives, by utilizing organizational resources, efficiently and effectively.

A simple definition given by Wade and Recardo (2001) is that organizational

performance is the capability of the organization to attain its aims and goals. The

problem is, there is hardly any consensus developed on the definition of

organizational performance. Organizational performance also lacks clarity,

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conceptually. The first problem with regard to performance is its definition, while the

second problem is its measurement. Performance, as a term, has usually failed to

differentiate itself from productivity.

A study (Wade and Recardo 2001) explains the difference between

performance and productivity, According to him, productivity is the ratio between

work’s completion time and the given time duration to accomplish the work.

Performance covers a broader area that comprises of productivity, quality, reliability

and other features. Wade and Recardo (2001) suggests that performance’s measures

may comprise of other measures, such as: result-oriented behaviour and relative

measures, like: learning and training, management growth and training, and other

essential building skills and attitudes of performance management. The above

argument includes measures of quality consistency other than efficiency and

effectiveness.

The other area of concern related to organizational performance is its

determinants. Two major determinants identified by Hansen and Wernerfelt (1989)

were: 1) economic conditions as external factors that create impact on organizational

performance, and 2) organizational factors, like : constructed behavioural and

sociological paradigm, which are considered as major factors of success. The

economic factors determining the organization performance were:

1. Industry’s characteristics in which organization was operating;

2. The level of performance of the organization in comparison to its

competitors; and

3. The level of resources possessed by the organization.

Organizational factors, determining the firm performance, were its human

resources, culture of the organization and style of the leadership.

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Study (Chien 2004) identified major determinants of organizational

performance as:

1) Environment and style of leadership;

2) Culture of the organization;

3) Job design;

4) Motivational model of the organization; and

5) HR policies

Competition’s intensity, organization’s culture and innovation were also used

as factors that may impact performance in the research (Chien 2004). Hansen and

Wernerfelt (1989) also supported economic and organization factor model. Economic

factors caused 18.5% of variance in organizational performance, whereas,

organizational factors were responsible for 38% of organizational performance

variance. (Trovik 1997) also commented that organizational factors’ contribution to

organizational performance was greater than economic factors.

2.12.1 Measurement of organizational performance

Studies on organizational performance have used many variables like gross

profit, return on assets, market share, growth in revenue, operational efficiency and

liquidity (Parnell and Wright 1993, Gimenez 2000). Although organizational

performance has been recognized as a very important area and a lot of discussion has

been done on it, but there is still no agreement on the conceptual basis of performance

measurement (Ford and Schellenberg 1982). It is near to impossible that an individual

performance measure can completely clarify each and every one features of this

terminology (Snow and Hrebiniak 1980).

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The performance’s definition comprises of both efficiency and effectiveness

associated measures that connects to input and output relationship. These measures

cover matters like business growth. Conceptualization of performance has been

achieved by using both non-financial and financial measures. The performance has

been conceptualized by both objective as well as perceptual sources. Return on

investment, return on assets and profit growth were used as objective measures,

whereas, perceptual sources comprised of employee’s perception of organization’s

financial health, its effectiveness and level of employees’ satisfaction.

Practitioners mostly used the term performance to explain a variety of

measurements, like efficiency, and in few scenarios transactional efficiency (Stannack

1996). There is no single best measure identified to gauge organizational

performance (Doyle 1994). Organizations have and always had different goals and

different measures for organizational performance, however, a few researchers have

agreed that profitability was frequently used to measure organizational performance

(Doyle 1994). Galbraith and Schendel (1983) are of the view that return on assets,

return on equity, and margins on profit are more commonly used measures of

performance.

Return on Assets (ROA) is evaluated by dividing annual net income with total

assets. Return on Equity (ROE) is the net income made as a per cent of shareholders’

equity. Return on equity evaluates a corporate’s profitability by showing the amount

of profit a company makes with the investment of shareholders’ capital. Wade and

Recardo (2001) stressed that the organizations with the highest return on equity are

the most successful and those organizations whose performance management system

is in alignment with every function of the organization, from top management to the

bottom level of the organization, are successful too. Contrastingly, Zou and Stan

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(1998) suggested that both financial and non-financial scales should be used to

measure performance. Sales, profit and growth were the financial measures, whereas,

perceived success, satisfaction and attaining objectives were non financial measures,

used. There is more objectivity in financial measures, whereas there is more

subjectivity in non-financial measures.

Griffin and Mahon (1997) defines organizational performance as the level to

which the organization is capable of satisfying its stakeholder’s needs and its own

survival needs. Thus, performance cannot be wholly evaluated with just profit margin

or high market share. High profits or high market share may be the result of achieving

goals that describe performance. According to Griffin and Mahon (1997), different

factors impact on organizational performance and these factors integrate in unique

ways, such that in some scenarios performance is enhanced and in others,

performance reduces. Venkatraman and Prescott (1990) concur with Griffin and

Mahon (1997)’s argument that there are two major issues associated with the

operationalization of organizational performance. Firstly, how organizational

performance is defined and what makes up its construct and secondly, what data

sources are utilized to measure the construct.

Three dimensions of performance were considered by (Venkatraman and

Prescott 1990). These were financial performance, business performance and

organizational effectiveness. Venkatraman and Prescott (1990) focused on subjective

measures too, in addition to financial measures, when organizational performance was

measured. These subjective measures were new product introduction and marketing

effectiveness. The competitive position of the organization with respect to its

competitors may be gauged on these measures and these measures may lead an

organization to better financial performance. Venkatraman and Prescott (1990) were

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of the view that measuring subjectively and objectively is better than measuring

organizational performance through a single approach.

Contrary to the above arguments, (Cameron, Kim et al. 1987) are of the view

that no single measure of organizational performance is better than the other and the

definition accepted by a researcher should be based on the framework chosen for the

study. Hofer and Schendel (1978) is of the view that different studies should employ

different measures of organizational performance because of the variation of research

questions in their studies. The conceptualization of organizational performance in a

strategic management research mostly depends on the financial indicators. Thus,

financial measures like: sales growth, profitability, and earnings per share have been

employed in various studies (Davis, Schoorman et al. 2000, Hashim 2000). Also,

market-based measures, like: employee turnover, organizational commitment have

been employed in studies (Zulkifli and Jamaluddin 2000). However, these measures

have their shortcomings (Barney and Wright 1997).

The other considerable issue linked with organizational performance’s

operationalization is the source of the data to make the construct. Data may be

attained directly from the firm or by published sources. Data on objective measures is

usually available in published form in the case of large firms, but it is impossible to

get data, department wise, from the large firms also. In the case of small firms, both

subjective and objective data is almost impossible to achieve in published form (Dess

and Robinson 1984). Subjective measures may be considered reasonable in the case

of non-availability of published data (Dess and Robinson 1984). Chandler and Hanks

(1993) also compliments the above argument and suggests that performance

assessment of an organization, with respect to its competitors, is a relevant concept, as

there is a good chance for a firm of knowing the activities of the competitor’s firm.

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Brush and Vanderwerf (1992)’s findings indicate that management reported measures

of performance have significant reliability. Managers of business may be reluctant to

reveal specific numerical data linked to their performance; however, they may be

comfortable in displaying general indicators of their performance, such as their

performance in comparison to their competitors in a particular area.

Aragón-Correa, García-Morales et al. (2007) developed an eight item scale to

evaluate organizational performance. For objective measures, the top managers of

business were asked to compute their firm’s performance based on return on

resources, return on assets and growth in sales of their main products or services. The

managers were also asked to gauge their organization’s performance with respect to

their competitors, using the above mentioned indicators. A number of studies have

employed subjective perceptions of managers to evaluate organizational outcomes.

Researchers have broadly accepted that both objective and subjective measures are

valid for evaluating organizational performance (Dess and Robinson 1984).

2.12.2 Financial performance

Generally, a firms’ performance is evaluated by its financial success. Financial

success may be computed through sales or profitability measures (Davis, Schoorman

et al. 2000). Profitability is an important measure that displays improved sales, while

reducing the costs, thus indicating increased efficiency of the organization.

Profitability is usually evaluated by return on investment, return on equity, return on

assets and the profit margin (Galbraith and Schendel 1983). However, there is some

variation in measuring the financial performance of SMEs. Growth in sales for the last

3 years and the net profit are the financial measures adopted by SMEs (Kasim, Minai

et al. 1990). Growth in sales is computed by taking the average of the sales growth

figure of the last 3 years Hashim, 2000. On the other end, analysis of profitability is

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usually done with the help of return on investment, return on sale, and return on

assets. The average figure of the above mentioned financial ratios is computed to

examine profitability (Hashim 2000).

2.12.3 Non-financial performance

Apart from financial measures, organization performance is also measured by

non-financial measures. Non-financial measures generally used are: employee

turnover, organizational commitment (Zulkifli and Jamaluddin 2000). Job satisfaction

is defined as a pleasing or delightful emotional state due to one’s job experience (Rich

1997). According to Nyhan (2000), the compensation for the job should be greater

than or equal to expectations. For the other non-financial measure of performance,

there are many other definitions of organization commitment. Organizational

commitment is the enthusiasm to exercise the efforts with the intention of achieving

organizational objectives and desiring to continue working for that organization

(Nyhan 2000). The emotional aspects of organizational commitment reveal the level

and type of the relation of an employee with the organization’s management (Oliver

1990). Thus, intrinsic incentive may impact on organizational commitment.

Organizational commitment is vital to retain quality employees in the organization

(Nyhan 2000). Employee turnover is highly affected by both the job satisfaction and

the organizational commitment. Employee turnover rate may be high in the

organizations where the job satisfaction and the organizational commitment level is

very low (Nyhan 2000).

2.13 Organization strategy and organization performance

The connection between competitive strategy and firm performance can be

marked out to (Mason 1939, Bain 1956) industrial organization framework, that

depicts industry’s characteristics, where profit of the organization is primarily driven

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by the activities of the industry’s structure. Organization performance is heavily

impacted by the industry’s characteristics (Barney 1986). Observing the variations in

the organizations’ performances, operating in the same industry, researchers confront

the industry organization perspective (Ghemawat 2002).

One of the objectives of strategic management is to gain understanding of

resource base theory with the view to understand the difference in performance of the

organizations. Better organizational performance is the result of competitive

advantage. The competitive advantage is the result of strategy to create and maneuver

some components. What drives the attributes of these components; it may be

determined by the way they are looked at. Two theoretical perspectives have been

discussed earlier in this regard. Industry organization paradigm has an impact on

strategic management. Although organizations are considered similar except the

difference in the size of the organizations, the decisions at organizational level are

determined by factors in the external environment or in other words by industry

structure. Strategy is considered having not much impact on the competitive

advantage of the firm. The objective of the strategy is to attain market power by

lowering the competitive forces that heats up the competition, thus an organization

with a successful strategy decides to choose attractive industries possessing

favourable characteristics. Strategy may be employed to manoeuvre the competition

nature where organizations attain competitive advantage through appropriate product

positioning.

The second view is endogenous, where organizational performance is result of

diversified organizational traits and conduct. In this perspective resource base theory

holds dominance. In industry organization paradigm the assumption is on equilibrium,

whereas resource base theory is growth theory, organization possession and utilization

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of more resources will lead to competitive advantage. Organizational resources that

are unique and hard to substitute or imitate are developed in a long time and they are

embedded in the organizations and they become the source of sustainable competitive

advantage for the organization. The competition nature is considered as dynamic and

organizations consistently struggle for resources to meet the potential demand.

Resource base theory focus on competitive strategy is in two dimensions, one

dimension is decision making skill at corporate level and the other dimension is

competence theory. Competencies utilization impacts organizational performance.

The complex nature of core competencies hinders their efficient utilization at business

level. Researchers have suggested that better organizational performance may be

attained via corporate strategy mechanism. Strategy is employed for the development

of resources to impact the competition nature (Reed & Defillipi 1990).

2.13.1 Empirical evidence of corporate effects

The exogenous and endogenous views in the area of strategic management

have forced the scholars to find out the factors contributing to organizational

performance. The studies employed different calculations to evaluate organizational

performance. Toshin q has been employed to calculate return on assets, i.e., “Toshin q

is the ratio of market value of financial claims on a corporation to the replacement

value of corporation assets (McGahan 1999). McGahan (1999) also argued on

sensitivity effects of Toshinq on industry. Studies employed economic measures to

gauge performance like total market value and market share(Chang and Singh 2000,

Hawawini, Subramanian et al. 2003). Powell (1992) employed managerial perception

measure to guage organizational performance.

According to Dess, Gupta et al. (1995), strategy performance research has

been distinguished by uncertainty with delicate results. Empirical research can be

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categorized in three areas, the research on link between specifics strategies and firm

performance, second corporate advantage and firm performance and third corporate

strategy and firm performance. A major portion of corporate strategy focal area was

merger and acquisition, divestment and restructuring. The focus of such researches

was before and after effects on organizational performance. Empirical evidence has

been vague and mixed (Franks and Harris 1989). According to Porter (1991) that,

instead of developing shareholder value corporate strategies have been dissipated.

According to Mueller (1985) the result of horizontal and conglomerate mergers has

been resulted in market share losses. In the area of strategic management,

diversification has been the area of focus more than any other area. Studies have been

conducted on corporate strategy and firm performance (Helfat and Eisenhardt 2004),

for a successful diversification strategy, synergy and super addition in value is

required. The low level of organizational performance after diversification has been

because of organization inability to gain synergy. Dess, Gupta et al. (1995) observed

that disputed empirical evidence on link between diversification and organizational

performance has been because of insubstantial and vague results. Rumelt (1974)

indicated that diversification based on only one core competence delivers higher

organizational performance.

It may be concluded by looking at diversification strategy literature that lower

the diversification, better the firm performance. It may also be inferred that firm

should prefer related diversification. Corporate strategy research lacks evidence on

importance of these strategies (Porter 1991). Number of theories justifying that

diversification does not add to organizational performance. Agency theory suggest

that managers may bring in use organizational resources for the purpose other than

shareholders interest, may be for their own interest (Jensen 1986). Another

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explanation is given by resource base theory that organization possessing focused and

valuable resources find it best to stay focused and not to diversify. On the other end

organizations with less specific and less valuable resources may find it better to

diversify (Montgomery 1994). Resource base theory contributes to diversification

direction as it suggests that organization should adopt its way of diversification

according to its capabilities and core competencies.

2.13.2 Normative models of parent, corporate advantage and performance

Numerous model linked to corporate strategy have been demonstrated in the

literature (Chandler 1962, Hill and Hoskisson 1987, Bartlett and Ghoshal 1995).

These normative models define responsibilities of corporate parent. The corporate

responsibility is to develop strategy to safe guard the long term utilization of

resources and to evaluate organizational performance (Chandler 1991). Collis and

Montgomery (1997) identified four activities of corporate parent they are developing

strategy, protection of organizational resources, setting up management requirements

and performing overhead tasks. A number of studies have focused on connection

involving corporate head and performance. Apart from competitive advantage,

corporate advantage has also been proposed Bowman and Faulkner (1997) suggested

that corporate advantage may be used to create and evaluate corporate strategy.

Corporate strategies are supposed to make value addition by linking corporate

skills with individual business needs (Campbell, Goold et al. 1995). If there is no

addition by corporate addition, organization will soon be acquired (Goold and

Campbell 1991). A corporate operating without a sound strategy may lose its

competencies sooner or later and may fall victim to rival firms in the industry

(Campbell, Goold et al. 1995). Corporate strategy should be very clear in where and

how corporate center will add value, what are its responsibilities and how it will add

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value in organizational performance (Bowman and Faulkner 1997). There are two

prime concepts of corporate advantage in literature. The first one is defined as

corporate advantage which arises from portfolio management that is bundle of

business units. The concept is that corporate advantage is developed from entire

management of the organization.

2.13.3 Implicit assumption of the link connecting corporate strategy and performance

A common assumption in strategy literature is that strategy is positively

connected to organizational performance (Hitt, Ireland et al. 1982). Successful

strategies gives strength to organization market power, add to its sales and make

contribution in better financial performance (Dragun and Knight 2001). Bowman and

Helfat (2001) noted that organizational profitability is affected by number of factors

for instance core competencies held by an organization, structure of the organization

and organizational culture. Organization strategy and its architecture positively

impacts organizational performance. Capabilities at corporate level possessed by

management greatly influence organizational performance (Adner and Helfat 2003).

Sharing of core competencies among strategic business units positively

impacts successful performance of related diversification (Markides and Williamson

1996). Strategy develops foundation for activities of the firm, the implied assumption

is that poorly crafted strategy has great negative influence on organizational

performance (Goold, Campbell et al. 1987). Goold, Campbell et al. (1987) also

argued that involvement of parent firm in crafting strategy of strategic business unit

may hinder its competence. Parent firm usually do not add value in the strategy of

strategic business unit for the reasons that they lack knowledge about strategic

business unit, they try to exert unnecessary control over strategic business unit and

they may not be applied uniformly across all strategic business units.

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Research on corporate management appears to contribute in understanding of

strategy (Weiner and Mahoney 1981). There are conflicting findings in corporate

strategy research because of two schools of thought on crafting process of strategy;

the deliberate framework and the emergent model. There has been more focus on

crafting the strategy than its implementation (Dess, Gupta et al. 1995). It has also

been asserted that most studies are on finding out the impact of strategy on

performance in the area of strategic management and didn’t consider other factors

(Dess, Gupta et al. 1995). A major portion of publications examining the strategy

seems to be based on subjective evidence from few case studies by researchers

working as consultant. Dess, Gupta et al. (1995) noted that cross sectional studies on

strategy performance relationship have limitations such as it does not consider a

possibility of performance strategy relationship and secondly taking account of

critical variables such as managerial skills.

