Industry Environment And Business Strategy: A Comparison Of Contingency Theory Expectations And Relationships Between Small Manufacturing Firm Managers Perceptions Of Environment And Strategy

Abstract

Contingency theory suggests that that an appropriate match must be made between strategy and industry environment conditions. This study compared contingency theory expectations with the associations between perceptions of industry environment conditions and reported firm strategy, as reported by the firms president and national sales manager. Confirming theory expectations, there were significant and positive associations between perceived industry technical/market turbulence and reported growth/differentiation strategy as well as significant and negative associations with low cost strategy. The direction and significance of these associations were similar regardless of which manager supplied the perception of technical/market turbulence or the reported strategy. However there were differences across the two managers reports in the associations between strategy and perceptions of product differentiation, customer differentiation, and competitive intensity. Confirming theory expectations, there were significant and positive associations between perceptions of industry competitive intensity and the sales managers reported use of low cost strategy, but not the presidents reported use of that strategy. Confirming theory expectations, there was a significant and positive association between the presidents (but not the sales managers) perceptions of industry product differentiation and managers reported use of growth/differentiation strategy. There was a significant and positive association between the sales managers (but not the presidents) perceptions of industry customer differentiation and managers reported use of growth/differentiation strategy. The presidents and sales managers perceptions of product and customer differentiation had significant negative associations with the sales managers (but not the presidents) reported use of low cost strategy. The authors discuss potential explanations for these results and implications for managers.