business strategy–leadership style fits and...
TRANSCRIPT
BUSINESS STRATEGY, LEADERSHIP STYLE, THEIR FITS AND PERFORMANCE OF
MANUFACTURING FIRMS IN THAILAND
KITIMA TAMALEE
UNIVERSITI SAINS MALAYSIA
2007
BUSINESS STRATEGY, LEADERSHIP STYLE, THEIR FITS AND PERFORMANCE OF MANUFACTURING FIRMS IN THAILAND
by
KITIMA TAMALEE
Thesis submitted in fulfillment of the requirements for the degree of Doctor of Philosophy
June 2007
STRATEGI PERNIAGAAN, GAYA KEPIMPINAN, PEMADANAN STRATEGI PERNIAGAAN –GAYA KEPIMPINAN DAN PRESTASI FIRMA PEMBUATAN
DI THAILAND
oleh
KITIMA TAMALEE
Tesis yang diserahkan untuk memenuhi keperluan bagi ljazah Doktor Falsafah
Jun 2007
ii
ACKNOWLEDGEMENTS
I would like to extend my gratitude to the people who have contributed to
this research. I am most indebted to my supervisor Professor Mohamed
Sulaiman. Without his guidance and patient perseverance, this dissertation
would never have been completed. First, I would like to thank Professor Dato’
Daing Nasir Daing Ibrahim as Dean of School of Management, Associate
Professor Zainal Ariffin Ahmad, Associate Professor Yusserie Zainuddin and
Associate Professor Datin Ruhani as Acting Deputy Dean for being very
understanding with doctoral students. The librarians at USM and the staffs of
School of Management deserve special mention.
My highest respect and gratitude is owed to my father Vira and mother
Kimhong who had spared no efforts and hardship to provide me with all
possible opportunity for a good education. I am really grateful to my brothers:
Varakorn, Varintorn, and Sanya and sister Vilawan. My appreciation goes to
my early teachers who have prompted the enduring curiosity for knowledge in
me. This dissertation is a small compliment to them.
I would like to thank all my friends who share time with me, Lilis, Mary,
Iskandar, Abdullah Hemdi, Norlida J., Norlida K., Nugohoro, Noor Azmi, Raman,
Nik, Rahman, Fuad, Maznah, Hafiez, Tafdil, Reza, Majdi, Abdullah Shourah,
Noor Alam, Anto, Isnuhadi, Buyong, Juli, Lena, Nit, Charuwan, Jakkravudhi,
Rattana, Orachot, Chutima, Saowanee, Supanriga, Nam-oil, Nantawan,
Phaded, Dave, and other friends. Although, many of them are no longer here to
witness the completion of this dissertation, they are all part of this
accomplishment. Professor Muhamad Jantan, Professor Osman Mohamad,
Associate Professor Aizzat Nasurdin, Associate Professor T. Ramayah,
iii
Associate Professor Fauziah Md. Taib, and Dr. Roselee Shah have advised me
along the process of this research. My colleagues, Associate Professor Dr.
Apinan and Dr. Lakana encouraged me to complete this study.
To the 104 chief executives and managers who have kindly participated
in the research, I can only offer my most sincere thanks. The results of this
study may be of some use in considering future business strategies and
leadership styles.
Finally, I must thank Phranakhon Si Ayutthaya Rajabhat University for
allowing me leave and financing me for the duration of this research.
Thank You.