Initially researches focused on the organization’s behaviour linked with

organization’s performance, but it was not justified by the industry level analysis.

Later strategic group analysis was suggested for industry level analysis and

organization level analysis (Porter 1981). Strategic group maps explained evident

groups of businesses that seem to behave in identical ways in an industry. By

assessing strategic groups depicting similar strategies, researchers started to classify

resemblances in strategic groups. Business typologies, also a result of such practices,

were formed by identifying generic strategic practices adopted by different firms in an

industry. Literature generally maintains the view that a firm’s performance is

influenced by competitive strategies in different ways (Porter 1980, Hashim 2000).

The strategic groups were identified by strategic typologies, suggested in

1980s. Porter (1985)’s typology of generic strategies is extensively referenced.

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According to Porter (1985), business performance can reach its peak in two ways.

Firstly, by becoming a low cost producer of the industry and secondly by becoming

differentiator of the industry. Differentiation strategy or low cost producer strategy

may be applied with the organization’s focus on a particular segment of the market.

Porter (1980) proposed that businesses following low cost producer as well as

differentiator strategy, simultaneously, always end up stuck in the middle. His

argument was based on the assumption that low cost and differentiation are contrary

strategies. Initially, this argument got support (Dess and Davis 1984) but later it was

confronted in different studies (Parnell and Wright 1993, Proff 2000). Consequently,

it was admitted by Porter that businesses successfully found out the ways of making

combinations of both the above mentioned strategies.

Contemporary research efforts on the subject of strategic management

investigate the features of resources and processes of an organization that develops

sustainable advantage and performance in the competition. Organizations attain

sustainable performance through value creation in its operations. Organization’s

sustainable performance is dependent on vulnerability of value creation activities in

reaction to external shocks of the environment. Organizations showing more

resistance against external shocks will be more sustainable in performance.

The competitive advantage term is well grounded in the literature of strategic

management (D. Banker, Mashruwala et al. 2014), if an organization acquire

sustainable competitive advantage then the question arises that how sustainable that

competitive advantage is in the long run, the contemporaneous performance cannot be

gauged alone (D. Banker, Mashruwala et al. 2014). Studies refer to achievement of

superior performance is linked to following of generic strategies, either cost

leadership or differentiation (Porter 1980, Hambrick 1983, Porter 1985). The superior

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performance may be sustained, if an organization is successful in developing barriers

to imitations of practices that gain them competitive advantage (Ghemawat 1986).

Another typology was given by Miles, Snow et al. (1978). Four strategic

approaches were identified by them: prospectors, analyzers, defenders, and reactors.

Strategies of prospector, analyzer and defender are linked with high performance

when the organization’s approach lines up with the environmental changes. Studies

have shown support for Miles and Snow’s typology (Parnell 2000, DeSarbo, Anthony

Di Benedetto et al. 2005). Resource based view has been substantiated in the

empirical literature (Ray, Barney et al. 2004). Organizational level issues such as

economies of scope, organizational culture and transaction costs have been argued by

the supporters of resource based view (Barney 1991, Fiol 1991).

Well known issues that exist at business level are competitor’s replication

(Rumelt 1984), irregularities regarding information flow (Barney 1995) and hoarding

of resources (Dierickx and Cool 1989). Competitive advantage sustainability is

extremely reliant on the competitors inability to replicate (Barney 1991). Recent

addition in organizational economics literature are transaction costs theory, agency

theory and property rights theory (Gibbons 2003, Whinston 2003, Foss and Foss

2005). In number of aspects these theories of organizational economics represent an

addition to resource based perspective. Organization economics studies have

integrated theories developed for industrial/organization level analysis with methods

more suitable for the firm level (Ghobadian, O'Regan et al. 2007).

The organizational economics perspective highlights this matter by

considering top management as a prime source to work on in terms of their hiring and

growth. Competitive strategy area have seen considerable growth by adding in

transaction costs, agency theory and other corporate governance matters (Boxall and

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Gilbert 2007). Organizational economics provides a framework that may develop

better understanding of competitive strategies in organizations (Kim and Mahoney

2005). The strategic groups, resource based view and organizational economics vary

in their assumption regarding the performance of the organizations. The rapid

developing interest in firm’s resources does not lessen the importance of application

of competitive strategy typologies (Parnell, 2008, (Kim, Nam et al. 2004). Moreover ,

with the pace of change in global business environment and internet diminishing

physical boundaries and distance, firms have been able to target bigger markets with

more efficiency (Kim, Nam et al. 2004).

2.14 Linking cost leadership strategy with performance

A stable macro and micro environment suits a firm pursuing strategy of cost

leadership (Miller 1988). A cost leadership firm, charging prices lesser than its

competitor firms, improves its chances of becoming an above average industry

performer. While following the cost leadership strategy, when many firms are

pursuing the same cost leadership strategy without keeping them self at cost

disadvantage, it becomes very hard to sustain advantage in the competition for a long

term (Barney 2002). Transfer of practices and technologies, that are built to enhance

efficiency and reduce costs, transfer of such technologies and practices to

competitors, quickly reduces the competitive advantage. Cost efficiencies achieved

through process improvements hardly becomes a source of cost advantage,

particularly if suppliers make any kind of contribution to such process improvement

as suppliers may become a source of transfer of such practices to competitors. If the

cost efficiencies are achieved through the economies of scale, in that case also, the

competitive advantage may disappear when the competitors enter into the industry

with huge resources and start operating a business at the same or a larger scale.

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Organization learning is also considered an important source of advantage, but that

advantage is not sustainable if there is a quick knowledge diffusion across competitors

(Murray 1988).

2.15 Linking differentiation strategy with performance

There are high chances of creating a sustainable advantage by using the

differentiation strategy because a unique product or service is hard to imitate by

competitors (Grant 1991). A differentiation strategy developed around product

innovation is particularly hard to imitate because the competitors may respond

quickly to pricing moves but they will take time to respond against an innovation

through R&D. R&D is considered to develop the technological capabilities of the

firm, which are hard to imitate and can give a competitive advantage to a firm in the

long run (Coombs and Bierly 2006). If the firm is able to sustain its advantage in the

competition for a long term, its opportunity to create another source of competitive

advantage also enhances (Porter 1985).

Firms with focus on differentiation strategy work in close relationship with

their customers, and also develop a hard to imitate resource (Carter and Ruefli 2006),

which results in better performance of the firm (Graham and Bansal 2007). The

competitive advantage achieved by a firm through differentiation has a high chance of

sustainability, if the uniqueness of the product or service makes it hard for the

competitors to copy (Grant 1991). A differentiation strategy built up around the

technological process innovation is hard to copy, as compared to marketing

innovation and management innovation. As the competitors have the tendency to

quickly respond to any pricing moves or packaging methods, it is better for the firms

to produce an inimitable product or service through innovation because then the

competitors will take time to respond against that innovation, as it involves R&D or

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reverse engineering. Technological capabilities developed through research, intensive

capital and superior human resource are hard to imitate and give a long term

competitive advantage to the firm (Coombs and Bierly 2006). Firms focusing in

differentiation strategy, when work with close customer interaction, have a better

chance of improving performance and building up a resource that is hard to copy for

competitors (Carter and Ruefli 2006).

Differentiation strategy is regarding the level of distinctive products and services,

providing competitive advantage (Porter 1985). Differentiation may be achieved

through any part of the value chain (Porter 1985). It is the deliberate act of placing a

firm in the market with reference to its competitors. Differentiation is developed

through price differences, perceived variations and other services given with the

product. When a company improves the performance of the product without adding

new features, then it is trying to compete on quality. When it competes by adding new

different features, it is trying to differentiate itself extensively, through design

(Mintzberg 1988). (Zehir 2015, Zehir, Can et al. 2015) focused on the connection

between Employee orientation and firm performance with differentiation strategy and

innovation performance mediating the relationship between employee orientation and

firm performance. Guisado-González, Vila-Alonso et al. (2016) found the negative

link between the differentiation strategy and R & D activities of the firm, they are of

the view that the firms placed as a differentiator in the industry, possess and utilize

some different kind of knowledge that is not possessed by the competitors.

2.16 Critical analysis of literature review

The literature discusses the concepts of strategy and competitive strategy, and

then later explains the differentiation strategy and cost leadership strategy. Strategy

and generic strategies has been area of study for decades, contemporary studies in the

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area of generic strategies also highlights its importance in different industries (Zehir,

Can et al. 2015, Bayraktar, Hancerliogullari et al. 2016, Guisado-González, Vila-

Alonso et al. 2016, Mohsenzadeh and Ahmadian 2016, Pehrsson, Svensson et al.

2016). The study also takes innovation and organization learning as mediating

variables with its dimensions. According to Thompson, Peteraf et al. (2013)

organization learning and innovation may be considered as critical success factors

for the organization. It seems that differentiation strategy enhances innovation, as to

stay differentiated from its competitors; firm will enhance process innovation,

marketing innovation and management innovation. It appears that to hold cost

leadership position in the industry, process innovation appears to be significantly

important as process innovation seems to be a key in reducing the cost of products or

services. Further the importance of learning can’t be undermined as learning appears

to help in finding out the ways to execute the tasks with efficiency and effectiveness.

It appears likely that to effectively follow one of the generic strategy either

differentiation or cost leadership, the learning must be intact with its entire

dimensions within the organization.

Day (1984) has linked the price sensitivity of the customer in a given market

to cost leadership strategy. It is hard to conclude about the price sensitivity of whole

population but it appears that generally people living in developing countries are

price sensitive while buying any products or services. Day (1984) argue that price

sensitivity is just a minor level consideration for cost leadership strategy. About

differentiation strategy, it is dependent on the maturity of the industry. When an

industry is in its earlier stages it’s easy for the competitors to differentiate but with

the passage of time as industry reaches towards maturity, it becomes hard for the

competitors to differentiate. Thus sustaining competitive advantage on basis of

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differentiation strategy becomes harder and it becomes easy to sustain competitive

advantage on the basis of cost leadership. A common assumption while viewing

strategy literature is that strategies connect positively with the organization

performance, however it is effected by number of factors such as organization

structure, organization culture and core competencies possessed by the organization

Bowman and Helfat (2001).

2.17 Theoretical foundations

In the last few decades, two major topics have appeared in the studies in link

with organization performance differences of the firm, one is resource based theory

and the other is industry organization approach. In industry organization approach,

the important determinants for organizational performance were structural

characteristics of the industry (Porter 1998). In this scenario, characteristic of an

industry drive the behaviour of the organizations operating in an industry, which leads

to differences in between the firms (Bowman and Helfat 2001). Thus, different

industry factors, like: economies of scale, hurdles to enter in a market, diversification,

and differentiating product from the others, determine the performance of an

organization in an industry (Seth and Thomas 1994). D. Banker, Mashruwala et al.

(2014) found that both generic strategies (differentiation and cost leadership) lead to

higher performance but the differentiation strategy can help in sustaining advantage in

the competition for a long term.

The above mentioned views, based on industry organization perspective, were

countered by resource based view of the firm, which focuses on the significance of

the inside resources that an organization possess to compete in an environment (Collis

and Montgomery 1995). Organizations operating in the same business environment,

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facing the same market conditions, facing the same demand and supply and other

market attributes, still differ in their performance. According to resource based theory,

their performance differs mainly because of the unique resources and capabilities that

different organizations possess (Markides 1999, Lee, Lee et al. 2001). Initially, there

was a limited research on the above mentioned concepts of industry/organization view

and resource based view.

Schmalensee (1985) was among the initial researchers to study on the

determinants of the industry, and the organizational factors which contribute to

organization’s profitability. A few authors have supported the industry organization

view, by focusing on the industry’s factors that play an important role in determining

the organization’s profitability, and by promoting the view that firm’s own resources

are not significant in determining its position in the market (Schmalensee 1985,

Montgomery and Porter 1991). The other authors verify the dominating role of firm’s

own resources and capabilities in determining its performance (McGahan and Porter

1997, Brush and Chaganti 1999, Hawawini, Subramanian et al. 2003). Different

organizations vary with respect to their resources, capabilities and their utilization

(Barney 1991). Small and large organizations, although competing in the same

industry , perform in very different ways and have different resources and strategies,

Studies show that both financial and non-financial measures are used by the large

organizations, but they are more inclined towards financial measures (Malina and

Selto 2004). The performance construct depends on the strategic alternatives (Steers

1975).

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2.18 Conceptual framework and hypotheses

Conceptual Framework

Figure 2-1: Conceptual framework and hypotheses

2.19 Conclusion

This chapter gives a detailed overview of generic strategies, organization

learning, innovation and performance, while also discussing their dimensions. The

chapter also covers the linkages between the above mentioned four variables. There

are number of competitive strategy frame works, but this thesis utilizes Porter’s

(Porter 1980) generic strategy frame work in order to study their application in the

telecom sector of Pakistan. The prime reasons for utilizing Generic strategies of

Porter in this study were: 1) they have been tested widely 2) they have got wide-

170

spread support and 3) Porter’s framework is believed to be a dominant framework in

the area of strategic management.

Organization learning and innovation are considered as key success factors for

organizations competing in this contemporary world (Thompson, Strickland et al.

2008). Organization learning was taken as a variable in this study with its four

dimensions: external knowledge acquisition, internal knowledge acquisition,

knowledge distribution, and knowledge interpretation. Similarly, innovation was

measured through its dimensions of process innovation, marketing innovation and

management innovation. The investigation of the strategic management literature

identified a number of gaps, and after an intensive study of earlier work in this area,

no study was found which had empirically tested Generic strategies of Porter in the

telecom sector of Pakistan. There was a gap for a research that incorporates

organization’s generic strategies, organization learning, innovation and organizational

performance in a single study. In order to fill these gaps this study suggests a

theoretical framework based on organizational generic strategies, organization

learning, innovation and performance. This theoretical framework has been tested on

the telecom sector of Pakistan. The suggested framework tried to discover the generic

strategy or blend of generic strategies an organization is following, and the extent to

which does their strategic plan affects performance. In addition, it integrates

organization learning and innovation in a single framework in order to find out its

impact on organizational performance and determine their role as mediators of the

link between strategy and performance. The subsequent chapter covers the

methodology and research design of the study, which aims to fill the gaps identified in

the literature and add a novel theoretical framework to the body of knowledge.

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CHAPTER 3

3 METHODOLOGY

The current chapter demonstrates and outlines the Pilot study measures,

hypothesis testing, and factor analysis to ensure the validity and reliability of the

questionnaire. Moreover it includes the sample selection process, instruments’

description and data analysis measures. Many researchers apply different methods for

survey, to test the hypothesis this study empirically investigated the Porter’s generic

strategies within telecom sector of Pakistan. The focus of empirical research is

studying through tests to find out happenings in the surrounding. According to

Remenyi (1998), it is the major part in management research.

Discussion in social sciences, from epistemological perspective, is made from

three broad positions: positivism, interpretivism and pragmatism. Foundation of

positivism is on the thoughts of decoding reality of physical world through scientific

methods and empiricism. Epistemology of positivism is based on the assumption of

law-like-generalization of the social phenomena under study. This approach is

especially useful when studying a larger set of interconnecting variables and a

relatively larger sample size. It must be mentioned that the law-like-generalization of

the social phenomena seems a far stretched view. But, the interpretivist stand on the

social phenomena leaves room for the interpretative error and biasness rendering the

theory-testing impractical. Considering the theoretical perspective and requirement of

the framework, pragmatism is contended to be the most suitable epistemological

stance due to combination of positivist and interpretivist approach to research

including data collection and assessment. In social sciences there are two broad

practical positions on each end of the spectrum: Positivism and phenomenology.

Foundation of positivism is on thoughts of intending through reality of physical world

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like scientific methods, empiricism. Studies based on positivism are mainly

quantitative (Saunders, Lewis et al. 2007). Empirical science comes under positivism

in which knowledge is developed through deductive logic (Hussey and Hussey 1997,

Saunders, Lewis et al. 2007) where a conceptual and theoretical foundation is formed

and then experimented by empirical observation (Hussey and Hussey 1997, Saunders,

Lewis et al. 2007). Researchers make hypothesis to be tested by quantitative data

gathered (Saunders, Lewis et al. 2007).

Data collection and analysis is involved in a quantitative approach and then

statistical tests are applied. There is a positive role of quantitative method in research

by studying population and samples. The findings of quantitative research appear in

the form of descriptive or complex statistics. For the current study, quantitative data

analysis was used to test Porter’s generic strategies within Pakistan telecom sector

and later qualitative data was gathered for the purpose of triangulation. Triangulation

includes evaluation and analysis of evidence from more than one sources in a way

that findings are based on union of that information (Erlandson 1993, Yin 1994). The

strength of triangulation is its ability to offset any bias inbuilt in a specific data

source. Triangulation permits verification of the responses collected from

respondents (Saunders 2011). By integrating multiple theories and methods,

researcher may fix the shortcomings or overcome the inherent biases that arise from

single method or single theory studies. The point where information converge from

different perspectives appear to represent the reality(Jakob 2011).

The main goal of this research was to investigate the in depth relationship

between organization generic strategies and organization performance through

mediation of organization learning and innovation in telecom sector of Pakistan. The

study followed a positivist philosophy. In order to identify the connections between

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above mentioned variables, empirical analysis is required. Empirical analysis is

carried out through self-administered questionnaire method. As the suggested model

conditions that the organization learning and innovation are the reason for deviation in

the dependent variable outcome. The research employed quantitative causal research

methods to check the relationships. Time horizon for this research is cross sectional

and unit of analysis for this study is employees of the Telecom sector. The

quantitative analysis is appropriate for this research because data has been given

numerical values to make sure the connections among variables. Measurement of

internal consistency has been calculated using Cronbach alpha. In addition to this, for

validity and reliability assurance EFA and CFA has been performed.

