Technology-based, “adolescent” firm configurations: strategy identification, context, and performance

Abstract

Managers and stakeholders of entrepreneurial firms have an obvious vested interest in understanding those factors that contribute to the success or failure of such firms. Insight into strategic and contextual factors related to success for 162 “adolescent” (5–12 years old) firms, competing within a variety of rapidly changing technology-based industries, results from this study. Analyses focus on pinpointing patterns of strategy, context, and performance. In the first stage of analysis, six nonmutually exclusive dimensions of strategy were identified: (1) technology/product leader; (2) product/market breadth; (3) marketing/sales expertise; (4) quality/service; (5) customer alliances; and (6) specialization. Second, cluster analysis was conducted to group the firms on their overall pattern of strategic emphasis; six groups (clusters) were identified. Each group corresponded with one of the following four strategy quadrants: (1) defenders/K-specialists, (2) entrepreneurs/r-specialists, (3) analyzers/K-generalists, and (4) prospectors/r-generalists. Subsequent analysis of variance demonstrates significant differences across the six clusters on three contextual variables—environmental instability, stage of product development, and firm age, and on six outcomes—R&D results, operating efficiency, market development, sales growth, future prospects, and performance. Conclusions indicate which strategies, under which conditions, are most successful. A description of each group follows. Cluster 1 n = 19 : Focus on narrow niche of specialized, infrequently purchased, large investment products; direct sales and support. These firms compete on their reputation in their targeted market segment, their ability to find and sell to a narrow range of customers, and customer service. This strategy occurred in relatively stable and mature industries and resulted in high performance in operating efficiency, market development, financial stability, and overall performance; sales growth was average. Cluster 2 n = 12 : “Spin-offs” reliant on contracts with original employers. These firms represent an outsourcing opportunity for larger companies not desiring to develop “in-house” expertise in a product area. They are the youngest and the smallest, and have products in the earliest stage of development. Their environment is relatively stable, given the dependence of their large customers for their product. They are average performers, except for having relatively high operating efficiency; they trade high performance for the security of long-term arrangements with major clients. Cluster 3 n = 39 : Marketing and sales expertise targeted at narrow market. These firms likely assemble and package others’ technological products or, if they manufacture, follow the technological developments of their competitors. They create value through their marketing and sales expertise and effort and through customer service/support. They face average environmental instability and stage of product development. This strategy, however, creates insufficient value-added for the long-term viability of the firms: they have low performance on sales growth, market development, operating efficiency, and financial stability, and also have low expectations for their future prospects. Cluster 4 n = 23 : Technology leaders with a high degree of specialization, quality, and service. These firms differentiate their products based on technology leadership in a specialized product domain, where high quality and service are emphasized. They compete in relatively unstable environments, attributable to rapid technological change, and are in an early stage of product development. They are relatively small, consistent with their narrow product domain. They have the highest performance on R&D results, sales growth, and future prospects, and are very high on overall performance. Cluster 5 n = 24 : Lacking in a clear strategic profile. These firms lack any clear pattern of strategic activity. Although faced with average environmental instability, these firms compete in the most mature product areas. Therefore, while other firms are becoming more entrenched in their competitive positions/advantages, these firms are floundering. They are poor performers and lack long-term viability. They score low on sales growth, market development, R&D results, operating efficiency, and overall performance. Cluster 6 n = 46 : Broad and aggressive product/market reach with relatively high quality and service. These firms pursue a “full-line” of products, sold through a wide variety of methods. This approach evolved in a highly unstable environment due to rapid change and growth, yet has a large number of growth opportunities. They are highly successful in market development, sales growth, and financial stability. They are also highly optimistic about their future prospects. This identification of firm configurations can help managers and stakeholders recognize the relationships among strategy, context, and performance for young, technological firms. This should lead to more effective managerial decisions on strategic and contextual issues, leading to better performance.