iv
TABLE OF CONTENTS Page
ACKNOWLEDGEMENTS ii
TABLE OF CONTENTS iv
LIST OF TABLES xii
LIST OF FIGURES xviii
ABSTRAK xxi
ABSTRACT xxiii
CHAPTER 1 -
INTRODUCTION
1.1 Background of The Study
1.2 Problem Statement
1.3 The Research Questions
1.4 The Research Objectives
1.5 Significance of The Study
1.6 Scope of The Study
1.7 Definition of Key Terms
1.8 Summary and Organization of Chapters
1
3
5
5
6
9
9
14
CHAPTER 2 -
LITERATURE REVIEW
2.1 Introduction
2.2 A Brief of Review Thailand’s Business
2.3 The Organization
2.4 Organizational Performance
2.5 Business strategy
2.6 Leadership
16
17
19
20
21
29
v
2.6.1 History of Thai Leadership Style
2.6.2 Development of Leadership Theory
2.6.3 Trait Approach
2.6.4 Behavior Approach
2.6.5 Contingency Approach
2.6.6 New Leadership Approach
2.6.7 The Characteristic of Leadership Style
2.7 The Concept of Fit
2.8 The Organizational Environment
2.9 Firm Size
2.10 Theory
2.10.1 Contingency Theory
2.10.2 Upper Echelon Theory
2.10.3 Cognitive Resources Theory
2.11 Summary
29
33
34
34
36
38
42
43
48
56
57
57
58
60
60
CHAPTER 3 -
THEORETICAL FRAMEWORK AND HYPOTHESES
3.1 Introduction
3.2 Theoretical Framework
3.3 The Hypotheses
3.3.1 Business Strategy and Organizational
Performance
3.3.2 Leadership Style and Organizational
Performance
62
62
69
69
70
vi
3.3.3 Business Strategy-Leadership Style Fits and
Organizational Performance
3.3.4 The Moderating Effect of PEU on the
Relationship between Business Strategy and
Organizational Performance
3.3.5 The Moderating Effect of PEU on the
Relationship between Leadership Style and
Organizational Performance
3.3.6 The Moderating Effect of PEU on the
Relationship between Business Strategy –
Leadership Style Fits and Organizational
Performance
3.3.7 The Moderating Effect of Firm Size on the
Relationship between Business Strategy and
Organizational Performance
3.3.8 The Moderating Effect of Firm Size on the
Relationship between Leadership Styles and
Organizational Performance
3.3.9 The Moderating Effect of Firm size on the
Relationship between Business Strategy –
Leadership Style Fits and Organizational
Performance
3.4 Summary
71
73
75
77
79
80
82
84
vii
CHAPTER 4 - METHODOLOGY
4.1 Introduction
4.2 Research Design
4.3 Source of Data
4.4 Population and Sample
4.5 Sampling Procedure
4.6 The Study Variables
4.6.1 Business Strategies
4.6.2 Leadership Styles
4.6.3 Contextual variables
• Perceived Environmental Uncertainty
• Firm Size
4.6.4 Organizational Performance
4.7 Instrument Design and Measurement
4.8 Pre-test Questionnaire
4.9 The Pilot Study
4.10 Research Approach
4.11 Data Analysis and Statistical Approach
4.11.1 The statistical Approach for Preliminary
Analyses
4.11.2 The Statistical Approach for Analysis of Fit
4.11.3 The Statistical Approach for Hypotheses
Testing
4.12 Summary
87
87
88
89
92
93
93
94
94
94
95
95
96
101
101
102
102
103
106
109
115
viii
CHAPTER 5 - RESULTS
5.1 Introduction
5.2 Profiles of Respondents
5.3 Preliminary Analyses
5.3.1 Cluster Analysis on Business Strategy
5.3.2 Discriminant Analysis on Business Strategy
5.3.3 Cluster Analysis on Leadership Style
5.3.4 Discriminant Analysis on Leadership Style
5.3.5 Factor Analysis on Perceived Environmental
Uncertainty (PEU)
5.4 Reliability Analysis
5.5 Non-response Bias Test
5.6 Descriptive Statistical Analysis
5.7 Intercorrelation between the Study Variables
5.8 Hypotheses Testing
5.8.1 Business Strategy and Performance
5.8.2 Leadership Style and Performance
5.8.3 Business Strategy – Leadership Style Fits
and Performance
5.8.4 The Moderating Effect of PEU on the
Relationship between Business Strategy
and Performance
5.8.5 The Moderating Effect of PEU on the
Relationship Between PEU and Leadership
Style and Performance
116
116
120
120
129
130
137
139
140
141
146
147
149
150
152
153
155
162
ix
5.8.6 The Moderating Effect of PEU on the
Relationship between Business Strategy –
Leadership Style Fits and Performance
5.8.7 The Moderating Effect of Firm Size on the
Relationship between Business Strategy
and Performance
5.8.8 The Moderating Effect of Firm Size on the
Relationship between Leadership Style and
Performance
5.8.9 The Moderating Effect of Firm Size on the
Relationship between Business Strategy –
Leadership Style Fits and Performance
5.9 Summary of Findings
168
183
189
194
207
CHAPTER 6 -
DISCUSSION AND CONCLUSION
6.1 Introduction