3.1 Population and sampling

The study includes major telecommunication companies of Pakistan i.e. CMPAK,

Mobilink, U-fone, Telenor and Warid. Target population for the current study were

employees of telecom sector. According to the respective HR departments, total

number of employees at the lower, middle and the top level management are 11015.

The study is perception based as Perception based study requires the perceived

opinion of the influenced people in the organization which may or may not include

the supervisors or managers. Managers are considered as the influenced people

because every manager, except the very top management team, are also being

managed by some other higher manager based on some strategy.

3.1.1 Sample selection and sample frame

The sample size taken in the study was drawn from the population of these

organizations against the total population of N = 2448. The study used simple random

sampling technique as it provides equal chance to each individual of being included in

the sample. The process of sample selection was that organizations have been

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accessed by taking permission earlier. Appointments were made with HR

management by utilizing the permission letter of IQRA University which stated the

purpose of study and guaranteed the confidentiality of the IDs of respondents. A

questionnaire copy was also provided to Human Resource department before

distributing to the other respondents. HR department of the telecom organization

provided the randomized list of employees according to their cadre. The employees

from the list were approached to fill the questionnaire

Appropriate sample size according to population size was taken from (Krejcie

and Morgan 1970). The sample size drawn from the selected five telecom

organizations of Pakistan for the current study was 296. The details of the population

and sample size of the said telecommunication organizations are as:

Company

Permanent

employees

(Population) = N

Employees’

categories

Sample

Mobilink 2902 Apx.

Top 63

Middle 426

Lower 2413

U-fone 2400 Apx.

Top 55

Middle 550

Lower 1795

Telenor 2296 Apx.

Top 52

Middle 523

Lower 1721

Warid 997 Apx.

Top 05

Middle 415

Lower 577

Zong

(CMPAK) 2420 Apx.

Top 43

Middle 316

Lower 2061

Total 11015 Apx. 296

Table 3-1: Population and sampling

3.1.2 Survey response rate

Table 3-1 clearly describes that out of total 750 questionnaires, distributed to

all five telecom organizations, only 296 were received and found complete and

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reliable. 454 questionnaires were either incomplete or unreliable and have not been

included in the study. The overall response rate was 39.46 % in total.

Organization Questionnaires

distributed

Questionnaires

received

(fit for analysis)

Questionnaires

unanswered

Response

rate (%)

Mobilink 150 73 77 48.6

Ufone 150 66 84 44.0

Telenor 150 58 92 38.6

Warid 150 45 105 32.0

Zong

(CMPAK)

150 54 96 36.0

Total 750 296 454 39.46

3.1.3 Qualitative Research Design

The sample for interview was taken from the 254 respondents gathered from the

questionnaire survey, which is different from the 296 actual sample of the quantitative

study. Some of the respondents did not provide the contact details for later

communication thus those were not considered for the qualitative data. The prime

purpose of taking sample from questionnaire respondent was that it gave opportunity

to cross-check their views on the competitive strategies. Also one of the objectives of

using semi structured interview is to explore and explain the themes that have

appeared from the use of questionnaire (Saunders 2011).

To carry out the interviews in order to collect relevant information, interview script

was made by adding the research purpose, confidentiality of respondents. Various

questions were added to explore competitive strategy, organization learning,

innovation and performance. The instrument for the interview was developed with the

objective of obtaining related information and direct the researcher to ask questions

that are appropriate and in line with the objectives of the study.

Table 3-2: Response rate of survey

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Relevant literature was studied to identify the questions which are important to ask for

the sake of above mentioned objectives. These questions were later verified and

validated by the four academic subject experts and three industry professionals, which

were well versed with the phenomena in the study. Based on the comments of these

reviewers few changes were made in the questions. Upon interviews, respondents

were initially asked general questions to ensure respondents’ ability to understand and

answer the questions. The critical questions were asked later and respondents were

encouraged to explain their answer further if required.

The study utilizes semi structured interview, because as suggested by the (Saunders

2011) structured interviews have to be analysed quantitatively, and for this study

structured interviews won’t allow respondents to clarify the links of variables in

connection with the competitive strategy. Unstructured interviews are helpful in

getting in-depth understanding of matter but they are by nature exploratory.

Unstructured interviews helps in exploring the happenings but they are unable to

explain the link between the variables (Saunders 2011). Semi structured interviews

are descriptive as well as exploratory in nature (Saunders 2011). Semi structured

interviews allow the examination of matter and also helps in grasping the links among

the variables. Total 15 interviews were conducted from the employees of telecom

organizations. 5 interviews were conducted from Mobilink, 4 interviews were

conducted from the employees of Telenor, 3 interviews were condcucted with the

employees of U-Fone and 3 interviews were conducted with the employees of Zong.

3.2 Extent of researcher interference

In order to keep the study setting non-contrived, the study has been carried

out in natural environment. The interference by researcher was minimum in routine

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operations of the organization and data was collected from employees working at

different managerial levels.

3.3 Industry setting

The telecom sector of Pakistan has been chosen for this research. Before

choosing this industry brainstorming sessions with middle level and top level

employees of the five selected telecom organizations had been done. Brainstorming

sessions with middle level and top level employees of Mobilink, Telenor, Ufone,

Zong and Waird were conducted. The professionals from selected telecom concerns

were inquired about differentiation and cost leadership strategies in relation with

organization Learning, innovation and organizational Performance.

Pakistan telecom industry consists of wireless local loop operators,

fixed local loop, long distance international operators and cellular operators (PTA

2012-13). The reach of this study is restricted to only five cellular operators i.e.

CMPAK, Mobilink, Ufone, Telenor and Warid. The chosen organizations are similar

in terms of following the same regulations. Thus the goal i.e. “to examine the

competitive strategies of telecom companies of Pakistan” pursued in the current

study.

3.4 Variable measurement

The research utilizes four types of measurements: Organizational Strategy,

Organization Learning, Innovation and Organization Performance variables. Allen

and Helms (2006) used 25 strategic variables in various industries. Allen, Helms et

al. (2007) used 25 strategic variables in multiple industries and these variables were

taken from studies i.e. (Porter 1980, Porter 1985) and (Parker and Helms 1992). Lau

(2002) used 9 already developed strategic variables and tested on electronics and

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computer manufacturers. Thus looking at the number and the types of strategic

variables, it can easily be inferred that there is no agreement on employment of

strategic variables to examine generic strategies. Multiple studies employed variables

from PIMS database (Miller and Friesen 1986, White 1986, Miller and Dess 1993).

3.5 Description of the Instrument

In order to examine Porter’s generic strategies, measures were mainly taken

from the work of Dess and Davis (1984). Though the generic strategy scale was

developed in 1984 but this scale has been used and updated by multiple researchers.

It has also been observed that in the past studies on competitive strategy, majority of

items were for differentiation strategy and lesser belongs to cost leadership strategy

like Kim and Lim (1988) used 12 items of differentiation strategy and 3 items of cost

leadership. Nayyar (1993) employed 19 items of differentiation strategy and 6 of cost

leader ship, (Marques, Lisboa et al. 2000) used 15 items for differentiation and 6

items for cost leader ship and Silva, Lisboa et al. (2000) employed 13 items for

differentiation and four items for low cost strategy. Clear view can be derived from

the said proportion of the study variables regarding differentiation and Cost

leadership strategies which should not justify the equitable treatment with both the

strategy variables in the past studies. Going through earlier studies, it has been

analyzed that more items belong to differentiation strategy however Porter (1980)

stated that competitive advantage may be attained in any activity of value chain

either through differentiation or cost leadership. In addition to this, by improving

ratio of cost leadership items to differentiation items, other characteristics of

competitive strategies have been put forward in the current study.

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Differentiation strategy (OSDIF) was measured using following activities of

firm:

Table 3-3: Differentiation strategy (OSDIF) items

Cost leadership strategy (OSCL) was measured using following activities of

firm:

Table 3-4: Cost leadership strategy (OSCL) items

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In order to measure innovation measures were taken from (Lin, Chen et al.

2010). The measures for management innovation (MnI), marketing innovation (MI)

and process innovation (PI) were as follows:

Table 3-5: Management innovation (MnI) items

Table 3-6: Process innovation (PI) items

Table 3-7: Marketing innovation (MI) items

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In order to measure organization learning measures were taken from

Pérez López, Manuel Montes Peón et al. (2005). The measures for external

knowledge acquisition (OLEKA), internal knowledge acquisition (OLIKA),

knowledge distribution (OLKD) and knowledge interpretation (OLKI) were as

follows:

Table 3-8: External knowledge acquisition (OLEKA) items

Table 3-9: Internal knowledge acquisition (OLIKA) items

Table 3-10: Knowledge distribution (OLKD) items

Table 3-11: Knowledge interpretation (OLKI) items

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In order to measure organizational performance, measures were taken from

Zulkiffli (2011). The measures for organizational performance (PERF) were as

follows:

Table 3-12: Organizational performance (PERF) items

Organizational Performance items appear to support differentiation strategy as well as

cost leadership strategy. In this scenario it is important to gain understanding of cost

leadership strategy. An organization attains status of cost leadership when it is

operating at lowest cost in the industry (Porter 1985). It is not essential that cost

leader is also providing its product or services at lowest cost. Cost leadership may be

attained through process innovation, management innovation, learning, economies of

scale etc. on the other end differentiation is offering of products or services in

distinctive ways to create value for the buyers (Porter 1985, Porter and Millar 1985).

Keeping in view the above definitions and discussion the above mentioned

organizational performance also relates to cost leadership strategy for instance with

best skill level of employees in industry, a company may get break through

development in process innovation and management innovation, thus becoming the

cost leader in the industry best supplier communication and best developed processes.

3.6 Pilot study and questionnaire confirmation

In order to have a psychometric equivalence of the instrument a pilot study

was conducted in the five selected telecommunication organizations of Pakistan. A

sample of 125 respondents was selected out of the target population, from the five

selected organizations, using simple random sampling. This sampling technique was

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only used in the pilot study. The randomly selected employees were contacted

personally and the designed questionnaires were filled by them during their break

time in the presence of the researcher. Researcher’s presence was ensured in order to

address the concerns of the employees regarding the purpose and confidentiality of

the responses. On the other hand, this made certain that the questionnaires were

completely filled and the queries were duly answered.

The questionnaire included total 53 items addressing the key variables of

organization generic strategies, organization learning, innovation and organizational

performance, which later on reduced to 49 items after confirming their reliability and

factor analysis in pilot testing process. Overall response of the pilot study was good

because of the fact that 1) it was permitted by the organization and 2) the survey

addressed their prime concerns in their company.

3.7 Data reliability

Before using the data for further analysis it was important to check the

reliability of the constructs used through Cronbach’s alpha (α). Internal consistency is

the most popular of all methods for assessing scale reliability. (Churchill Jr 1979)

advocated the use of Cronbach’s alpha (α) for assessing the internal consistency of the

scale. Cronbach’s alpha reflects how well various items in a scale, measuring the

same construct, yield similar results. A low Cronbach’s alpha (α) score indicates that

some items do not share the similarity and therefore, the poor performing items

should be identified and discarded before proceeding further. Where there is no

absolute guideline on the acceptable level of Cronbach’s alpha (Nunnally, Bernstein

et al. 1967) has suggested a reliability of 0.50 – 0.60 for basic research and the study

(Gerbing, Anderson et al. 1988) has also suggested an alpha value of 0.70 and above

as reliable.

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The view that the alpha value of 0.7 and above represents high reliability is

also supported by the new researchers (Christmann and Van Aelst 2006). In the

current study Cronbach alpha was evaluated earlier and later construct validity to

ensure the suitability of factor structure in Pakistan Telecom sector. The construct

validity measures the usefulness of the instrument considering how well the

instrument measures what is needed to be measured. The goal of this research was to

prepare a model to test the variables of Organization Strategy, Organization Learning,

Innovation and Organization Performance in a reliable and valid way. Because of

insufficient psychometric properties to prove construct validity (Yang, Watkins et al.

2004), it was determined by carrying out confirmatory factor analysis for the

organization strategy, organization learning, innovation and organization performance

constructs in Pakistan telecom sector.

Validity, according to Hussey and Hussey (1997) is to check whether the data

truly depicts the reflection of the research objectives. As Brown (1996) stated that

validity can be divided into three sub-categories i.e. content, criterion-related, and

construct validity. In order to address the Content validity, the study investigated the

degree of sample representative in five telecommunication organizations by going

through various brain storming sessions and the pilot tests. Construct validity

requirement is also considered in the current research quoted number of studies made

use of instruments of the Organization strategy, organization learning, innovation and

organization performance. Face validity of questionnaire was also determined by

consulting practitioners for the questionnaire. Practitioners accepted the items with

few alterations in phrasing the questions to appropriately apply it in Pakistan Telecom

sector context. In the current study subjective performance measures are used by

researcher to measure organization performance. There are considerations regarding

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use of subjective performance measure like increase in measurement errors and

common method bias but still there are good reasons for use of subjective measures.

One of the main reasons is that it is almost impossible to achieve financial data of

different departments of the organization (Gupta 1987). Second researchers have

evaluated convergent, discriminant and construct validities of both subject and

objective measures and recommended that subjective measures are also useful (Wall,

Michie et al. 2004). There has been an increased reliance on subjective performance

measure by professionals and researchers and also have taken a lot of interest.

Subjective measures are helpful when information required is about qualitative

aspects and beyond objective performance measures (Ittner, Larcker et al. 2009). In

this study non-financial subjective measures have been used to evaluate firm

performance.

SECTION A

Scale: 5 point Likert scale

Variable Dimension Items

Cronbach’s

alpha (α)

Organization strategy

(OS)

OSLC: Cost leadership strategy 7 0.88

OSDIF: Differentiation strategy 11 0.92

18

Organization

learning (OL)

OLEKA: External knowledge acquisition 4 0.86

OLIKA: Internal knowledge acquisition 3 0.86

OLKD: Knowledge distribution 4 0.85 OLKI: Knowledge interpretation 5 0.80

16

Innovation PI: Process innovation 5 0.86

MnI: Management innovation 5 0.88 MI: Marketing innovation 5 0.90

15

Organization

performance

4 0.83

Total Items 52

Table 3-13: Scale reliability

All the reliabilities were in the acceptable range so the next step was to check

the construct validity of the pilot data.

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3.8 Validation of constructs

To ensure the validity of the constructs for use in the study principal

component analysis (PCA) was performed on the pilot data. It tested how well the

measured items of the study constructs represented them respectively. The item with

a loading value of less than 0.40 was deleted. The KMO (Kaiser-Meyer-Olkin

Measure of Sampling Adequacy) of each latent variable was also checked to ensure

that it was greater than 0.60 as required. Tables 3-14 to 3-19 display the results of

factor analysis generated by varimax rotation for the two factors of strategy, four

factors of learning, three factors of innovation and one factor of performance. Eigen

values of all the factors were also checked to ensure that it was greater than 1, as

required. Furthermore, the % of variance explained by the dimensions should be

minimum 60% to be applicable for the study.

Factors

Item ID DIF CL

OSCL1 - 0.81

OSCL2 - 0.84

OSCL3 - 0.82

OSCL4 - 0.80

OSCL5 - 0.39

OSCL6 - 0.86

OSCL7 - 0.79

OSDIF1 0.81 -

OSDIF2 0.78 -

OSDIF3 0.77 -

OSDIF4 0.85 -

OSDIF5 0.78 -

OSDIF6 0.81 -

OSDIF7 0.87 -

OSDIF8 0.39 -

OSDIF9 0.87 -

OSDIF10 0.82 -

OSDIF11 0.38 -

Eigen values 6.42 4.29

% of Variance 35.7 23.8

Cumulative % 35.7 59.5

Table 3-14: Organization strategy (OS) dimensions’ factor loadings

Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.89.

CL: Cost leadership; DIF: Differentiation

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The above table (Table 3-14) shows the factor analysis of Organization

strategy and the item loadings corresponding to the two dimensions of strategy. The

item OSCL5 had a loading value of less than 0.40 so it was deleted from the list of

items that were used to measure cost leadership. Furthermore, two items of

differentiation also showed a loading value of less than 0.40, they being: OSDIF8 and

OSDIF11. The % of variance explained by the dimensions of strategy was 59.5%, and

as it was less than 60% the factor analysis was performed again after deleting the

items with poor factor loadings.

The table below (Table 3-15) shows the results of factor analysis

conducted again for Organization strategy after the deletion of poor performing items.

Factors

Item ID DIF CL

OSCL1 - 0.81

OSCL2 - 0.84

OSCL3 - 0.83

OSCL4 - 0.80

OSCL5 - 0.87

OSCL6 - 0.80

OSDIF1 0.81 -

OSDIF2 0.79 -

OSDIF3 0.77 -

OSDIF4 0.86 -

OSDIF5 0.78 -

OSDIF6 0.81 -

OSDIF7 0.87 -

OSDIF8 0.87 -

OSDIF9 0.83 -

Eigen values 6.13 4.19

% of Variance 40.9 27.9

Cumulative % 40.9 68.8

Table 3-15: Organization strategy (OS) dimensions’ factor loadings Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.90. CL: Cost leadership; DIF: Differentiation

The % of variance explained by the dimensions of strategy improved to 68.8

% from 59.5% after deleting the items with poor factor loadings. Furthermore, the

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factor loadings now were all above 0.40. Thus, the above items were now validated

for use in final data collection. The KMO value also improved to 0.90 from 0.89.

