Relation between business level strategy and firm performance

Discuss about the Development and Business Level Strategy.

This review paper discusses on the business level strategy of firms. Five scholarly articles are reviewed to analyses the strategies. Business level strategies differ across firms in the competitive business environment. Business level action is taken by firms to gain competitive advantages and satisfy the customer needs in order to achieve the goal of the organisation. Five scholarly articles, which have discussed on different business level strategies, are reviewed critically in this paper. Main emphases of these papers are industry growth, competition, digital business strategy. Central idea of each paper is to identify how firms use business level strategy to create competitive position in the market. This study is relevant as business strategy formulation is regarded as the most important aspect to a firm. The success or failure of a firm depends on the choosing right business strategy.

There is a relation between the competitive business level strategy and performance of the firm. The article ‘Strategy as a determinant of the perceived value of outsider assistance to new ventures, written by Chrisman & Danforth (2015) highlights different types of business level strategies, which can give the firm competitive advantages. They argued in favour of new venture in order to expand the business. Exploration of new relation, outsider assistance can positively contribute in the growth of the organisation. The article has highlighted several problems during venturing with other business organisation. The problems may be strategic, administrative and operating problems.

The success of venture depends on choosing right partner for venturing and right strategy to explore the business opportunity. Administrative problem is choosing right employees for the organisation. An important concern of a firm is structuring the authority and assigning responsibilities to the employees. Management of proper workflow is a business level strategy, which acts as a catalyst for the growth of the organisation. Financial decision making is an important concern for the firm. There are numerous options for financing the business. Finance can be divided into short term, medium term and long term. Debts are liabilities of a firm. Hence, the firm needs to choose right financial options, which may be repaid within the stipulated time and will not be burden for the firm. The operational strategies deal with functional decisions regarding marketing and production (Chrisman & Danforth, 2015). This article has mainly focuses on the cost and benefit strategies. The statistical analysis is not robust in this article and the analysis is generalised. The dependent and independent variables have not been analysed in details in this article. Therefore, there is scope of further research on this context.

Digital business strategy

Mithas, Tafti & Mitchell (2013) focuses on the separate view of business strategy such as digital strategy in business in the article, ‘How a firm’s competitive environment and digital strategic posture influence digital business strategy’. They advocate for digital business strategies instead of traditional strategies. They have taken two strategies such as investment in general IT activity or IT outsourcing activities for the growth of a firm. Authors focus on the convergent or divergent forces of business strategy. They believe that IT outsourcing and IT investment have great impact on the competitive advantages. The article defines the business strategy in terms of engagement of firms in IT activities. The strategic postures of firm depict the strength and weakness of a firm from a strategic stand point. Digital strategic postures depict the stand of a firm against the digital activities of its competitors in the dynamic industry environment. Digital strategic posture determines the digital strategic move towards or away from the industry means.

Example of Amazon.com and Border group has been described in this article. When Amazon.com took strategy to invest in IT services and online retailing, Border moved away from the digital strategy and invested in physical assets for exploring offline stores for the growth of the company. While one company moved towards industry means, Border moved away from industry means. Mithas, Tafti & Mitchell (2013) have mentioned three key elements of industry environment such as industry turbulence, industry competition and industry growth. Business dynamism is identified as business turbulence. The hypothesis taken in the study paper is that divergent effect of digital strategic posture on the realised digital business strategy increases with the increase in industry turbulence. Industry turbulence is characterised by competitive opportunities coming to the firm and actions taken by the firm.

This research is based on secondary sources. Industry concentration has been measured through Herfindahl-Hirschman Index. The regression equation of this model has taken five control variables such as uncertainty in the market, firm size, free cash flow, diversification and market share. It was predicted that firms converge towards industry norms when other industries concentrate and diverge in case of lower industry convergence. However, the empirical result does not support this argument. The results have not found out any significant relationship between the convergent or divergent effects and the industry growth and digital business strategy.  The limitation of this result is that it is based on US context. Business environment differs across countries due to geographical structures, political, socio-economic effects. Hence, the result cannot be taken as generalised conclusions. The research can be conducted further by using large set of database across different business environment (Mithas, Tafti & Mitchell, 2013).

Application of IT services in business

In the view of Bharadwaj et al. (2013), as the market dynamics have been changed, the scope of digital activities has increased. This article, ‘Digital business strategy: toward a next generation of insights, highlights global connectivity of business though technology and digital mode. The conceptual framework of this paper is based on four elements of digital business strategy are scale, scope, speed of digital business strategy and sources of business value creation. The authors of this article advocate in favour of digital business strategy and mentioned that digital business breaks the barrier of traditional industrial framework and enhance the area of supply chain. Digital business strategy facilitates the scale of marketing, online business, resource management, IT functioning, human resource management. The authors have mentioned that availability and reliance on cloud computing services enhance the dynamic capabilities of firm for scaling up or down the infrastructure.  This approach has suggested that cloud computing supports supply chain, marketing and other functional area of a business organisation.