6.2 Recapitulation of the Study’s Finding
6.3 Discussion
6.3.1 Business Strategy and Performance
6.3.2 Leadership Style and Performance
6.3.3 Business Strategy – Leadership Style Fits and
Performance
6.3.4 The Moderating Effect of Perceived
Environmental Uncertainty (PEU)
• PEU, Business Strategy and Performance
215
215
220
220
222
224
225
225
x
• PEU, Leadership Style and Performance
• PEU, Business Strategy – Leadership Style
Fits and Performance
6.3.5 The Moderating Effect of Firms Size
• Firm Size, Business Strategy and Performance
• Firm Size, Leadership Style and Performance
• Firm Size, Business Strategy – Leadership
Style Fits and Performance
6.4 The complete Model
6.5 The Implications of the study
6.5.1 Theoretical Implications
6.5.2 Practical Implications
6.6 Limitations
6.7 Recommendation for Future Research
6.8 Contributions of the Study
6.9 Conclusion
226
227
229
229
230
231
234
235
235
236
237
238
238
240
REFFERENCE 243
APPENDIXES
APPENDIX A Questionnaire 265
APPENDIX B The Profile of Respondents 276
APPENDIX C Cluster Analysis Output 279
APPENDIX D Discriminant Analysis Output 286
APPENDIX E Factor analysis Output 290
APPENDIX F Reliability Analysis Output 294
APPENDIX G Non-response Bias Test 301
xi
APPENDIX H Descriptive Statistical Output 308
APPENDIX I Intercorrelation Output 309
APPENDIX J Analysis of Variance Output 311
APPENDIX K Correlation Coefficient Output
• Testing Business Strategy –
Leadership style Fits
313
313
APPENDIX L Hierarchical Regression Output
Moderating effect of PEU on the
Relationship between:
• Business Strategy - Performance
• Leadership Style - Performance
• Fits - Performance
318
318
334
350
APPENDIX M Hierarchical Regression Output
Moderating effect of Firm Size on the
Relationship between:
• Business Strategy - Performance
• Leadership Style - Performance
• Fits - Performance
382
382
398
414
xii
LIST OF TABLES
Page
Table 2.1 Summary of literature review of Miles and Snow strategy
development
26
Table 2.2 The development of leadership theories 33
Table 2.3 Summary of leadership literature reviews 40
Table 4.1 Index of manufacturing firms in Stock Exchange of Thailand
(SET)
90
Table 4.2 The dimensions of perceived environmental uncertainty
(PEU) measurement
97
Table 4.3 The dimensions of leadership style measurement 98
Table 4.4 The dimensions of business strategy measurement 100
Table 4.5 Index of the ideal of business strategy – leadership style fits 107
Table 5.1 The response rate of the returned questionnaire 117
Table 5.2 The demographic profile of respondents 118
Table 5.3 The profiles of organization 119
Table 5.4 The results of cluster analysis on business strategy 122
Table 5.5 Mean and standard deviation of cluster 1 (analyzers) 125
Table 5.6 Mean and standard deviation of cluster 2 (prospectors) 126
Table 5.7 Mean and standard deviation of cluster 3 (reactors) 127
Table 5.8 Mean and standard deviation of cluster 4 (defenders) 128
Table 5.9 The classification results of discriminant analysis on
business strategy
129
Table 5.10 The results of cluster analysis on leadership style 131
Table 5.11 Mean and standard deviation of cluster 1 (democratic) 134
xiii
Table 5.12 Mean and standard deviation of cluster 2 (participative) 135
Table 5.13 Mean and standard deviation of cluster 3 (paternalistic) 136
Table 5.14 Mean and standard deviation of cluster 4 (autocratic) 137
Table 5.15 The classification results of discriminant analysis on
leadership style
138
Table 5.16 Factor loaded results of second order factor analysis of PEU 140
Table 5.17 The reliability analysis results 141
Table 5.18 Pearson Chi-square tests between early and late responses
on demographic respondents profiles
142
Table 5.19 Pearson Chi-square tests between early and late responses
on organizational profiles
144
Table 5.20 Independent sample t-test between early and late response
on study variables
145
Table 5.21 The results of descriptive statistical analysis 146
Table 5.22 The intercorrelation among the study variables 148
Table 5.23 The results of one-way ANOVA between business strategy
and organizational performance
151
Table 5.24 The results of one-way ANOVA between leadership style
and organizational performance
152
Table 5.25 The results of correlation coefficient between business
strategy-leadership style fits and performance
154