Factors

Item ID EKA KI KD IKA

OLEKA1 0.76 - - -

OLEKA2 0.80 0.33 - -

OLEKA3 0.81 - - -

OLEKA4 0.78 - - -

OLIKA1 - - - 0.79

OLIKA2 - - - 0.81

OLIKA3 - - - 0.82

OLKD1 - - 0.77 -

OLKD2 - - 0.78 -

OLKD3 - - 0.73 -

OLKD4 - - 0.82 -

OLKI1 - 0.77 -

OLKI2 0.39

OLKI3 - 0.77 0.30

OLKI4 - 0.70 -

OLKI5 - 0.77 - 0.30

Eigen values 2.96 2.93 2.87 2.43

% of Variance 18.5 18.4 18.0 15.2

Cumulative % 18.5 36.9 54.9 70.1

Table 3-16: Organization learning (OL) dimensions’ factor loadings Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.87. EKA: External knowledge acquisition; IKA: Internal knowledge acquisition; KD:

Knowledge distribution; KI: Knowledge interpretation

The above table (Table 3-16) shows the factor analysis of Organization

learning and the item loadings corresponding to the four dimensions of learning. The

item OLKI2 had a loading value of less than 0.40 so it was deleted from the list of

items that were used to measure knowledge interpretation. The factor analysis was

performed again after deleting the item with poor factor loading. The table below

(Table 3-17) shows the results of factor analysis conducted again for Organization

learning after the deletion of poor performing item.

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Factors

Item ID EKA KI KD IKA

OLEKA1 0.77 - - -

OLEKA2 0.80 0.31 - -

OLEKA3 0.81 - - -

OLEKA4 0.78 - - -

OLIKA1 - - - 0.79

OLIKA2 - - - 0.82

OLIKA3 - - - 0.86

OLKD1 - - 0.77 -

OLKD2 - - 0.78 -

OLKD3 - - 0.73 -

OLKD4 - - 0.82 -

OLKI1 - 0.79 -

OLKI2 - 0.77 0.30

OLKI3 - 0.72 -

OLKI4 - 0.79 - -

Eigen values 2.96 2.88 2.83 2.39

% of Variance 19.7 19.2 18.9 15.9

Cumulative % 19.7 38.9 57.9 73.8

Table 3-17: Organization learning (OL) dimensions’ factor loadings Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.87. EKA: External knowledge acquisition; IKA: Internal knowledge acquisition; KD:

Knowledge distribution; KI: Knowledge interpretation

The % of variance explained by the dimensions of learning improved to 73.8

% from 70.1% after deleting the item with poor factor loading. The factor loadings in

the above table were all above 0.40 and therefore the items of organization learning

were now validated for use in final data collection. The KMO value was 0.87 and

therefore acceptable.

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Factors

Item ID MI MnI PI

MnI1 - 0.83 -

MnI2 - 0.81 -

MnI3 - 0.73 -

MnI4 - 0.80 -

MnI5 - 0.77 -

PI1 - - 0.81

PI2 - - 0.79

PI3 - - 0.82

PI4 - - 0.73

PI5 - - 0.75

MI1 0.80 0.30 -

MI2 0.79 - -

MI3 0.86 - -

MI4 0.73 - -

MI5 0.81 - -

Eigen values 3.61 3.55 3.28

% of Variance 24.1 23.6 21.9

Cumulative % 24.1 47.7 69.6

Table 3-18: Innovation dimensions’ factor loadings Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.87. MnI: Management innovation; PI: Process innovation; MI: Marketing innovation

The above table (Table 3-18) shows the factor analysis of Innovation and the

item loadings corresponding to the three dimensions of innovation. The factor

loadings in the above table were all above 0.40 and therefore the items of innovation

were validated for use in final data collection. The KMO value was 0.87 and therefore

acceptable. The % of variance explained by the dimensions of innovation was 69.6 %

which also was acceptable.

Factor

Item ID PERF

PERF1 0.86

PERF2 0.76

PERF3 0.82

PERF4 0.82

Eigen values 2.68

% of Variance 67.1

Cumulative % 67.1

Table 3-19: Organization performance’s (PERF) factor loadings Note: Kaiser-Meyer-Olkin Measure (KMO) of Sampling Adequacy is 0.78.

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The above table (Table 3-19) shows the factor analysis of Organization

performance and its item loadings. The factor loadings in the above table were all

above 0.40 and therefore the items of performance were validated for use in final data

collection. The KMO value was 0.78 and therefore acceptable. The % of variance

explained by the dimensions of innovation was 67.1% which also was acceptable.

3.9 Study Ethics

Researcher took care of study ethics while carrying out this study. Researchers

got in contact with these telecom sector organizations by using a permission letter

from university. The confidentiality of respondent’s identity was also taken care of.

Questionnaire was earlier shared with HR department and with their consent it was

distributed among other departments. Questionnaires were distributed according to

random list of employees generated by the respective HR department of the

organizations.

3.10 Data Screening

Earlier in the data analysis phase, screening of the data was done for missing

values, normality and outliers. Pair wise deletion and imputation were used to take

care of missing values (Tabachnick and Fidell 2001). Outliers were addressed and

normality of data was ensured. According to Tabachnick and Fidell (2001), skewness

and kurtosis values should lie in between -2 and 2.

3.11 Data Analysis

Analysis of the data was done through data compilation, screening, and

descriptive statistics to analyse the demographic profile of the respondents.

Correlation analysis was performed among the scales and measurements to identify

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the associations between them. The data analysis further included the assessment of

the descriptive statistics and reliability of measures, validation of constructs and

evaluation of the effect of demographic variables on the study variables. Statistical

Package for Social Sciences (SPSS) software (version 22) was used for the above

mentioned statistical procedures. Thereafter, Analysis of Moment Structures (AMOS)

software (version 21) was used for Structural Equation Modeling (SEM), the analysis

procedure used for measuring the constructs and assessing the hypothesized

relationships between selected variables.

Structural Equation Modeling (SEM) expresses two important features of the

procedure (1) the presentation of causal processes through series of structural

equations (2) modeling of structural relations to achieve better conceptualizations of

theory under study (Byrne 2013). A model fit was also created using SEM. This

research has tested mediation through structural equation modeling. After ensuring

the model, the acceptability of model was checked through sample data that included

all the observed variables. In order to ensure goodness of fit between the data and

hypothesized model, process of model testing was done. Sample data was used on

hypothesized model structure to analyze fitness of data with the model structure.

Another main cause of using Structure Equation Modeling (SEM) for this research is

its ability to calculate approximately a series of different multiple regression

equations by identifying the structural model (Hair Jr., Joseph F. et al. 1995).

Structural Equation Modeling (SEM) is very appropriate in a scenario where

dependent variable turns out to be an independent variable in the next relationships.

An additional cause for employing SEM is its input data of variance or correlation

matrix not like rest of multivariate techniques.

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Another reason of using SEM is that the arrangement of the connections

among respondents is mainly focused by SEM (Hair Jr., Joseph F. et al. 1995). SEM

is a statistical method that analyzes the connections between latent and observed

variables (Hoyle 1995). The current study makes sure that the selected strategies (IV)

connect to organization learning and innovation (mediators). Organization Learning

(OL) and Innovation are connected to Organizational Performance (OP). The

connections among the selected variables have been made certain theoretically via

literature and empirically via brain storming session and later on through empirical

investigation.

Researchers develop hypothesis to be tested by quantitative data gathered

(Saunders, Lewis et al. 2007). Data collection and analysis is involved in a

quantitative approach and then statistical tests are applied. There is a positive role of

quantitative method in research by studying population and samples. The findings of

quantitative research appear in form of descriptive or complex statistics. The direct

relationship between Porter generic strategies and firm performance has been

investigated in many studies, but the mediating role of organization learning and

innovation between Porter generic strategies and organization performance has been

explored in this study for the first time. For this research quantitative data analysis has

been used to test Porter’s generic strategies within Pakistan telecom sector.

3.12 Summary

Construct validity of measures of instruments were done through exploratory

factor analysis and confirmatory factor analysis. Questionnaire includes 66 items

comprising of items of main variables and few questions about respondent

demographics. Pilot study was conducted and questionnaire was finalized after

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viewing the results of pilot study. Data was collected through simple random

sampling from employees at any managerial level of the organization. The response

rate of the survey was 39.46%. Data was collected through self-administered

questionnaire. Earlier permission was granted from the management of organizations

to collect data from their employees.

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CHAPTER 4

4 DATA ANALYSIS AND INTERPRETATION

This chapter encompasses the data analysis procedure undertaken, with its

interpretation. The data analysis procedure started with the data compilation,

screening, and descriptive statistics to analyse the demographic profile of the

respondents. It further included the assessment of the descriptive statistics and

reliability of measures, validation of constructs, evaluation of the effect of

demographic variables and correlation analysis between the measures of the study.

Statistical Package for Social Sciences (SPSS) software (version 22) was used for the

above mentioned statistical procedures. Thereafter, Analysis of Moment Structures

(AMOS) software (version 21) was used for structural equation modeling (SEM), the

analysis procedure used for hypothesis testing in this study.

4.1 Sample characteristics

The demographic profile of the overall sample under survey is summarized in

Table 4-6. It includes gender, age, organization, job responsibility. A total of 296

respondents provided completed questionnaires. Participants (N=296) included 189

males (63.9%) and 107 females (36.1%). Most of the respondents were from the age

group of 31-35 years (39.2%), or from the age group of 26-30 years (35.8%). The

other respondents were from the age group of 20-25 years (10.1%), 36-40 years

(12.2%) and 41-60 years (2.7%). Out of the five organizations included in the study,

the maximum responses were obtained from Mobilink (24.7%) and Ufone (22.3%).

The responses obtained from the other three telecom organizations were: 58 from

Telenor (19.6 %), 54 from Zong (18.2%), and 45 from Warid (15.2%). Analysis of the

job responsibility status revealed that 147 respondents (49.7%) were working at

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supervisory level. 90 respondents (30.4%) were Managers, whereas 21 respondents

(7.1%) were working at senior management level in their respective departments. Out

of the rest, 25 were operative employees (8.4%).

Variables Responses Frequency (N = 296) Percent (%)

Gender Male 189 63.9

Female 107 36.1

Age 20-25 years 30 10.1

26-30 years 106 35.8 31-35 years 116 39.2

36-40 years 36 12.2

41-60 years 08 2.7 Above 60 00 0.0

Organization Warid 45 15.2

Mobilink 73 24.7

Zong 54 18.2 Ufone 66 22.3

Telenor 58 19.6

Job responsibility Senior management 21 7.1

Manager 90 30.4

Supervisor 147 49.7

Operative employee 25 8.4

Other 13 4.4 Table 4-1: Demographic profile of the sample

4.2 Data screening

Before the data file was subjected to analysis, the data was carefully screened

for missing values, outliers and normality. There are three basic options available

when dealing with the missing data: list-wise deletion; pair-wise deletion; and

imputation (Tabachnick and Fidell 2001). In the present study, missing values were

imputed, using median replacement, to avoid an inadequate sample size or loss of

meaningful data. There were very few missing values (ranging between 3-4 missing

values) for most of the items. In this study Likert-scale was used which is designed in

a way that there is a possibility of extreme answers (1 or 5), and therefore presence of

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outliers makes no real logic here. Even then, in order to avoid errors, outliers were

studied through the widely used 3σ-rule (Kutterer, Heinkelmann et al. 2003,

Featherstone and Morgan 2007). No cases were falling outside the limits (3σ-rule: M

+/- 3 S.D.), hence there were no outliers in the data. Skewness and kurtosis (Hair,

Anderson et al. 1998, Tabachnick and Fidell 2001) were used to assess non-normality.

Tabachnick and Fidell (2001) suggests that the value of skewness and kurtosis should

be within the range of -2 to 2 when the data is normally distributed. All the data was

in the acceptable range. Standard deviation is probably high due to the diverse nature

of respondents which may have very different perceptions about the concerned items.

The mean, standard deviation (S.D.), skewness and kurtosis of questionnaire items are

reported in the tables below. All the means were in the range of 3-4(Table 4-1 to 4-5).

Items (Scale used: 5-point Likert scale)

Mean S.D. Skewness Kurtosis

OSLC1 3.36 1.11 -0.37 -0.57

OSLC2 3.45 1.04 -1.01 0.24

OSLC3 3.60 1.19 -0.63 -0.49

OSLC4 3.58 1.18 -0.47 -0.71

OSLC5 3.47 1.16 -0.49 -0.45

OSLC6 3.47 1.17 -0.58 -0.51 Table 4-2: Descriptive statistics of Organization strategy-Cost leadership (OSCL) items

Items (Scale used: 5-point Likert scale)

Mean S.D. Skewness Kurtosis

OSDIF1 3.64 1.12 -0.49 -0.74

OSDIF2 3.39 0.99 -0.08 -0.56

OSDIF3 3.50 1.14 -0.39 -0.64

OSDIF4 3.46 1.14 -0.36 -0.47

OSDIF5 3.57 1.07 -0.67 -0.24

OSDIF6 3.65 1.14 -0.38 -0.88

OSDIF7 3.41 1.13 -0.41 -0.53

OSDIF8 3.42 1.17 -0.50 -0.47

OSDIF9 3.63 1.20 -0.48 -0.86 Table 4-3: Descriptive statistics of Organization strategy-Differentiation (OSDIF) items

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Items (Scale used: 5-point Likert scale)

Mean S.D. Skewness Kurtosis

OLEKA1 3.73 0.94 -0.67 0.32

OLEKA2 3.80 0.99 -0.70 -0.05

OLEKA3 3.67 0.98 -0.77 0.23

OLEKA4 3.65 0.88 -0.50 0.00

OLIKA1 3.66 1.13 -0.59 -0.31

OLIKA2 3.61 1.11 -0.39 -0.70

OLIKA3 3.61 1.05 -0.58 -0.24

OLKD1 3.81 1.02 -0.68 -0.10

OLKD2 3.72 1.05 -0.75 0.08

OLKD3 3.75 0.97 -0.76 0.49

OLKD4 3.81 0.96 -0.64 0.09

OLKI1 3.64 1.01 -0.42 -0.38

OLKI2 3.65 1.08 -0.78 0.18

OLKI3 3.62 0.99 -0.65 0.26

OLKI4 3.70 1.00 -0.80 0.42 Table 4-4: Descriptive statistics of Organization learning (OL) items EKA: External knowledge acquisition; IKA: Internal knowledge acquisition; KD: Knowledge distribution; KI: Knowledge interpretation

Items (Scale used: 5-point Likert scale)

Mean S.D. Skewness Kurtosis

MnI1 3.49 0.95 -1.01 0.43

MnI2 3.54 0.99 -0.45 -0.11

MnI3 3.48 1.00 -0.24 -0.23

MnI4 3.62 1.13 -0.42 -0.71

MnI5 3.62 1.09 -0.52 -0.30

PI1 3.64 1.06 -0.55 -0.10

PI2 3.70 0.97 -0.85 0.54

PI3 3.71 1.00 -0.72 0.20

PI4 3.61 0.95 -0.64 0.40

PI5 3.74 1.00 -0.76 0.32

MI1 3.73 1.04 -0.86 0.14

MI2 3.70 1.05 -0.55 -0.27

MI3 3.74 0.98 -1.02 0.87

MI4 3.75 1.13 -0.93 0.14

MI5 3.51 1.07 -0.58 -0.15 Table 4-5: Descriptive statistics of Innovation items MnI: Management innovation; PI: Process innovation; MI: Marketing innovation

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Items (Scale used: 5-point Likert scale)

Mean S.D. Skewness Kurtosis

PERF1 3.67 0.92 -0.48 -0.12 PERF2 3.69 0.92 -1.11 1.25

PERF3 3.65 0.92 -0.57 0.26

PERF4 3.70 1.03 -0.44 -0.42 Table 4-6: Descriptive statistics of Organization performance (PERF) items

4.3 Descriptive analysis

The table below provides the mean, standard deviation (S.D.), skewness and

kurtosis of the observed variables. The skewness and kurtosis values were in the range

of -2 to 2 (Tabachnick and Fidell 2001) , hence the constructs were in the acceptable

range of normality. Even though, reliability analysis was performed in the pilot study,

to discard poor performing items; it was again performed on the final data. This was

done to ensure internal consistency of the constructs before proceeding for further

analysis. Similar to the pilot study, Cronbach’s alpha (α) scores were used to assess

the reliability. As Gerbing, Anderson et al. (1988) has suggested an alpha value of

0.70 and above as reliable, therefore 0.70 was kept as the cut off value. The results of

the reliability analysis have been reported in Table 4-7.

Variables Mean

(S.D.) Skewness

(Kurtosis)

Cronbach’s

alpha (α)

No. of

items Organization strategy-

Cost leadership (OSCL)

3.49 (0.93) -0.82 (-0.46) 0.89 6

Organization strategy- Differentiation (OSDIF)

3.52 (0.92) -0.72 (-0.66) 0.93 9

Organization learning (OL) 15 External knowledge acquisition (EKA) 3.71 (0.78) -1.09 (0.76) 0.83 4 Internal knowledge acquisition (IKA) 3.63 (0.97) -0.71 (-0.47) 0.85 3 Knowledge distribution (KD) 3.77 (0.82) -1.07 (0.38) 0.82 4 Knowledge interpretation (KI) 3.65 (0.85) -1.03 (0.44) 0.85 4

Innovation 15 Process innovation (PI) 3.68 (0.81) -1.10 (0.70) 0.86 5 Management innovation (MnI) 3.55 (0.84) -0.81 (-0.20) 0.86 5 Marketing innovation (MI) 3.68 (0.90) -1.19 (0.38) 0.90 5

Organization performance (PERF) 3.68 (0.73) -0.99 (0.55) 0.77 4

Table 4-7: Dimension-wise reliability and descriptive estimates

200

The results of reliability analysis exhibited that all the constructs had

internally consistent scale, as they were all above the acceptable cut off point of 0.70

(Hair, Anderson et al. 1998). Both dimensions of organization strategy i.e. cost

leadership and differentiation showed a high internal consistency, as the Cronbach’s

alpha values were 0.89 and 0.93 respectively. The mean scores of both strategy

dimensions lied in the range of 3 to 4, thus the respondents were almost ‘agreeable’ to

the application of cost leadership (N = 6, M = 3.49, S.D. = 0.93), and differentiation

(N = 9, M = 3.52, S.D. = 0.92) strategies in their organization.