Another advantage of cloud computing is that it provides a network to integrate large amount of data and information. Digital business strategy can be used at the time of alliances and partnership with other business organisation. Speed of business strategy includes speed of product launch. Technology driven supply chain is more efficient compared to traditional one as digital supply network is more connected, flexible and faster. As the business data are integrated under cloud computing, business decision making process become easier (Bharadwaj et al., 2013).

‘Linking software development and business strategy through measurement’, is the article written by Basili et al. (2013). Central idea of this article is also digitalisation of the business strategy. The authors have demonstrated the need for application of IT services in business. The article mainly focuses on the technical tool that can provide IT services to the customers and can built a customer value chain along with creating competitive advantage for the firm. This article has highlighted the utility of GQM strategies as a part of business strategy, which mainly focuses on the improvement of customer satisfaction, enhancing market share, reduction in production cost and achievement of business goal. In order to use the software effectively, a firm needs to set it business goal and objectives first. Data and information needs to be collected through market survey.

Basili et al. (2013) mentioned that application of software helps to identify risks that a firm may face in the market place. Business level strategy is required to undertake either for expansion of business in the existing market place or in a new market area. The primary objective of a firm is profit maximisation. Comprehensive software can provide the facility of details planning, presentation of report and identification of risk. If risk can e identified earlier, firm can take effective measure to mitigate them proactively. Appropriate business strategy can mitigate the risk or can reduce the probability. Therefore, along with business growth strategy, use of software in the business planning can help to manage risks.

Conclusion

Teeratansirikool et al. (2013) have tried to build up a relationship between the competitive business strategies and the performance of the firm. The role of performance measurement has been examined in this context. The study has found out that all competitive strategies including differentiation strategy has positive direct or indirect effect on the business performance of a firm. Cost leadership and differentiation strategies are emphasised in this literature. The article ‘International Journal of Productivity and Performance Management Emerald Article: Competitive strategies and firm performance: the mediating role of performance measurement’ supports the view of Chrisman & Danforth (2015) in the context of cost leadership strategy. Cost leadership strategy helps to produce products at a lower cost, which keeps the product price low and induces the buyers to purchase more of this product. This strategy increases revenue and hence the return on assets. In the view of Teeratansirikool et al. (2013), product differentiation provides the firm a sustained competitive advantage.

Conclusion

Review of the five different literatures highlights different aspects of business level strategies. Different aspects of business level strategies such as cost leadership, product differentiation, joint venture, competitive advantages are the central focus of literatures. However, most of the five literatures have supported the view of digitalisation of business strategies in order to gain competitive advantages. It has been highlighted the benefits of software at the business level. IT software facilitates different objectives of firm such as business planning, resource management, human resource management, financial and operation management. However, there is ample scope for future study on this ground. All reviewed article has described business level strategies for the large or medium firms. The business level strategies for small scale industries have not been focused much. Deployment of IT based software such as enterprise resource management is costlier. Hence, proper infrastructure is required in the business operation. Further research can be conducted to identify other features of business level strategies and for all kinds of firms. Effect of globalisations on business level strategies can be verified in further studies.

References

Basili, V. R., Heidrich, J., Lindvall, M., Münch, J., Regardie, M., Rombach, D., … & Trendowicz, A. (2013). Linking software development and business strategy through measurement. arXiv preprint arXiv:1311.6224.

Bharadwaj, A., El Sawy, O. A., Pavlou, P. A., & Venkatraman, N. V. (2013). Digital business strategy: toward a next generation of insights. Mis Quarterly, 37(2), 471-482.

Chrisman, J. J., & Danforth, G. W. (2015). Strategy as a determinant of the perceived value of outsider assistance to new ventures: An exploratory study. Journal of Small Business Strategy, 6(2), 47-68.

Mithas, S., Tafti, A., & Mitchell, W. (2013). How a Firm’s Competitive Environment and Digital Strategic Posture Influence Digital Business Strategy. Mis Quarterly, 37(2), 511-536.

Teeratansirikool, L., Siengthai, S., Badir, Y., & Charoenngam, C. (2013). Competitive strategies and firm performance: the mediating role of performance measurement. International Journal of Productivity and Performance Management, 62(2), 168-184.