Table 5.26 The hierarchical regression results on PEU, prospector
strategy and performance
156
Table 5.27 The hierarchical regression results on PEU, analyzer
strategy and performance
158
xiv
Table 5.28 The hierarchical regression results on PEU, defender
strategy and performance
159
Table 5.29 The hierarchical regression results on PEU, reactor strategy
and performance
161
Table 5.30 The hierarchical regression results on PEU, participative
leadership style and performance
163
Table 5.31 The hierarchical regression results on PEU, democratic
leadership style and performance
165
Table 5.32 The hierarchical regression results on PEU, paternalistic
leadership style and performance
167
Table 5.33 The hierarchical regression results on PEU, autocratic
leadership style and performance
168
Table 5.34 The hierarchical regression results for moderating effect of
PEU on the relationship between Pr-Pa (prospector-
participative) and performance
169
Table 5.35 The hierarchical regression results for moderating effect of
PEU on the relationship between Pr-Dm (prospector-
democratic) and performance
171
Table 5.36 The hierarchical regression results of moderating of PEU on
the relationship between An-Dm (analyzer-democratic) and
performance
173
Table 5.37 The hierarchical regression results for moderating effect of
PEU on the relationship between An-F (analyzer-
paternalistic) and performance
175
xv
Table 5.38 The hierarchical regression results for moderating effect of
PEU on the relationship between De-F (defender-
paternalistic) and performance
176
Table 5.39 The hierarchical regression results form moderating effect of
PEU on the relationship between De-Au (defender-
autocratic) and performance
178
Table 5.40 The hierarchical regression results for moderating effect of
PEU on the Relationship between R-F (reactor-paternalistic)
and performance
180
Table 5.41 The hierarchical regression results moderating effect of PEU
on the relationship between R-Au (reactor-autocratic) and
performance
181
Table 5.42 The hierarchical regression results for moderating effect of
firm size on the relationship between prospector strategy
and performance
183
Table 5.43 The hierarchical regression results for moderating effect of
firm size on the relationship between analyzer strategy and
performance
184
Table 5.44 The hierarchical regression results for moderating effect of
firm size on the relationship between defender strategy and
performance
186
Table 5.45 The hierarchical regression results form moderating effect of
firm size on the relationship between reactor strategy and
performance
188
xvi
Table 5.46 The hierarchical regression results for moderating effect of
firm size on the relationship between participative leadership
style and performance
190
Table 5.47 The hierarchical regression results for moderating effect of
firm size on the relationship between democratic leadership
style and performance
191
Table 5.48 The hierarchical regression results for moderating effect of
firm size on the relationship between paternalistic leadership
style and performance
193
Table 5.49 The hierarchical regression results for moderating effect of
firm size on the relationship between autocratic leadership
style and performance
193
Table 5.50 The hierarchical regression results for moderating effect of
firm size on the relationship between Pr-Pa (prospector-
participative) and performance
195
Table 5.51 The hierarchical regression results for moderating effect of
firms size on the relationship between Pr-Dm (prospector-
democratic) and performance
197
Table 5.52 The hierarchical regression results for moderating effect of
firm size on the relationship between An-Dm (analyzer-
democratic) and performance
198
Table 5.53 The hierarchical regression results for moderating effect of
firm size on the relationship between An-F (analyzer-
paternalistic) and performance
200
xvii
Table 5.54 The hierarchical regression results for moderating effect of
firm size on the relationship between De-F (defender-
paternalistic) and performance
201
Table 5.55 The hierarchical regression results for moderating effect of
firm size on the relationship between De-Au (defender-
autocratic) and performance
202
Table 5.56 The hierarchical regression results for moderating effect of
firm size on the relationship between R-F (reactor-