Organization learning had four dimensions: external knowledge acquisition,

internal knowledge acquisition, knowledge distribution and knowledge interpretation.

Cronbach’s alpha values of all four dimensions was greater than 0.80, they being

0.83, 0.85, 0.82, and 0.85 respectively which showed that their scales were highly

reliable and acceptable. The mean scores of the four learning dimensions lied in the

range of 3 to 4, thus the respondents were almost ‘agreeable’ to the application of

external knowledge acquisition (N= 4, M = 3.71, S.D. = 0.78), internal knowledge

acquisition (N = 3, M = 3.63, S.D. = 0.97), knowledge distribution (N = 4, M = 3.77,

S.D. = 0.82) and knowledge interpretation (N = 4, M = 3.65, S.D. = 0.85) in their

organization. Innovation’s three dimensions had a high reliability also. The values of

Cronbach’s alpha of both product innovation and management innovation scales was

0.86, whereas, the alpha value of marketing innovation scale was 0.90. The mean

scores of the three innovation dimensions lied in the range of 3 to 4, thus the

respondents were almost ‘agreeable’ to the application of process innovation (N = 5,

M = 3.68, S.D. = 0.81), management innovation (N = 5, M = 3.55, S.D. = 0.84),

marketing innovation (N = 5, M = 3.68, S.D. = 0.90) in their organization. The

201

reliability of organization performance (N = 4, M = 3.68, S.D. = 0.73) was relatively

lower than the other observed variables but it still had an acceptable value of 0.77.

4.4 Impact of demographic attributes on research variables

The perception regarding various organization procedures can vary from one

employee to another, especially when they have different attributes. For example,

males working in an organization can have a different perception regarding their

organization than females working in the same organization. Thus, to sort out this

likelihood of inherent biasness t-test and one way ANOVA analysis were performed,

in order to determine the effect of respondents’ attributes on the research data. The

results of independent t-test and ANOVA analysis, performed in the case of

demographic variables, are reported below. However, these results are not reported in

a tabular form. The analysis showed that gender had no impact, with regard to

perception, on the responses provided for cost leadership strategy (t = 0.027, p >

0.05), differentiation strategy (t = 0.56, p > 0.05), management innovation (t = 0.33, p

> 0.05), process innovation (t = 1.01, p > 0.05), marketing innovation (t = 1.02, p >

0.05), external knowledge acquisition (t = 1.52, p > 0.05), internal knowledge

acquisition (t = 0.28, p > 0.05), knowledge distribution (t = 1.47, p > 0.05),

knowledge interpretation (t = 1.38, p > 0.05) and organization performance (t = 1.52,

p > 0.05).

Next, even age had no impact with regard to perception on the responses

provided for cost leadership strategy (F = 1.99, p > 0.05), differentiation strategy (F =

0.058, p > 0.05), management innovation (F = 1.45, p > 0.05), process innovation (F

= 0.96, p > 0.05), marketing innovation (F = 1.23, p > 0.05), external knowledge

acquisition (F = 1.08, p > 0.05), internal knowledge acquisition (F = 1.38, p > 0.05),

202

knowledge interpretation (F = 0.76, p > 0.05) and organization performance (F = 0.63,

p > 0.05). Only the responses provided for knowledge distribution (F = 2.77, p < 0.05)

were affected by the age factor. Job responsibility also had no impact, with regard to

perception, on the responses provided for cost leadership strategy (F = 0.26, p > 0.05),

differentiation strategy (F = 0.28, p > 0.05), marketing innovation (F = 2.13, p >

0.05), process innovation (F = 1.25, p > 0.05), management innovation (F = 0.65, p >

0.05), external knowledge acquisition (F = 0.73, p > 0.05), internal knowledge

acquisition (F = 1.09, p > 0.05), knowledge distribution (F = 0.94, p > 0.05),

knowledge interpretation (F = 1.15, p > 0.05), and organization performance (F =

0.58, p > 0.05).

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 1.96, p > 0.05),

differentiation strategy (F = 1.45, p > 0.05), process innovation (F = 2.12, p > 0.05),

management innovation (F = 1.33, p > 0.05), external knowledge acquisition (F =

1.27, p > 0.05), internal knowledge acquisition (F = 0.61, p > 0.05), knowledge

distribution (F = 0.82, p > 0.05), knowledge interpretation (F = 1.36, p > 0.05) and

organization performance (F = 1.84, p > 0.05). Only the responses provided for

marketing innovation (F = 2.70, p < 0.05) were affected by the staff under supervision

factor.

Until now, the effect of respondents’ attributes on the whole data was

analyzed. To further report for their impact on the data collected from each

organization, t-test and one way ANOVA analysis were performed for each of the five

organziations: Zong, Ufone, Mobilink, Telenor and Warid. The data collected from

Zong was the first to be analyzed, and it was examined that if the attributes of

respondents working in Zong affected the responses provided for their organization.

203

The results showed that gender had no impact, with regard to perception on the

responses provided for cost leadership strategy (t = -0.21, p > 0.05), differentiation

strategy (t = -0.74, p > 0.05), management innovation (t = -0.51, p > 0.05), process

innovation (t = -0.45, p > 0.05), marketing innovation (t = -0.10, p > 0.05), external

knowledge acquisition (t = -0.46, p > 0.05), internal knowledge acquisition (t = -1.46,

p > 0.05), knowledge distribution (t = -0.80, p > 0.05), knowledge interpretation (t = -

0.85, p > 0.05) and organization performance (t = -0.44, p > 0.05).

Furthermore, even age had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 0.67, p > 0.05), differentiation

strategy (F = 0.78, p > 0.05), management innovation (F = 0.58, p > 0.05), marketing

innovation (F = 0.26, p > 0.05), knowledge distribution (F = 0.57, p > 0.05), internal

knowledge acquisition (F = 0.13, p > 0.05), knowledge interpretation (F = 0.56, p >

0.05) and organization performance (F = 0.44, p > 0.05). Only the responses provided

for external knowledge acquisition (F = 2.97, p < 0.05) and process innovation (F =

2.95, p < 0.05) were affected by the age factor.

Job responsibility also had no impact, with regard to perception on the

responses provided for cost leadership strategy (F = 0.16, p > 0.05), differentiation

strategy (F = 1.52, p > 0.05), marketing innovation (F = 1.74, p > 0.05), process

innovation (F = 1.57, p > 0.05), management innovation (F = 2.29, p > 0.05), external

knowledge acquisition (F = 2.38, p > 0.05), internal knowledge acquisition (F = 1.71,

p > 0.05), knowledge distribution (F = 1.46, p > 0.05), knowledge interpretation (F =

1.53, p > 0.05) and organization performance (F = 1.73, p > 0.05).

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 0.11, p > 0.05),

differentiation strategy (F = 0.35, p > 0.05), marketing innovation (F = 0.97, p >

204

0.05), process innovation (F = 0.62, p > 0.05), management innovation (F = 0.28, p >

0.05), external knowledge acquisition (F = 2.04, p > 0.05), internal knowledge

acquisition (F = 1.24, p > 0.05), knowledge distribution (F = 0.76, p > 0.05),

knowledge interpretation (F = 0.13, p > 0.05), and organization performance (F =

0.34, p > 0.05).

Next, the data collected from Ufone was analyzed, and it was examined that if

the attributes of respondents working in Ufone affected the responses provided for

their organization. The results showed that gender had no impact with regard to

perception, on the responses provided for cost leadership strategy (t = -0.29, p > 0.05),

management innovation (t = 0.82, p > 0.05), process innovation (t = 0.50, p > 0.05),

marketing innovation (t = 0.94, p > 0.05), external knowledge acquisition (t = -0.44, p

> 0.05), internal knowledge acquisition (t = -0.52, p > 0.05), knowledge distribution (t

= -1.17, p > 0.05), knowledge interpretation (t = -1.78, p > 0.05) and organization

performance (t = 1.42, p > 0.05). Only the responses provided for differentiation

strategy (t = -2.09, p < 0.05) were affected by the gender of the employee.

Furthermore, even age had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 0.35, p > 0.05), differentiation

strategy (F = 1.12, p > 0.05), management innovation (F = 0.17, p > 0.05), process

innovation (F = 0.54, p > 0.05), marketing innovation (F = 0.18, p > 0.05), external

knowledge acquisition (F = 0.72, p > 0.05), internal knowledge acquisition (F = 0.90,

p > 0.05), knowledge distribution (F = 0.52, p > 0.05), knowledge interpretation (F =

1.24, p > 0.05) and organization performance (F = 0.75, p > 0.05).

Job responsibility also had no impact with regard to perception on the

responses provided for cost leadership strategy (F = 0.10, p > 0.05), differentiation

strategy (F = 1.088, p > 0.05), marketing innovation (F = 1.92, p > 0.05), management

205

innovation (F = 1.84, p > 0.05), external knowledge acquisition (F = 1.59, p > 0.05),

knowledge distribution (F = 2.41, p > 0.05) and knowledge interpretation (F = 0.61, p

> 0.05). Only the responses provided for internal knowledge acquisition (F = 3.56, p <

0.05), organization performance (F = 3.36, p < 0.05), and process innovation (F =

3.88, p < 0.05) were affected by the job responsibility of the employee.

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 2.10, p > 0.05),

differentiation strategy (F = 0.86, p > 0.05), marketing innovation (F = 0.39, p >

0.05), process innovation (F = 0.56, p > 0.05), management innovation (F = 1.52, p >

0.05), external knowledge acquisition (F = 0.46, p > 0.05), internal knowledge

acquisition (F = 0.030, p > 0.05), knowledge distribution (F = 0.009, p > 0.05),

knowledge interpretation (F = 0.79, p > 0.05) and organization performance (F = 0.38,

p > 0.05).

Next, the data collected from Mobilink was analyzed, and it was examined

that if the attributes of respondents working in Mobilink affected the responses

provided for their organization. The analysis revealed that gender had no impact, with

regard to perception, on the responses provided for cost leadership strategy (t = 0.056,

p > 0.05), differentiation strategy (t = 0.57, p > 0.05), management innovation (t = -

1.10, p > 0.05), process innovation (t = -0.40, p > 0.05), marketing innovation (t = -

1.43, p > 0.05), external knowledge acquisition (t = -0.90, p > 0.05), internal

knowledge acquisition (t = -0.063, p > 0.05), knowledge distribution (t = 1.05, p >

0.05), knowledge interpretation (t = 0.79, p > 0.05) and organization performance (t =

-0.12, p > 0.05).

Furthermore, even age had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 1.03, p > 0.05), differentiation

206

strategy (F = 0.61, p > 0.05), management innovation (F = 1.20, p > 0.05), process

innovation (F = 0.21, p > 0.05), external knowledge acquisition (F = 1.84, p > 0.05),

internal knowledge acquisition (F = 1.42, p > 0.05), knowledge distribution (F = 1.45,

p > 0.05), knowledge interpretation (F = 0.77, p > 0.05) and organization performance

(F = 0.21, p > 0.05). Only the responses provided for marketing innovation (F = 3.74,

p < 0.05) were affected by the age factor.

Job responsibility also had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 0.71, p > 0.05), differentiation

strategy (F = 2.46, p > 0.05), marketing innovation (F = 2.53, p > 0.05), management

innovation (F = 1.20, p > 0.05), process innovation (F = 1.64, p > 0.05), external

knowledge acquisition (F = 0.11, p > 0.05), internal knowledge acquisition (F = 1.59,

p > 0.05), knowledge distribution (F = 1.10, p > 0.05), knowledge interpretation (F =

1.17, p > 0.05) and organization performance (F = 1.15, p > 0.05).

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 0.41, p > 0.05),

differentiation strategy (F = 0.42, p > 0.05), marketing innovation (F = 0.72, p >

0.05), process innovation (F = 0.16, p > 0.05), management innovation (F = 0.39, p >

0.05), external knowledge acquisition (F = 1.55, p > 0.05), internal knowledge

acquisition (F = 1.58, p > 0.05), knowledge distribution (F = 0.69, p > 0.05),

knowledge interpretation (F = 1.33, p > 0.05) and organization performance (F = 1.18,

p > 0.05).

Next, the data collected from Telenor was analyzed and it was examined that

if the attributes of respondents working in Telenor affected the responses provided for

their organization. The analysis revealed that gender had no impact with regard to

perception on the responses provided for cost leadership strategy (t = -0.024, p >

207

0.05), management innovation (t = 1.02, p > 0.05), process innovation (t = 1.76, p >

0.05), marketing innovation (t = 1.06, p > 0.05), , internal knowledge acquisition (t = -

0.14, p > 0.05), knowledge distribution (t = 0.25, p > 0.05), knowledge interpretation

(t = 1.44, p > 0.05), and organization performance (t = 0.81, p > 0.05). Only the

responses provided for differentiation strategy (t = 2.29, p < 0.05) and external

knowledge acquisition (t = 2.10, p < 0.05) were affected by the gender of the

employee.

Furthermore, even age had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 0.98, p > 0.05), differentiation

strategy (F = 0.46, p > 0.05), management innovation (F = 0.41, p > 0.05), process

innovation (F = 0.39, p > 0.05), marketing innovation (F = 0.11, p < 0.05), external

knowledge acquisition (F = 0.29, p > 0.05), internal knowledge acquisition (F = 0.91,

p > 0.05), knowledge distribution (F = 0.67, p < 0.05), knowledge interpretation (F =

0.92, p > 0.05) and organization performance (F = 0.82, p > 0.05).

Job responsibility also had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 2.48, p > 0.05), differentiation

strategy (F = 1.15, p > 0.05), marketing innovation (F = 0.25, p > 0.05), management

innovation (F = 0.74, p > 0.05), process innovation (F = 1.12, p > 0.05), external

knowledge acquisition (F = 0.72, p > 0.05), internal knowledge acquisition (F = 1.56,

p > 0.05), knowledge distribution (F = 0.22, p > 0.05), knowledge interpretation (F =

0.49, p > 0.05) and organization performance (F = 0.97, p > 0.05).

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 1.93, p > 0.05),

differentiation strategy (F = 1.21, p > 0.05), marketing innovation (F = 1.61, p >

0.05), process innovation (F = 1.44, p > 0.05), management innovation (F = 1.31, p >

208

0.05), external knowledge acquisition (F = 1.12, p > 0.05), internal knowledge

acquisition (F = 1.49, p > 0.05), knowledge distribution (F = 0.85, p > 0.05),

knowledge interpretation (F = 0.93, p > 0.05) and organization performance (F = 1.69,

p > 0.05).

Next, the data collected from Warid was analyzed, and it was examined that if

the attributes of respondents working in Warid affected the responses provided for

their organization. The analysis revealed that gender had no impact, with regard to

perception, on the responses provided for cost leadership strategy (t = -0.73, p > 0.05),

differentiation strategy (t = -0.68, p > 0.05), management innovation (t = 0.16, p >

0.05), process innovation (t = -0.66, p > 0.05), marketing innovation (t = -0.27, p >

0.05), external knowledge acquisition (t = 1.28, p > 0.05), internal knowledge

acquisition (t = -0.001, p > 0.05), knowledge distribution (t = 0.89, p > 0.05),

knowledge interpretation (t = 0.72, p > 0.05) and organization performance (t = -0.30,

p > 0.05).

Furthermore, even age had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 1.18, p > 0.05), differentiation

strategy (F = 0.29, p > 0.05), management innovation (F = 0.92, p > 0.05), process

innovation (F = 0.16, p > 0.05), marketing innovation (F = 0.034, p < 0.05), external

knowledge acquisition (F = 0.14, p > 0.05), internal knowledge acquisition (F = 0.56,

p > 0.05), knowledge distribution (F = 0.93, p < 0.05), knowledge interpretation (F =

0.76, p > 0.05), and organization performance (F = 0.56, p > 0.05).

Job responsibility also had no impact, with regard to perception, on the

responses provided for cost leadership strategy (F = 0.34, p > 0.05), differentiation

strategy (F = 0.73, p > 0.05), marketing innovation (F = 0.64, p > 0.05), management

innovation (F = 0.32, p > 0.05), process innovation (F = 0.18, p > 0.05), external

209

knowledge acquisition (F = 0.96, p > 0.05), internal knowledge acquisition (F = 1.87,

p > 0.05), knowledge distribution (F = 0.045, p > 0.05), knowledge interpretation (F =

0.49, p > 0.05) and organization performance (F = 0.46, p > 0.05).

Lastly, even staff under supervision had no impact, with regard to perception,

on the responses provided for cost leadership strategy (F = 0.38, p > 0.05),

differentiation strategy (F = 0.54, p > 0.05), marketing innovation (F = 1.13, p >

0.05), process innovation (F = 0.69, p > 0.05), management innovation (F = 1.06, p >

0.05), external knowledge acquisition (F = 0.42, p > 0.05), internal knowledge

acquisition (F = 0.31, p > 0.05), knowledge distribution (F = 0.75, p > 0.05),

knowledge interpretation (F = 0.20, p > 0.05) and organization performance (F = 0.13,

p > 0.05).

