The Impact of Generic Strategy and Firm Life Cycle on Operational Efficiency

Abstract

This paper documents whether a firm's operational efficiency is affected by its business strategy and firm life cycle stage. The sample comprises manufacturing firms listed on the Korean Stock Exchange over the period 2002-2012. The operational efficiency includes the aggregate and technical efficiencies. Empirical results are summarized as follows. First, for our pooled sample, the means of the aggregate and technical efficiency scores are 0.772, and 0.791, respectively, implying that sample firms have a significant level of inefficiency and still have room for improvement. Second, we find that firms in the maturity stage of life cycle are more efficient than are firms in the other stages, and that differentiators are more operationally efficient than cost leaders in the Korean manufacturing sector. This evidence implies that firms in the maturity stage and pursuing differentiation strategy are statistically associated with higher operational efficiency. Results of this study may provide manufacturing firms with practical guideline as to which factors should be emphasized to improve operational efficiency.