paternalistic) and performance
204
Table 5.57 The hierarchical regression results for moderating effect of
firm size on the relationship between R-Au (reactor-
autocratic) and performance
206
Table 5.58 Summary of Hypotheses Testing 207
xviii
LIST OF FIGURES
Page
Figure 2.1 The perceptual process of CEO 59
Figure 3.1 The theoretical framework 63
Figure 3.2 The sixteen possible types of business strategy –
leadership style combinations
67
Figure 3.3 The impact of business strategy – leadership style fits on
performance with contextual variables as moderator
68
Figure 4.1 The variables measure the level of business strategic
practices for each business strategy type
111
Figure 4.2 The variables measure the consistent leadership style of
CEO for each style
111
Figure 5.1 The scatter plot of business strategy clusters 123
Figure 5.2 The scatter plot of business strategy groups by using
discriminant analysis
130
Figure 5.3 The scatter plot of leadership style clusters 132
Figure 5.4 The scatter plot of leadership style groups by using
discriminant analysis
138
Figure 5.5 The moderating effect of PEU on the relationship between
prospector strategy and ROA
157
Figure 5.6 The moderating effect of PEU on the relationship between
analyzer strategy and ROA
158
Figure 5.7 The moderating effect of PEU on the relationship between
defender strategy and ROA
160
xix
Figure 5.8 The moderating effect of PEU on the relationship between
reactor strategy and ROA
162
Figure 5.9 The moderating effect of PEU on the relationship between
participative leadership style and ROA
164
Figure 5.10 The moderating effect of PEU on the relationship between
democratic leadership style and ROA
166
Figure 5.11 The moderating effect of PEU on the relationship between
paternalistic leadership style and ROA
167
Figure 5.12 The moderating effect of PEU on the relationship between
Pr-Pa (prospector-participative) and ROA
170
Figure 5.13 The moderating effect of PEU on the relationship between
Pr-Dm (prospector-democratic) and ROA
172
Figure 5.14 The moderating effect of PEU on the relationship between
An-Dm (analyzer-democratic) and ROA
174
Figure 5.15 The moderating effect of PEU on the relationship between
An-F (analyzer-paternalistic) and ROA
175
Figure 5.16 The moderating effect of PEU on the relationship between
De-F (defender-paternalistic) and ROA
177
Figure 5.17 The moderating effect of PEU on the relationship between
De-Au (defender-autocratic) and ROA
179
Figure 5.18 The moderating effect of PEU on the relationship between
R-F (reactor-paternalistic) and ROA
181
Figure 5.19 The moderating effect of PEU on the relationship between
R-Au (reactor-autocratic) and ROA
182
xx
Figure 5.20 The moderating effect of firm size on the relationship
between analyzer strategy and ROA
185
Figure 5.21 The moderating effect of firm size on the relationship
between defender strategy and ROA
187
Figure 5.22 The moderating effect of firm size on the relationship
between reactor strategy and ROA
188
Figure 5.23 The moderating effect of firm size on the relationship
between participative leadership style and ROA
190
Figure 5.24 The moderating effect of firm size on the relationship
between democratic leadership style and ROA
192
Figure 5.25 The moderating effect of firm size on the relationship
between Pr-Pa (prospector-participative) and ROA
196
Figure 5.26 The moderating effect of firm size on the relationship
between Pr-Dm (prospector-democratic) and ROA
197
Figure 5.27 The moderating effect of firm size on the relationship
between An-Dm (analyzer-democratic) and ROA
199
Figure 5.28 The moderating effect of firm size on the relationship
between De-F (defender-paternalistic) and ROA
201
Figure 5.29 The moderating effect of firm size on the relationship
between De-Au (defender-autocratic) and ROA
203
Figure 5.30 The moderating effect of firm size on the relationship
between R-F (reactor-paternalistic) and ROA
205
Figure 5.31 The moderating effect of firm size on the relationship
between R-Au (reactor-autocratic) and ROA
206
xxi
STRATEGI PERNIAGAAN, GAYA KEPIMPINAN, PEMADANAN STRATEGI
PERNIAGAAN –GAYA KEPIMPINAN DAN PRESTASI FIRMA PEMBUATAN DI
THAILAND
ABSTRAK
Kajian ini menyelidiki perhubungan di antara strategi perniagaan, gaya
kepimpinan, pemadanan strategi perniagaan-gaya kepimpinan dan prestasi organisasi.