4.5 Correlation analysis

Before proceeding further with hypothesis testing correlation analysis was

performed among the dimensions of the major constructs of the study. This was done

to ensure the association between the dimensions of the study, before conducting path

analysis. Correlation analysis is used to measure linear association between two

continuous variables. The value of correlation ranges between -1 to +1, where

negative / positive sign denotes the direction of the association and the magnitude

denotes the strength of the association. A higher magnitude reveals stronger

association.

Table 4-8 reflects the results of correlation analysis. Almost all the

correlations were found to be highly significant and positive, thus justifying our

research hypotheses. These relations were further analyzed through SEM. The table

shows that a significant correlation existed between the dimensions of strategy:

210

differentiation and cost leadership (r = 0.27, p < 0.001). Even though differentiation

and cost leadership are mutually exclusive, the result of correlation analysis shows

that both the strategies have been combined by the organizations to achieve their

objectives. In other words, organizations using one of the strategies had to use the

other too to some extent, in order to gain competitive advantage. The result supports

(Hill 1988) in which his findings are that an organization closely following

differentiation strategy may also adopt cost leader ship strategy or a cost leader may

adopt differentiation strategy. (Porter 1985) also admitted that businesses have been

successful in finding out the ways to follow cost leadership and differentiation

strategy simultaneously. Correlation of dimensions is provided because the final

analysis and the theoretical perspective is based on the dimensions of variables for

sake of in-depth understanding, rather than the variables.

The dimensions of innovation (process, management and market innovation)

showed a strong correlation among each other. The correlation between process and

marketing innovation and marketing and management innovation being almost equal

(r = 0.56, p < 0.001; r = 0.54, p < 0.001). The correlation between process and

management innovation was almost similar too (r = 0.51, p < 0.001). The four

dimensions of learning: external knowledge acquisition, internal knowledge

acquisition, knowledge distribution and knowledge interpretation were found to be

strongly correlated too, justifying their use as dimensions of a single latent variable of

learning. The highest correlation was between external knowledge acquisition and

knowledge interpretation (r = 0.60, p < 0.001) and the least correlation was between

external knowledge acquisition and knowledge distribution (r = 0.53, p < 0.001). The

correlation between knowledge interpretation and knowledge distribution was

comparably high too (r = 0.59, p < 0.001).

211

Variables

Co

st l

ea

der

ship

str

ate

gy

(O

SC

L)

Dif

feren

tia

tio

n

stra

teg

y(O

SD

IF)

Process

in

no

va

tio

n (

PI)

Ma

na

gem

en

t in

no

vati

on

(M

nI)

Ma

rk

eti

ng i

nn

ov

ati

on

(M

I)

Ex

tern

al

kn

ow

led

ge a

cq

uis

itio

n

(OL

EK

A)

Inte

rn

al

kn

ow

led

ge

acq

uis

itio

n

(OL

IKA

)

Kn

ow

led

ge

dis

trib

uti

on

(O

LK

D)

Kn

ow

led

ge

inte

rp

reta

tio

n(O

LK

I)

Org

an

izati

on

perfo

rm

an

ce

(PE

RF

)

Cost leadership strategy (OSCL) 1

Differentiation strategy (OSDIF) 0.26 1

Process innovation (OIPI) 0.43 0.43 1

Management innovation (MnI) 0.35 0.45 0.51 1

Marketing innovation (OIMI) 0.35 0.38 0.56 0.54 1

External knowledge acquisition (OLEKA) 0.39 0.47 0.42 0.46 0.43 1

Internal knowledge acquisition (OLIKA) 0.38 0.47 0.41 0.43 0.46 0.54 1

Knowledge distribution (OLKD) 0.30 0.39 0.43 0.39 0.44 0.53 0.54 1

Knowledge interpretation (OLKI) 0.44 0.52 0.51 0.43 0.42 0.60 0.55 0.59 1

Organization performance (PERF) 0.55 0.59 0.58 0.54 0.55 0.57 0.59 0.53 0.56 1

Table 4-8: Correlation among the study dimensions

212

The correlation between internal knowledge acquisition and knowledge

interpretation, external knowledge acquisition and internal knowledge acquisition and

internal knowledge acquisition and knowledge distribution was almost similar (r = 0.55,

p < 0.001; r = 0.54, p < 0.001; r = 0.54, p < 0.001).

Next, the dimensions of strategy (cost leadership and differentiation) and

innovation (process, management and marketing innovation) also exhibited a high

correlation among each other. The table 4-8 shows that a high correlation existed between

differentiation strategy and management innovation (r = 0.45, p < 0.001), whereas, the

correlation between cost leadership and management innovation was comparatively

lower (r = 0.35, p < 0.001). Both cost leadership and differentiation had similar

correlation with process innovation (r = 0.43, p < 0.001). The differentiation strategy had

a higher correlation with marketing innovation (r = 0.38, p < 0.001), than the correlation

between cost leadership strategy and marketing innovation (r = 0.35, p < 0.001).

Furthermore, the dimensions of strategy and the dimensions of learning (external and

internal knowledge acquisition, knowledge distribution and knowledge interpretation)

also showed a significantly high correlation among each other. External knowledge

acquisition had a strong positive correlation with differentiation strategy (r = 0.47, p <

0.001), whereas, with cost leadership strategy it had a comparatively lower, but positive,

correlation (r = 0.39, p < 0.001). Cost leadership had a moderate correlation with internal

knowledge acquisition (r = 0.38, p < 0.001). Differentiation, on the other hand, had a

comparatively higher correlation with internal knowledge acquisition (r = 0.47, p <

0.001). Both cost leadership and differentiation had almost similar correlation with

knowledge distribution (r = 0.30, p < 0.001; r = 0.39, p < 0.001).

213

The differentiation strategy had a strong correlation with knowledge interpretation

(r = 0.52, p < 0.001), whereas, cost leadership strategy showed a comparatively lower

correlation with knowledge interpretation (r = 0.44, p < 0.001). Conclusively, even

though all the dimensions of learning and innovation showed a positive and significant

correlation with the dimensions of strategy, differentiation was found to have a stronger

correlation with the dimensions of innovation and learning respectively as compared to

cost leadership. This could be because being a differentiator requires far more learning

and innovation than cost leadership.

All the dimensions of the three main variables of the study: organization strategy,

organization learning and innovation, displayed a strong positive correlation with

organization performance. Considering the dimensions of strategy, differentiation showed

a considerably higher correlation with performance than all the other dimensions of study

other than internal knowledge acquisition, which had a correlation with performance

similar to differentiation’s correlation with performance (r = 0.59, p < 0.001). Cost

leadership strategy had a comparatively lower correlation with performance than

differentiation’s correlation with performance (r = 0.55, p < 0.001). Besides internal

knowledge acquisition, the remaining three dimensions of learning displayed almost

similar correlation with performance; external knowledge acquisition (r = 0.57, p <

0.001), knowledge interpretation (r = 0.56, p < 0.001), and lastly knowledge distribution,

which had the lowest correlation with performance when compared to the other

dimensions of the study (r = 0.53, p < 0.001). Among the dimensions of innovation,

process and marketing innovation exhibited a strong correlation with performance (r =

0.58, p < 0.001; r = 0.55, p < 0.001). Management innovation had a comparatively lower

214

correlation with performance than the other dimensions of innovation (r = 0.54, p <

0.001).

4.6 Structural equation modeling (SEM)

Structure equation modeling integrates path analysis, factor analysis and

econometric modeling (Jöreskog 1973). The application of SEM is common among

researchers and social scientists (Westland 2010). SEM considers measurement errors

which are common and generally includes latent variables (Raykov and Marcoulides

2006). A motive of applying SEM is its capacity to evaluate the cause and effect

relationship among a range of constructs simultaneously in one run. To find out precise

relationships among the four constructs of this study: organization strategies,

organization learning, innovation and organization performance SEM was applied in this

research. SEM is among the category of techniques that characterize hypotheses by

linking them to means, variances and co variances of the data being observed (Kaplan

2000). SEM is a broadly applied method used for testing hypotheses relating observed

and latent variables (Hoyle 1995). Two basic modules of SEM are measurement model

and structural model. Measurement model comprises of a general model that includes the

latent variables prescribed and structural model contains the connections between latent

and observed variables.

To observe goodness of fit, the data values of the variables were linked with the

model. The values of comparative fit index and normed fit index should be close to 0.9,

ideally (Kaplan, 2000). This study preferred SEM over regression because of the

complexity of the model under analysis, as it could be evaluated through a single

statistical model by using SEM analysis technique. SEM deals with complex and specific

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hypotheses in an effective way (Kaplan, 2000). Other than testing the hypotheses of

direct relationships in the study model, SEM also helped in studying the mediation of

learning and innovation, on the link between startegy and pefrormance, effectively.

AMOS was used to apply SEM on the study model.

2 2/df RFI NFI GFI CFI RMSEA

96.07 3.31 0.89 0.93 0.94 0.95 0.089

In the study, model fitness in relation to the sample size was evaluated using fit

statistics by dividing the chi-square value with the associated degree of freedom (x2/df)

(Kline and Santor 1999). Root Mean Square Error of Approximation (RMSEA) was

observed to analyze the difference between population covariance and population implicit

covariance matrix. Comparative Fit Index (CFI), Normed Fit Index (NFI) and Relative

Fit Index (RFI) compare the AMOS measurement model to the null model. So, CFI, NFI

and RFI were assessed in order to know the effectiveness of our structural model.

Goodness of Fit Index (GFI) was computed to approximately figure out the variation

between the sample covariance matrix and the sample implicit covariance matrix.

The fitness of model to data was confirmed before hypothesis testing. To evaluate

the attributes of this study’s measurement model, indices of model data fit were observed,

mentioned in table (4-9). According to the literature, value of x2/df should be smaller than

3 for the acceptance of the study model (Kline 1998) and according to Marsh and

Hocevar (1985), value of x2/df smaller than 5 is acceptable. In this study, the indices of

model fitness attained were: x2/df = 3.31, CFI = 0.95, RFI = 0.89, GFI = 0.94 and

Table 4-9: Confirmatory factor analysis RFI= Relative fit index; NFI= Normed fit index; GFI= Goodness of fit index; CFI= Comparative fit index; RMSEA= Root mean square error of approximation

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RMSEA = 0.089. X2/DF is higher than 3, but the other indicators eg CFI, GFI and NFI

are quite good. This indicates that results are acceptable.

Reliability, validity and dimensionality of the measurement scales were evaluated

previously. Scales for organization strategies, organization learning, innovation and

organization performance were found to be appropriately fit for the measurement model

of this study. Therefore, after ensuring the fitness of the research model to the data

collected from telecom organizations, this study has developed a fine proof of the

construct validity of organization strategy, organization learning, innovation and

organization performance for the telecom sector of Pakistan. Thus, all the constructs used

in this study are suitable for the telecom sector.

4.7 Structural model

The figure 2 below is the measurement model of the study used for hypothesis

testing. Two of the study’s latent variables i.e. organization learning and innovation are

shown with their respective dimensions used as observed variables to measure them.

Organization generic strategy, the third latent variable and study’s independent variable is

not shown in the figure; however, its two dimensions differentiation and cost leadership

are taken as separate independent variables in order to study their respective impact on

performance. Organization performance is taken as dependent variable. Organization

learning and innovation are drawn as mediators in the linkage between generic strategies

and performance.

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Figure 4-1: Structural model

EKA: External knowledge acquisition; IKA: Internal knowledge acquisition; KD: Knowledge distribution; KI: Knowledge interpretation; MnI: Management innovation; PI: Process innovation; MI: Marketing innovation

The current study analyzes eight main paths, they are: 1) differentiation strategy

to performance, 2) differentiation strategy to organization learning, 3) organization

learning to performance, 4) cost leadership strategy to performance, 5) cost leadership

strategy to organization learning, 6) differentiation strategy to innovation, 7) cost

leadership strategy to innovation and 8) innovation to performance. Other than studying

these paths, the mediation effect of learning and innovation on the relationship between

the dimensions of strategy and performance was analyzed through SEM. The above

figure (4-1) shows the estimates of structural coefficients for the proposed measurement

model. Relationships between the three latent variables: organization strategy,

organization learning and innovation and one observed variable of performance were

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tested in this research. However, strategy was divided into its dimensions of cost

leadership and differentiation and they were taken as independent observed variables in

the model, in order to study their respective effects on performance. Organization

learning was exercised as a latent dependent variable containing four observed variables,

which were: external knowledge acquisition, internal knowledge acquisition, knowledge

distribution and knowledge interpretation. Innovation was exercised as another dependent

variable containing three observed variables, which were management innovation,

marketing innovation and process innovation. Another dependent variable of organization

performance was also included in the path model, but it was taken as an observed

variable. The data was checked for model fitness and the goodness of fit indices ensured

that the data was fit for the model; therefore, it could be used to analyze the telecom

sector organizations of Pakistan. SEM was used to evaluate the suggested model.

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4.8 Hypotheses testing for direct relationships

The figure below (Fig.4-2) shows the path coefficients of the measurement model,

achieved after running the model in AMOS.

Figure 4-2: Hypothesis testing for direct relationships EKA: External knowledge acquisition; IKA: Internal knowledge acquisition; KD: Knowledge distribution; KI: Knowledge interpretation; MnI: Management innovation; PI: Process innovation; MI: Marketing innovation * Significant at the 0.05 level (2-tailed). ** Significant at the 0.01 level (2-tailed). *** Significant at the 0.001 level (2-tailed).

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H1a: Cost leadership strategy has a significant positive impact on organization

performance.

As shown in the figure (4-2), cost leadership strategy has a significant positive

impact on organizational performance (β = 0.16, p < 0.01). Thus, hypothesis 1a of this

study is accepted.

H1b: Differentiation strategy has a significant positive impact on organization

performance.

Similar to cost leadership strategy, differentiation strategy also showed a

significant positive impact on organizational performance (β = 0.13, p < 0.05), as shown

in the figure ( 4-2). Thus, another hypothesis of this study, H1b, is accepted.

H2a: Cost leadership strategy has a significant positive impact on organization

learning.

The figure (4-2) exhibits that cost leadership has a highly significant positive

impact on organization learning (β = 0.38, p < 0.001). Thus, hypothesis 2a of this study is

justified.

H2b: Differentiation strategy has a significant positive impact on organization

learning.

Differentiation strategy also demonstrated a highly significant impact on

organization learning (β = 0.52, p < 0.001), as shown in Fig. 4-2. Thus, hypothesis 2b of

this study is also justified.

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H3a: Cost leadership strategy has a significant positive impact on innovation.

As shown in the figure (.4-2), cost leadership strategy has a highly significant

positive impact on innovation (β = 0.39, p < 0.001). Thus, hypothesis 3a of this study is

also accepted.

H3b: Differentiation strategy has a significant positive impact on innovation.

Similar to cost leadership strategy, differentiation strategy also showed a highly

significant positive impact on innovation (β = 0.47, p < 0.001), as shown in the figure (4-

2). Thus, another hypothesis of this study i.e. Hypothesis 3b, is accepted.

H4: Organization learning has a significant positive impact on organization

performance.

Hypothesis 4 is also justified, as the coefficients of the path diagram (Fig. 4-2)

displayed that organization learning has a highly significant positive impact on

organization performance (β = 0.34, p < 0.001).

H5: Innovation has a significant positive impact on organization performance.

Furthermore, innovation also demonstrated a highly significant impact on

organization performance (β = 0.38, p < 0.001), as shown in Fig. (4-2). Thus, the last

hypothesis for direct relationship, H5, is also accepted.

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4.9 Testing for mediation

As the direct relationships between generic strategies and performance, generic

strategies and learning, generic strategies and innovation, learning and performance and

learning and innovation proved to be significantly positive; the next step was to check for

mediation. Mediation analysis was required to find out if the affect of generic strategies

on performance was direct or due to their relationship with innovation and organization

learning respectively. The table below (Table 4-10) shows the result of mediation

analysis conducted through SEM.

Table 4-10: Mediation Analysis INN: Innovation; OL: Organization learning; OSDIF: Differentiation strategy; OSCL: Cost leadership strategy;

PERF: Organization performance; CFI= Comparative fit index; RMSEA= Root mean square error of approximation * Significant at the 0.05 level (2-tailed). ** Significant at the 0.01 level (2-tailed). *** Significant at the 0.001 level (2-tailed). Step1: Differentiation and cost leadership strategies were taken as independent variables and performance was taken as dependent variable. Step 2: Differentiation and cost leadership strategies were taken as independent variables and performance was taken as dependent variable. Organization learning was taken as a mediator. Step 3: Differentiation and cost leadership strategies were taken as independent variables and performance was taken

as dependent variable. Innovation was taken as a mediator. Step 4: Differentiation and cost leadership strategies were taken as independent variables and performance was taken as dependent variable. Organization learning and innovation were taken as mediators.

Step

no. IV Mediator DV β (direct)

2/df CFI RMSEA

1 OSDIF, OSCL None PERF 0.30***, 0.31*** 12.07 0.73 0.194

2 OSDIF, OSCL OL PERF 0.22***, 0.24*** 7.44 0.85 0.148

3 OSDIF, OSCL INN PERF 0.20***, 0.22*** 8.51 0.83 0.160

4 OSDIF, OSCL OL, INN PERF 0.13*, 0.16** 3.31 0.95 0.089

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H6a: Organization learning significantly mediates the relationship between cost

leadership strategy and organization performance.

