The relationship of strategy, fit, productivity, and business performance in a services setting

Abstract

In their review of the operations strategy literature, Anderson et al. [Anderson, J.C., Cleveland, G., Schroeder, R.G., 1989. Operations strategy: a literature review. J. Operations Manage., 8(2): 133‐158] contend that the hypothesis that a company will perform better if it links its operations strategy to the business strategy is intuitively appealing, but lacks empirical verification. In light of this contention, this research attempts to: (1) define and measure the concept of fit as it applies to operations strategy; (2) show how fit leads to better performance; and (3) investigate the interrelationships between fit, business strategy, productivity, and performance. These objectives are investigated through field‐based research within a wholesale distribution service setting. Utilizing the classificatory framework of Venkatraman [Venkatraman, N., 1989. The concept of fit in strategy research: toward verbal and statistical correspondence. Acad. Manage. Rev., 14(3): 423‐444], fit is defined as the degree to which operational elements match the business strategy. This precise definition closely resembles the concept of ‘external fit’ that began with the work of Skinner [Skinner, W., 1969. Manufacturing–missing link in corporate strategy. Harvard Bus. Rev., 47(3): 136‐145]. A conceptual model of business performance is used with productivity as a mediating variable between the independent variables of business strategy and external fit and the dependent variable of business performance. Path analysis is used to analyze the effect of external fit on performance and to investigate the interrelationships between fit, business strategy, productivity, and performance. The results show that external fit has a significant positive and direct effect on business performance. When coupled with the nonsignificant direct effects of the strategy variables, this suggests that the fit of the operational elements with the strategy is of greater importance than the particular choice of strategy. Although all three business strategies (low cost, a combination of low cost and high customer service, and high customer service) had no significant direct effects on performance, a high customer service strategy did have a significant positive effect on the intervening productivity variable. Finally, the particular design of the research and the findings suggest that much of the conceptual work in operations strategy may be applicable to service operations as well as manufacturing.