Kesan pembolehubah penyederhana tanggapan ketidakpastian persekitaran (PEU)
dan saiz firma ke atas hubungan iaitu pembolehubah bebas dan pembolehubah
bersandar juga dikaji. Khususnya, kajian ini mencadangkan firma yang mempunyai
pemadanan terhadap strategi perniagaan dan gaya kepimpinan akan memperoleh
prestasi organisasi yang lebih tinggi berbanding dengan yang tidak mempunyai
pemadanan. Strategi perniagaan yang efektif memerlukan pemadanan gaya
kepimpinan Ketua Eksekutif (CEO) berdasarkan kepada teori kontingensi dan teori
“upper echelon”. Oleh itu, keutuhan pemadanan di antara strategi perniagaan dan gaya
kepimpinan boleh meningkatkan prestasi organisasi. Sejumlah 104 firma pembuatan
yang didaftarkan di Bursa Saham Thailand dikaji. Analisa statistik seperti analisis
kelompok, analisis diskriminan, analisis faktor, analisis realibiliti dan analisis deskriptif
digunakan untuk pengujian awalan kajian ini. Untuk menguji hipotesis, analisis variasi,
regresi peringkat berkala and korelasi digunakan. Dapatan kajian menunjukkan,
walaupun firma menggunakan strategi perniagaan yang berbeza ataupun CEO firma
mempunyai gaya kepimpinan yang berbeza, hasil ujian statistik tidak menunjukkan
perbezaan secara signifikan terhadap prestasi. Walaupun demikian, firma
berorientasikan pemadanan strategi perniagaan - gaya kepimpinan mempunyai
perhubungan positif dengan prestasi. Terdapat enam jenis pemadanan strategi
perniagaan dan gaya kepimpinan, iaitu, pemadanan Pr-Pa (prospector-participative),
Pr-Dm (prospector-democratic), An-Dm (analyzer-democratic), De-F (defender-
paternalistic), De-Au (defender-autocratic) dan R-F (reactor-paternalistic). PEU
xxii
mempunyai impak negatif yang kuat ke atas perhubungan di antara empat strategi
perniagaan dan prestasi. Apabila PEU meningkat, perhubungan di antara gaya
‘participative’, gaya demokratik dan prestasi akan menjadi lemah. Secara keseluruhan,
firma berorientasikan pemadanan strategi perniagaan - gaya kepimpinan akan
meningkatkan prestasi bila ketidakpastian persekitaran (PEU) rendah. Apabila
ketidakpastian persekitaran yang tinggi, pemadanan firma berorientasikan Pr-Dm
(prospector-democratic) akan meningkatkan prestasi. Tambahan pula, saiz firma
mempunyai kesan positif yang kuat ke atas perhubungan di antara strategi perniagaan
(analyzer, defender dan reactor) dan prestasi bagi firma bersaiz kecil. Manakala
strategi ‘analyzer’ mempengaruhi prestasi terhadap firma yang besar tetapi mempunyai
pengaruh yang negatif ke atas firma yang bersaiz sederhana. Selain itu, gaya
kepimpinan ‘participative’ adalah efektif kepada firma bersaiz kecil dan besar tetapi
tidak kepada firma yang bersaiz sederhana. Manakala, gaya kepimpinan demokratik
adalah efektif kepada firma bersaiz kecil tetapi tidak kepada firma bersaiz sederhana
dan besar. Secara khusus, pemadanan Pr-Pa (prospector-participative), Pr-Dm
(prospector-democratic), An-Dm (analyzer-democratic), De-F (defender-paternalistic)
adalah efektif kepada firma bersaiz kecil. Manakala, pemadanan Pr-Dm (prospector-
democratic), De-Au (defender-autocratic), R-F (reactor-paternalistic) dan R-Au
(reactor-autocratic) adalah efektif kepada firma bersaiz sederhana. Untuk firma bersaiz
besar, pemadanan Pr-Dm (prospector-democratic) dan R-Au (reactor-democratic)
mempunyai kesan positif yang mempengaruhi prestasi. Pemadanan Pr-Dm
(prospector-democratic) mempunyai kesan positif ke atas prestasi kesemua saiz firma.