H6b: Organization learning significantly mediates the relationship between

differentiation strategy and organization performance.

The results of mediation analysis (Table 4-10) show that when there was no

mediator, differentiation and cost leadership had a highly significant impact on

performance (β = 0.30, p < 0.001; β = 0.31, p < 0.001), respectively. However, when

learning was added as a mediator, the direct impact of differentiation and cost leadership

on performance reduced considerably (β = 0.22, p < 0.001; β = 0.24, p < 0.001). But as

the impact on performance was still there and it was not all due to organization learning,

it can be concluded that learning only caused partial mediation in the relationship

between both the strategies and performance. Therefore, even though leaning only caused

partial mediation, the factor that learning did cause mediation justified hypothesis 6a and

6b. Furthermore, when organization learning was added as a mediator the fit indices also

improved considerably as shown in the (Table 4-10).

As the relationship of both cost leadership strategy and differentiation strategy

with performance mediated significantly due to organization learning, it can be concluded

that organization learning significantly mediates the relationship between organization

strategies and organization performance. Thus, hypothesis 6a and 6b are accepted.

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H7a: Innovation significantly mediates the relationship between cost leadership

strategy and organization performance.

H7b: Innovation significantly mediates the relationship between differentiation

strategy and organization performance.

Similar to organization learning, when innovation was added as a mediator, the

direct impact of differentiation and cost leadership on performance reduced considerably

(β = 0.20, p < 0.001; β = 0.22, p < 0.001). But as the impact on performance was still

there and it was not all due to innovation, it can be concluded that innovation only caused

partial mediation in the relationship between both the strategies and performance.

Therefore, even though innovation only caused partial mediation, the factor that

innovation did cause mediation justified hypothesis 7a and 7b. Furthermore, when

innovation was added as a mediator the fit indices also improved considerably from the

model which had no mediator as shown in the table (Table 4-10). As the relationship of

both cost leadership strategy and differentiation strategy with performance mediated

significantly due to innovation, it can be concluded that innovation significantly mediates

the relationship between organization strategies and organization performance. Thus, the

last mediation hypothesis, H7a and H7b are accepted.

In the measurement model both innovation and organization learning were

included as mediators, rather than only including one. This was done because the fit

indices that resulted from including both the mediators were the best and most acceptable

as shown in (Table 4-10).

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4.10 Comparison of telecom organizations of Pakistan

Different organizations follow different generic strategies to achieve their

objectives. Some may focus on cost leadership strategy and others may focus on

differentiation strategy. The tables in the appendix 2 show the results of one way

ANOVA and Post Hoc comparison analysis, conducted in order to differentiate between

the telecom organizations according to their preference of strategy type.

4.11 Findings from Interviews

Data validity is the extent to which researcher has fully gained the information and

meanings of respondents (Remenyi et al., 1998). The validity issue was overcome by

following Collins & Young 1988 who advice that to validate data by sending interview

transcripts to the respondents for verification. Responses were also triangulated through

the questionnaire survey for the purpose of verification and validation.

The findings from the interviews also revealed positive connection between

organization strategies and organizational performance. Employees of the selected

telecom concerns were asked about the link between organization strategies and

organization learning. The said respondents were of the view that in today’s competitive

environment Organization Learning must be taken into consideration while crafting

organization strategies in order to stay competitive. When interviewers were asked about

the connection between organization strategies and innovation, the interviewers were

more or less of the views that in today’s contemporary business world, particularly in the

context of Telecom concerns, innovation must be taken into account as a critical success

factor in order to stay competitive while developing strategy for the organization. When

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interviewers were inquired about the relationship between organization learning and

organizational performance, the respondents responded with the view that better

organization learning leads to better organizational performance. Moreover, when

interviewees were inquired about the relationship between innovation and organizational

performance, they responded with the view that innovation leads to enhanced

organizational performance.

4.12 Findings fit with existing theories

Baack and Boggs (2008) conducted the study to address the disagreement between Porter

generic strategies and strategic contingency theory. Porter suggests 3 generic strategies

i.e. differentiation, cost leadership and focus and assert that to be successful an

organization must follow only one of these generic strategies. Strategic contingency

theory infers that for a strategy to be successful, it should be according to the

environment and different markets of the world need different strategies. With the help of

deductive reasoning and examples the researcher tries to explain that why developed

countries businesses are unable to follow cost leadership strategies in emerging markets.

The results showed that for multinational companies running their business in emerging

markets, cost leadership strategy is ineffective and they may benefit by employing

different strategies in different markets. RBV focuses on the significance of company’s

distinctive competences and resources (tangible or intangible assets, and organizational

abilities) in crafting strategy, implementing strategy and improving performance (Spanos

and Lioukas 2001, Parnell 2002).

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There has been a significant support for RBV in a number of studies (Grant 1991, Stalk,

Evans et al. 1992) that showed the cases where businesses with specific skill set and

abilities were able to outperform their competitors. According to (D. Banker,

Mashruwala et al. 2014) the key measures that help in differentiating a business from the

businesses applying low cost leadership strategy and businesses stuck in the middle are:

marketing skills, innovation capabilities and business scope. Resource base theory

predicts that organization may gain advantage over competitors by attaining the rare

resources, valuable resources, inimitable resources and non-substitutable

resources(Barney 1991, Priem and Butler 2001)

Resource based theory predicts that harder to imitate resource gives competitive

advantage to the organization in long run. The objective of resource base theory is to

justify that diversified resources possessed by an organization are the source of

competitive advantage, instead of competitive position hold by an organization in an

industry and economy(Das and Teng 2000)

Core competency theory recommends that organization must possess the

forethought to distinguish existence of future markets outside the current industries. For

instance various studies recommend a connection between core competence and product

innovation (Dougherty 1992, Henderson and Cockburn 1994). Core competencies are

considered as interlinked assortment of technologies, capabilities and learning possessed

by an organization (Hamel and Prahalad (1994). In short core competence theory

suggests the development and utilization of them may result in better and consistent

organizational performance. According to the resource based theory, organization’s

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abilities and resources are the source of plan of its competitive business strategies (Hunt

and Morgan 1995)

Contingency theory states that contextual factors influence the innovation,

contextual factors impacts both explorative and exploitative innovation. Among the

contextual factors that have impact on innovation, business strategy is considered as

vital contextual variable. There is a link between an organization strategy and innovation

(Auh and Menguc 2005, Menguc and Auh 2008)

Next, the dimensions of strategy (cost leadership and differentiation), and

innovation (process, management and marketing innovation) also exhibited a high

correlation among each other. According to resource base view the resources possessed

by an organization become the sources of its competitive advantage. The resources

which are valuable, rare, inimitable, non-substitutable (Barney and Wright 1997) gives

an organization a sustainable competitive advantage.

Cost leadership strategy has a highly significant positive impact on innovation (β

= 0.39, p < 0.001), differentiation strategy also showed a highly significant positive

impact on innovation (β = 0.47, p < 0.001). Also innovation caused mediation between

cost leadership strategy and organizational performance, innovation also caused

mediation between differentiation strategy and organizational performance. The result

shows that innovation enhances organization performance, the enhanced organizational

performance through innovation may become source of competitive advantage. Thus in

link with resource base theory, organization innovation capabilities may become source

of competitive advantage.

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Similarly organization learning may be considered as a source of competitive

advantage as organization learning is considered as a resource that is hard to imitate or

replicate as it is valuable, inimitable, rare and non-substitutable (Barney, 1997).

Organization learning caused partial mediation in the relationship between cost

leadership strategy and performance, also organization learning caused partial mediation

between differentiation strategy and organization performance.

The findings are also in link with competency theory as competency theory states

that harmonized combination of multiple sources and skills that distinguish a firm in the

market place. Innovation and organization learning may be considered as competencies

that according to findings enhance organizational performance. Innovation and

organization learning may be considered as competencies that enhances organizational

performance.

Contingency theory states that contextual factors influence the innovation,

among the contingency factors that influence the innovation, business strategy is one of

them according to the findings both cost leadership strategy and differentiation strategy

influence the innovation cost leadership strategy has a highly significant positive impact

on innovation (β = 0.39, p < 0.001), differentiation strategy also showed a highly

significant positive impact on innovation (β = 0.47, p < 0.001)

The findings are also in link with the recent studies up to some extent.

(Bayraktar, Hancerliogullari et al. 2016) studied the link between competitive strategies,

innovation and firm performance, their findings showed that cost leadership strategy and

differentiation strategy enhances innovation consequently enhancing the organizational

performance. The current research also studied generic strategies , innovation and

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organizational performance along with the innovation dimensions, the results shows

same trend that both differentiation strategy and cost leadership strategy enhances

innovation along with its dimensions, which results in increased organizational

performance

4.13 Summary

Chapter 4 consisted of the results developed through analysis of the data collected

from five telecommunication concerns. Numbers of gaps were identified in the chapter

two. Studies employing the frameworks of strategic management were unable to answer

many questions. According to Porter (1985), generic strategies can be formulated,

diagnosed and implemented on value chain of an organization. Studies merely analyzed

whether organizations’ apply cost leadership or differentiation strategy. While there were

studies linking generic strategies and performance, there was study on connections of

overall generic strategies, organization learning, innovation and performance. In order to

deal with these gaps, the thesis provided a holistic framework in second chapter of the

study. For the purpose of testing the competitive strategy framework for telecom sector

organization of Pakistan, the study employed quantitative approach and number of

questionnaires were filled out by telecom sector employees.

As discussed in literature there have been plenty of studies on determinants of

organization performance. Initially the research focused on importance of structural

characteristics of industry as determinant of performance (Porter 1998). Thus the focus

was on attributes possessed by an industry like economies of scale, barriers to enter in a

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market. This view was countered by resource based view which focuses on the resource

that an organization has and that creates difference in performance of the industry.

Organization strategies has significant impact on organization learning

As discussed in the literature and according to resource based theory, resources

possessed by an organization become source of its competitive advantage (Hunt &

Morgan, 1995) and organization learning is considered as a resource that is hard to

imitate or replicate as it is valuable, inimitable, rare and non-substitutable (Barney, 1997).

The results prove the hypothesis as a strong connection that can be observed between

generic strategies and organization learning.

Organization strategies has significant impact on innovation

As discussed in the second chapter of this thesis, innovation is the requirement of

organization in the contemporary world to gain advantage in the competition. Jarrar and

Smith (2014) have highlighted on the importance of innovation in businesses in the

organization following a strategic direction. The work on innovation has developed a

difference in the field of strategic management as discipline (Drejer 2002). There are

researches in which focus is simultaneously on strategy and innovation area (Johnston Jr

and Bate 2003). Innovation is strongly linked to the success of an organization (Porter

1985). Knowledge of main attributes of strategy and innovation is important for

organization management but integrating innovation into business strategy is challenging

task for management (Tushman and Anderson 2004). As the literature though in bits and

pieces shows positive connection of varying levels between strategies and innovation

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relationship (Carlucci, Lerro et al. 2010, Enkel and Bader 2012, Karlsson and Sköld

2013), the results of the study also displayed a strong positive relationship between

organization generic strategies and innovation in a wholesome manner. The hypothesis of

this study that organization generic strategies are connected with the innovation was

accepted. Generic strategies had clear and convincing impact on innovation with path

coefficient at 0.99 where (where p < .05) in Pakistani Telecom Context.

Organization learning has significant impact on organization performance

The literature reveals connection between individual learning, team learning,

organization learning and organization performance (Ellinger, Ellinger et al. 2002, Egan,

Yang et al. 2004). Improvements in individual, team and organization learning result in

enhanced organizational performance (Egan, Yang et al. 2004). Employees’ capability to

learn creates organization capability to move forward regarding its competence (Dodgson

1993). The organization learning concept has been investigated for decades and

development has been witnessed in its literature conceptually and empirically (Lipshitz,

Popper et al. 2002) but overall the number of studies were not high that have discovered

the relationship between organization learning and organizational performance and

among those studies, focus was more on theoretical dimension of organization learning.

There had been acceptance for conceptual connection between organization learning and

organizational performance (Bontis, Crossan et al. 2002). The prime reason for low

number of empirical studies was hard to develop quantitative measures of complex

process of learning (Vince, Sutcliffe et al. 2002). The research employed scale adopted

from the work of Pérez López, Manuel Montes Peón et al. (2005) to measure

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organization learning. The result of hypothesis that organization learning has significant

impact on organization performance was in accordance with earlier findings in this area.

Organization learning has moderate positive impact on organizational performance.

Innovation has significant impact on organization performance

The literature exhibits relationship between innovation and performance. Jarrar

and Smith (2014) emphasized on innovation significance in linking strategy and

organizational performance. Sharma and Lacey (2004) also considers the key factors to

focus on innovation that improves organizational performance. The results of this study

regarding the said hypothesis i.e. innovation has significant impact on performance, have

been derived in accordance with the connection observed in earlier studies. Innovation

moderately impacts on organizational performance with path coefficient at 0.47 (where p

< .05) in Pakistani telecom context.

Organization learning significantly mediates the relationship between organization

strategy and organization performance

Links between strategies and organization learning and on the other end between

organization learning and performance though in bits and pieces but was established.

Organization struggles to develop the source of competitive advantage and the

competitive advantage defines enhanced organizational performance. To gain advantage

through strategies, organizations plan to have a resource that is valuable, rare, inimitable

and non-substitutable (Barney and Wright 1997). A resource that is valuable, rare, hard to

substitute and imitate give advantage over the competitors in long term. Organization

learning helps in developing better understanding of organization macro and micro

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environment (Day 1984, Sinkula 1994). Thus helping in understanding the link between

strategies and organizational performance, the current study creates acceptance for the

hypothesis that organization learning significantly mediates the relationship between

organization generic strategies and organization performance in telecom sector

organization of Pakistan.

Innovation significantly mediates the relationship between organization strategy and

organization performance

Innovation in an organization helps it in exploiting new opportunities. Innovation

has created a significant impact on strategic management discipline (Drejer 2002).

Innovation is considered as an essential matter of management and is strongly connected

to organizational performance (Porter 1985). Literature reveals the links between

strategies, innovation and performance (Sharma and Lacey 2004, Carlucci, Lerro et al.

2010, Enkel and Bader 2012, Karlsson and Sköld 2013, Jarrar and Smith 2014). The

innovation strongly mediates the relationship between organization strategies and

organizational performance, thus this hypothesis of mediation was also accepted in

Pakistani telecom context. Significant role of innovation can be observed in the figure i.e.

between generic strategies of organization and organizational performance. Innovation as

a mediator between generic strategies of an organization and organizational performance

plays a strong role and creates acceptance for the seventh hypothesis. Thus innovation

and organizational performance relation has significant and positive path coefficient at

0.47 (where p < .05).

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The connection between innovation and performance lies on the argument that

when a business brings new innovative products in market, the competitive pressure from

competitive forces is very low. This situation allows firm to make high profits, the profit

diminishes as competitor imitates. Organizations that continuously bring new innovative

products in market may sustain profits for a longer duration (Sharma and Lacey 2004).

The key reason for business to focus on innovation activities is to enhance success and

performance of firm. The influence of innovation on business performance is also

focused in Oslo Manual (OECD 2005). Jarrar and Smith (2014) also put emphasis upon

the need of innovation in connecting strategy and performance of any business.

In the current study, fit indicators were evaluated in a positive manner. Root

Mean square error of approximation (RMSEA) was observed to compute the difference

between population covariance and population implicit covariance matrix. Comparative

Fit Index (CFI) was computed in comparison to mull model. Goodness of Fit Index (GFI)

was computed to approximately calculate the variations between the sample covariance

matrix and the sample implicit covariance matrix. The model acceptance was

accomplished as x²/df =3.31, CFI=0.95, GFI=0.94, and RMSEA=0.089 and the values of

factor loading are greater than 0.4.

In order to confirm the reliability, validity and dimensionality, measurement

scales were positively evaluated. For the purpose of evaluating the measurement model,

indices of model data fit were significantly observed. x²/df values smaller than 3 are

acceptable (Kline 1998) and according to Marsh and Hocevar (1985), value of x²/df

smaller than 5 is acceptable. CFI should be greater than 0.9 Bentler (1990) and NNFI

should be around 0.9 to fit appropriately. Root mean squared error of approximation

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(RMSEA) is appropriate if it lies between 0 and 1 and is believed ideal if it is smaller

than .05 (Cudeck (1993).

Scales for organization strategies, organization learning, innovation and

organization performance were appropriately fit for measurement models suggested

above. After ensuring result fitness the research developed a fine proof of construct

validity of organization strategy, organization learning, innovation and organization

performance, thus all previously mentioned scales are suitable in Pakistan telecom sector

context.

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CHAPTER 5

5 SUMMARY AND DISCUSSION

Chapter 5 presents the discussion regarding the results of the study in relation

with the study purpose, the methodology and the results described. In the last,

recommendations for the future studies were presented. The thesis suggests that

organization’s generic strategy may be organized in connection with organization

learning, innovation and organization performance. Competitive strategy typology has

been tested, linked to organizational performance on different variables (Porter 1980).

