Linking Strategy to Organizational Performance through Communication Fit and Redirection

Abstract

We explore the role of communication in linking strategy and performance and attempt to explain the inconsistent findings within strategy research. In doing so, we develop two forms of communication: fit and redirection. Fit is a consistency between communication and strategy, while redirection involves communicating an alternative strategy. Using informational asymmetry theory, we explain that more fit and less redirection can reduce informational asymmetry and thus enhance the effects of strategy on performance. Using a unique dataset of German organizations, we find that fit and redirection has distinct effects on an efficiency cost-leadership strategy and on a quality differentiation strategy. Communication is shown to increase the effects of a quality strategy on performance so that under-communicating or over-communicating quality results in reduced performance. Therefore, organizations following a quality strategy should employ communication fit. We further find that efficiency must be communicated in order to realize performance gains and that fit and redirection are jointly important for efficiency. Reducing fit, or increasing redirection, weakens the positive relationship between efficiency and performance, while reducing fit and increasing redirection leads to a negative relationship between efficiency and performance. This latter result means that organizations that do not have, but communicate, an efficiency strategy, and redirect communication, have no incentive to implement an efficiency strategy. Overall, we show that organizations are incentivized under certain circumstances to