Dapatan kajian menyokong teori kontingensi dan teori “upper echelon” dalam bidang
pengurusan strategik. Dapatan kajian ini juga dapat dijadikan garis panduan kepada
pengurus untuk mengurus organisasi mereka.
xxiii
BUSINESS STRATEGY, LEADERSHIP STYLE, THEIR FITS AND
PERFORMANCE OF MANUFACTURING FIRMS IN THAILAND
ABSTRACT
This study investigates the relationships among business strategies,
leadership styles, their fits and organizational performance. The moderating
effects of perceived environmental uncertainty (PEU) and firm size were also
examined. This study proposes that firms having the fits of business strategies
and leadership styles would have higher performance. In order to be effective
business strategies are required to have a fitting leadership style of CEO based
on contingency and upper echelon theories. Thus, the goodness of fits between
business strategy and leadership style could enhance organizational
performance. A total of 104 manufacturing firms that are listed in the Stock
Exchange of Thailand were studied. Statistical methods for preliminary testing
used cluster analysis, discriminant analysis, factor analysis, reliability analysis
and descriptive statistics. The analysis of variance, hierarchical regression
analysis and correlation coefficient analysis were used for hypotheses testing.
The findings found that though firms are oriented to different business strategies
or CEO’s had different leadership styles, the results showed no statistically
significant differences on organizational performance. Nevertheless, when the
business strategy – leadership style fits were tested, they had positive
associations with organizational performance. They included six fits: Pr-Pa
(prospector-participative), Pr-Dm (prospector-democratic), An-Dm (analyzer-
democratic), De-F (defender-paternalistic), De-Au (defender-autocratic) and R-F
(reactor-paternalistic). Furthermore, the higher PEU had strong negative impact
on the relationship between all four business strategies and performance. When
xxiv
PEU increased, the relationships between participative and democratic
leadership styles and performances were weakened. Firms using business
strategy - leadership style fit improved organizational performance under low
PEU. Specifically, firms’ performances were increased under high PEU when
using Pr-Dm (prospector-democratic) fit. Moreover, the positive relationship
between analyzer, defender and reactor strategies and performance were
increasing strongly in small firm. Though firms oriented with analyzer strategy
had strong positive influence performance in large firm, they were weakened in
medium firm. For small and large firms, the participative leadership style had
strong positive relationship with performance, however, the effect was
weakened in medium firm. Firms with CEOs who practiced democratic
leadership style had strong positive relationship with performance in small firms,
but, were weakened in medium and large firms. Additionally, small firms using
the Pr-Pa (prospector-participative), Pr-Dm (prospector-democratic), An-Dm
(analyzer-democratic), De-F (defender-paternalistic) and De-Au (defender-
autocratic) fits had strong positive influences performance. For the medium firm,
the Pr-Dm (prospector-democratic), De-Au (defender-autocratic), R-F (reactor-
paternalistic) and R-Au (reactor-autocratic) fits had positive influences on
performance. Large firms using Pr-Dm (prospector-democratic) and R-Au
(reactor-autocratic) fits had strong positive influences on performance.