As stated in the earlier chapters of the thesis that the aim of research project was

to examine generic strategies frame work of studies i.e. (Porter 1980, Porter 1985) and to

discover preferred strategic combination. The study developed objectives of the research

that were to examine type and extent of generic strategies employed by organizations

operating in telecom sector of Pakistan, to investigate the combination of generic

strategies employed by telecom sector organization. The purpose of literature review was

to give a concept of competitive strategy, its background and the role it plays in

organizational performance. Porter generic strategies have been studied by various

researchers and there is significant support for its effectiveness (Kim and Lim 1988,

Miller 1988). Use of these strategies has been a leading pattern in business policy and

strategy research (Murray 1988). Generic strategies of Porter are intrinsically connected

to organizational performance (Powell 1995). By focusing on Porter’s generic strategy

frame work, the study provided the concept of strategy, different frameworks lying in the

area of business strategy and explained the role of competitive strategy. The framework

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explained in this study has also been linked to area of strategic management. Said

framework also exhibited the contribution in field of strategic management in terms of

categorization of frameworks. The aim of adding the framework was to show the

contribution of studies in this area and to identify number of gaps within the literature.

The study then mentioned researches that empirically tested Porter (1980) generic

strategy. Number of studies showed support to Porter’s typology and number of firms

which employed single generic strategy displayed high level of performance compared to

firms which applied mix of generic strategies. On the other end, Porter (1980) perspective

that the generic strategies cannot be merged, caused extensive criticism and questions

were raised on theoretical and empirical fronts (Spanos, Zaralis et al. 2004, Allen, Helms

et al. 2007)

The contrary findings on application of generic strategies developed plenty of

gaps in the literature for instance most of the research linked to porter generic strategies

were done for USA businesses (White 1986, Miller and Dess 1993, Ebben and Johnson

2005). Researcher didn’t go through a single study in this context focusing on any Asian

country. In addition numerous studies were done on manufacturing sector. There were

few studies on employability of generic strategies in small and medium enterprises but

there wasn’t any study done on telecom sector especially in the context of Pakistan’s

Pakistan Telecommunication Sector Organizations.

Finally the main gap identified in this study was connecting generic strategies,

organization learning, innovation and organizational performance in a single study. One

of the main variables considered in link with generic strategies was innovation.

Innovation is an extremely popular area of research in contemporary world. Thousands of

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researchers, plenty of research centres and number of journals exert their efforts in

understanding innovation (Fagerberg and Verspagen 2009). One of the prime reasons of

considering innovation in this study was regardless of its types, innovation may create a

difference in organization at large.

The study investigated innovation in its three dimensions that were process

innovation, management innovation and marketing innovation. The literature on

innovation in the current study first operationally described it then explained different

types of innovation like radical innovation and incremental innovation. The prime

objective of the literature on innovation was to give concept of innovation, its importance

and the role it plays in relationship between generic strategies, organization learning and

performance. The literature also explained the three types of innovation that were

marketing innovation, management innovation and process innovation. The research

work done on above mention three types of innovation and how the above mentioned

types are linked to innovation. Innovation has also been studied in multiple contexts i.e.

the literature first identified gaps in this area then endeavoured to fill these gaps

quantitatively. By going into the deep of the literature, the current study also found out

that the studies on innovation were mostly done in developed countries. There was hardly

any study on innovation done in developing countries, thus the current study addressed it.

Moreover, there was lack of studies regarding innovation in the context of telecom sector

that has been focused by the current study. And finally the prime gap related to

innovation variable was that it has not been studied earlier in connection with

organization learning generic strategies and performance which is the main focus of the

current study. The current study also included another key variable i.e. organization

240

learning, various studies focus on cultures that promote organizational learning thus

improving learning at individual level, team level and organization level results in

improved organizational performance (Ellinger, Ellinger et al. 2002, Egan, Yang et al.

2004). The employees ability to learn, creates organization’s capability to improve

knowledge, competence, efficiency and effectiveness (Dodgson 1993). A key reason of

involving organization learning in this research was that organization learning may

develop difference in organization at large. The research examined organization learning

in its four dimensions that were external knowledge acquisition, internal knowledge

acquisition, knowledge distribution and knowledge interpretation. The literature on

organization learning in this research initially described it operationally and then

explained its types like single loop learning and double loop learning. The goal of

literature on organization learning was to provide concept of organization learning, its

significance and its role in between relation of generic strategies and organizational

performance. There have been very few studies that examined the relationship between

organization learning and organizational performance, most of the studies have

emphasized on theoretical side of organization learning (Saru 2005). There was lack of

focus on organization learning in telecom sector which has been considered in this

research. Lastly the main gap identified relating to organizational learning variable was

that it has not been examined in connection with organization generic strategies and

organizational performance.

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5.1 Discussion and Contribution

The overall study appears to support the requirement for a framework that attain the

blend of applicability of successful generic strategies in telecom sector of Pakistan. The

proofs for reliability and other quantitative results exhibits that the overall selected

constructs for this research are good enough. Data was collected through self-

administered questionnaire for this study and data was established as reliable and valid

for this research.

The finding are in contrary to a study (Porter 1980) but in agreement with other study

(Porter 1985). The findings also support the studies that conclude that single generic

strategy does not always lead an organization to peak performance (Yamin, Gunasekaran

et al. 1999, Allen, Helms et al. 2007). Thus researchers may investigate the blend of

generic strategies. The variables employed in this research were developed by Dess and

Davis (1984) and later on employed by various studies (Green, Lisboa et al. 1993,

Yamin, Gunasekaran et al. 1999, Marques, Lisboa et al. 2000, Allen and Helms 2006,

Allen, Helms et al. 2007). An important finding of this study was that organizations were

employing blend of generic strategies not a single generic strategy alone.

The generic strategies were cost leadership and differentiation. The dimensions for

organization learning were knowledge distribution, knowledge sharing, external

knowledge acquisition and internal knowledge acquisition. The dimensions for

innovation were process innovation, marketing innovation and management innovation.

The dimensions for above mentioned construct were confirmed through literature also.

Items for generic strategies were adopted from (Dess and Davis 1984) Items for

organization learning were adopted from Pérez López, Manuel Montes Peón et al. (2005).

242

Items for innovation were adopted from Lin, Chen et al. (2010) and items for

organizational performance were adopted from (Zulkiffli and Perera 2011)

Items were tested by confirming their Cronbach’s alpha values and factor analysis

through significant items loadings and satisfactory model fitness assurance. The current

research investigated the connections between organization’s generic strategies,

organization learning, innovation and organization performance in a model because all

the above mentioned constructs are critical success factors (Thompson, Strickland et al.

2008). Considering the competitive environment of telecom sector in Pakistan, the in

depth study of above mentioned construct become more important. Current research

gives a new empirical investigation of above mentioned constructs in a single model

which appears to be untested before in any study. The current model provides direction

for focusing on organization learning and innovation while considering generic strategies

of the organization to attain better performance. Organization learning and innovation

have been confirmed as mediators playing a significant role in organizational

performance. The results display the path to enhance organizational performance while

addressing generic strategies, organization learning and innovation. Significance of

connections between above mentioned constructs have been confirmed in earlier studies

in bits and pieces but this study provides empirical examination of above mentioned

constructs in a single model.

Earlier studies on competitive strategies have ignored organization learning and

innovation. This study recommends the importance of the above mentioned construct

while considering the generic strategies.

243

Few important implications for business manager are that although Porter classification

of generic strategies is widely recognized and may be modified. It will be helpful for

business managers in telecom sector that successful competitive strategies may be

formulated while taking into account organization learning and innovation. Mangers

should also take into account that an ideal fit between organization strategies,

organization learning and innovation may lead to better organizational performance.

Another important finding was that although organizations were employing cost

leadership and differentiation strategy in combination but not all combinations of generic

strategies are successful as it appears that a particular combination of generic strategies

lead an organization to exhibit higher performance. These findings may also be helpful

for senior managers working in telecom sector for formulation, implementation and

execution.

To conclude, the research adds to the body of knowledge by doing critical review of

literature. The literature review revealed the gaps such as 1) applicability of generic

strategies in telecom sector of Pakistan 2) the link between generic strategies and

organizational performance 3) the role of organizational learning and innovation in

development of competitive strategies.

5.2 Managerial Implications

The resource allocation is a critical task when managers are planning to allocate

resources in such a manner that the return or outcome of this allocation results in highest

levels of desired output. In the contemporary world, to stay competitive or to achieve

competitive advantage it is important that organizations direct their resources towards

244

critical factors such as organization learning and innovation. The study findings helped in

figuring out the relation of generic strategies, organization learning, innovation and

organizational performance in different scenarios. Thus helping managers to plan and

allocate organizational resources with a good understanding of the relationship between

the said variables to achieve desired objectives.

The research helped to find out the nature and extent of link between the variables,

strategy, learning, innovation and organizational performance. Although the impact of

cost leadership strategy and differentiation strategy has been evaluated on organizational

performance multiple times the study helped out in finding the mediating role of

organization learning and innovation in the above stated relationship that is between

generic strategies and organizational performance. The findings will be helpful for

managers in understanding that the firm following both the cost leadership strategy and

differentiation strategy may be very risky but on the other end it may be very rewarding.

The findings are also helpful in understanding the connection between organization

learning and organizational performance while pursuing a particular generic strategy or a

mix of both cost leadership strategy and differentiation strategy. Similarly the findings

are also helpful for the managers in understanding the link between innovation along with

its dimensions and organizational performance. The study also highlighted the extent of

focus towards mediating factors. In order to stay competitive or gain competitive

advantage in the industry and firm is majorly following cost leadership strategy then how

organizational performance may be affected by organization learning and innovation. The

study helped in developing some understanding of four very vital variables that are

generic strategies, organization learning, innovation and organizational performance.

245

This will be helpful for managers while crafting strategies for their organization in the

future in the fierce competition of the contemporary world.

5.3 Research Implications

Generic strategies have been area of focus for researchers for decades. Generic strategies

have been extensively researched in different dimensions but it has not been studied

keeping organization learning and innovation as mediating variables. The research added

a new dimension in the literature by investigating a rare blend of vital variables critical

for the organizational performance. The research deeply analyzed the combination of

generic strategies, organization learning, innovation and organizational performance.

Further research may be done by adding few other variables that are critical for

sustainable competitive advantage. Further research may also be carried out in public

sector organizations.

Scholars have been of the view that learning at individual, team and organizational level

improves organizational performance (Ellinger, Ellinger et al. 2002, Egan, Yang et al.

2004). The capability of the firm to innovate may help it in gaining advantage, but

sustainability of that competitive advantage is dependent on number of factors, however

continuous innovation activities may help a firm in sustaining competitive advantage for

a longer duration (Sharma and Lacey 2004) one of the key reason to direct firm energies

to innovative activities is to enhance its organizational performance (OECD 2005).

Organization learning and innovation are critical areas where organizations have to

perform in order to gain sustainable competitive advantage (Thompson, Strickland et al.

246

2008). The research opens further avenues for studies to be conducted that incorporates

further critical success factors in order to improve organizational performance.

5.4 Conclusion

The findings of this research lead to report a deep understanding of link between

competitive strategies, organization learning, innovation and organizational performance.

The study findings were that though generic strategies have impact on the organizational

performance but there is severe need to follow the route of organization learning and

innovation to attain high level of organizational performance. The study proposed the

links between independent, dependent and mediating variables theoretically.

The study proposed mediation of 1) organization learning 2) innovation 3) both

organization learning and innovation. The study concluded that the mediation of 1)

organization learning 2) innovation 3) both organization learning and innovation exist

between generic strategies and organizational performance. Partial mediation of

organization learning and innovation has been identified between generic strategies and

organizational performance. Key findings in the study have been the analysis

The main findings also include the direct and indirect link between generic strategies and

organizational performance. The results clearly develop the rationale for practical

implications of generic strategies implemented by the organizations directly or indirectly

through the route of organization learning and innovation. The organizations directly

focusing on organizational performance taking the impact of generic strategies need to

consider the dimensions of organization learning that are 1) external knowledge

acquisition 2) internal knowledge acquisition 3) knowledge distribution and 4)

247

knowledge interpretation. In addition to organization learning, organizations have to

consider innovation dimensions that are management innovation, marketing innovation

and process innovation. Thus keeping in view the above mentioned theoretical and

practical implications, as organizations are struggling to reap high level of organizational

performance. It may be positively addressed by slotting in organization learning and

innovation as mediators between the link of competitive strategies and the organizational

performance. The study has enhanced the need of organization learning and innovation,

the more innovative and learning organization can make competitive strategies more

successful in the fierce competitive environment. Thus chapter 5 has addressed the

objectives and questions of this research with the purpose of filling knowledge gaps in

the current study.

5.5 Recommendations for future research

The study identifies number of areas for future research. The study integrates

organization learning and innovation with organization’s generic strategies to evaluate

organization performance. The study examines the competitive strategies in telecom

sector of Pakistan. The same frame work can be investigated in other industries also; as

such study has not been conducted earlier in developing countries like Pakistan. The

current research has been conducted in Pakistan’s corporate sector; another research can

be done in the area of small and medium enterprises in any other industry. The same

frame work can be employed for the comparison of public sector and private sector

organizations in any industry. Another area of research may be that this study was carried

out with the help of perceptual data; the same research may be carried out with objective

248

data. The research may be done by adding other mediators. Due to certain limitations the

scope of this study was cross sectional, a longitudinal study may be carried out to

investigate the topic in more depth.

249

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Appendix I

Interview Script

Cost leadership

Does your company prefer to identify underperforming areas in order to cut costs and offer

services at lower prices than your competitors?

Does your company prefer to continuously develop employees’ skills?

Does your company prefer to improve supplier logistics in terms of cost control and delivery

time?

Does your company focus on process design techniques that enhance automation?

Differentiation

Does your company focus on brand development?

Does your company prefer to invest in sales promotion and offering a wide range of products to

the customers?

Does your company make efforts in differentiating your services from the competitors?

Does your company prefer to provide the facilities that support quality services?

Does your company prefer incremental improvements in coordination and organization

structure?

Does your company prefer to improve supplier logistics in terms of quality?

External knowledge acquisition

Does your company prefer to stay in touch with professionals and technology experts from

universities and other companies?

Does your company encourage its employees to attend fairs and exhibitions and join formal or

informal networks outside the organization?

Internal Knowledge Acquisition

Do the systems and processes of organization encourages innovation

Is there continuous experimentation of new ideas and approaches on work performance?

307

Knowledge Distribution

Are meetings held to share information about latest innovations and best practices in the

company?

Knowledge interpretation

Is teamwork a common practice in the company and do the employees share knowledge and

experience by talking to each other?

Management Innovation

Does your company adopts innovative work designs and innovative reward system?

Does your company engage in organizational reconstruction and business process re-

engineering for the purpose of operational efficiency?

Process Innovation

Does your company imports new process technology and does your company imports advance

programmable equipment?

Market innovation

Does your company innovates pricing method, promotion method and distribution method

Organizational performance

What about your employees skill level as compared to other competitors in the industry?

What about your company customer loyalty and quality reputation as compared to other

competitors in the industry?

What is the relationship between strategy and organizational performance

What is the relationship between strategy and organization learning

What is the relationship between strategy and Innovation

What is the relationship between organization learning and organizational performance

What is the relationship between innovation and organizational performance

308

Appendix II

Comparison of telecom organizations by generic strategy

Dependent

Variable

(I)

Organization

(J)

Organization

Mean

Difference (I-J) Std. Error

95% Confidence Interval

Lower

Bound

Upper

Bound

OSCL Zong Ufone -.36559 .16198 -.8102 .0790

Mobilink .13542 .15844 -.2995 .5703

Telenor .38822 .16693 -.0700 .8464

Warid .39726 .17817 -.0918 .8863

Ufone Zong .36559 .16198 -.0790 .8102

Mobilink .50101 .14994 .0894 .9126

Telenor .75381 .15888 .3177 1.1899

Warid .76285 .17065 .2944 1.2313

Mobilink Zong -.13542 .15844 -.5703 .2995

Ufone -.50101 .14994 -.9126 -.0894

Telenor .25280 .15527 -.1734 .6790

Warid .26184 .16730 -.1974 .7211

Telenor Zong -.38822 .16693 -.8464 .0700

Ufone -.75381 .15888 -1.1899 -.3177

Mobilink -.25280 .15527 -.6790 .1734

Warid .00903 .17536 -.4723 .4904

Warid Zong -.39726 .17817 -.8863 .0918

Ufone -.76285 .17065 -1.2313 -.2944

Mobilink -.26184 .16730 -.7211 .1974

Telenor -.00903 .17536 -.4904 .4723

Comparison of telecom organizations by generic strategy-Cost leadership strategy (OSCL)

309

Dependent

Variable

(I)

Organization

(J)

Organization

Mean

Difference (I-J) Std. Error

95% Confidence Interval

Lower

Bound

Upper

Bound

OSDIF Zong Ufone -.27601 .16072 -.7172 .1651

Mobilink .00890 .15721 -.4226 .4404

Telenor -.34573 .16563 -.8004 .1089

Warid .54856 .17679 .0633 1.0338

Ufone Zong .27601 .16072 -.1651 .7172

Mobilink .28491 .14877 -.1235 .6933

Telenor -.06972 .15764 -.5024 .3630

Warid .82457 .16932 .3598 1.2894

Mobilink Zong -.00890 .15721 -.4404 .4226

Ufone -.28491 .14877 -.6933 .1235

Telenor -.35462 .15406 -.7775 .0683

Warid .53966 .16600 .0840 .9953

Telenor Zong .34573 .16563 -.1089 .8004

Ufone .06972 .15764 -.3630 .5024

Mobilink .35462 .15406 -.0683 .7775

Warid .89428 .17399 .4167 1.3719

Warid Zong -.54856 .17679 -1.0338 -.0633

Ufone -.82457 .16932 -1.2894 -.3598

Mobilink -.53966 .16600 -.9953 -.0840

Telenor -.89428 .17399 -1.3719 -.4167

Comparison of telecom organizations by generic strategy-Differentiation strategy (OSDIF)