Specifically, the Pr-Dm (prospector-democratic) fit had a positive effect on
performance for all firms. These findings supported contingency and upper
echelon theories in strategic leadership field. These findings can be used as
guidelines for managers in managing their organizations.
1
CHAPTER 1
INTRODUCTION
This chapter provides an overview of the background of the study, the
problem statement, the research questions, the research objectives, the
significance and scope of the study. Definitions of key terms are also given at
the end of this chapter.
1.1 Background of The Study
In today’s rapidly changing environment, organizations must learn to
adapt in order to survive and prosper (Lawrence, 1981; Yasai-Ardekani &
Nystrom, 1996). However, organizations may encounter many problems as
they endeavour to adapt to the various challenges of the world. There are many
factors that lead to these challenges, and these factors have caused
tremendous adverse impact on the development of the organizations
themselves. Therefore, a proper environmental scrutinizing is important,
especially on the operation of the open system organization. Such
organizations are vulnerable to various external factors, although the
vulnerability is of course subject to the resources and legitimacy of each
organization (Pfeffer & Salancik, 1978; Scott, 1987; Yasai-Ardekani & Nystrom,
1996).
Moreover, business strategy is an important organizational element. An
appropriate strategy can propel an organization towards achieving its goals.
A business strategy contains the basic objectives of an organization, which are
based on various perspectives involving goals, policies and action sequences
underlying rational planning as a cohesive whole (Chandler, 1962; Mintzberg &
2
Quinn, 1992). Therefore, managers must be able to formulate strategy as a
guide to organizational behavior (Ansoff, 1984).
Essentially, leadership has influence over organizations via strategic
decision-making, determining organizational structure and managing the
organizational process. Effective leadership in an organization is evident in
direct action, decisions and behaviors (Day & Lord, 1988; Nahavandi, 1993;
Thomas, 1988; Weiner & Mahoney, 1981).
A leader can be likened to a rudder, which gives direction to the ship.
A leader oversees and regulates the overall functioning of an organization.
In order for their organizations to perform well, leaders should have an
innovative vision that will move the organization in the right perspective and
direction (Dessler, 1994). Therefore, an ideal leader should have strong
perceptional resources such as intelligence and knowledge (Fiedler & Garcia,
1987). Moreover, a leader with good perceptional resources would contribute
to higher performance (Dessler, 1994).
There have been many researches on the relationships among
environment, strategy and performance (Beekun & Binn, 1993; Lee & Miller,
1996; Miles & Snow, 1978; Miller, 1983; 1991; Naman & Slevin, 1993; Namiki,
1989; Parnell, Wright & Tu, 1996; Sim, Teoh & Thoung, 1996; Smith, Guthrie &
Chen, 1989; Venkatraman, 1989). There have also been researches on the
relationship between leadership styles and performance (Day & Lord, 1988;
McKenna, Shelton & Darling, 2001; Shea, 1999; Smith, Carson & Alexander,
1984; Waldman, Ramirez & Puranam, 2001). There were few previous
researches that endeavored to integrate strategy and manager characteristics
(Nahavandi & Malekzadeh, 1993; Szilagyi & Schweiger, 1984; Thomas &
3
Ramaswamy, 1996). However, there is hardly any previous research that
examines the relationship between organizational performance and the
business strategy-leadership style fit. Thus, this study attempts to explore these
fits, which are anchored on the business strategy and the leadership style,
propelling organizations towards achieving their goals. In addition, this study
will also explore the perceived environmental uncertainty and firm size as
moderator variables that impact on the relationship between business
strategies, leadership styles and their style fits and organizational performance.
1.2 Problem Statement
Following the 1997 Thailand’s economic crisis, the manufacturers
appeared to be struggling with over capacity in many sectors (Hewison, 1999).
There have been contractions of 80 percent in auto parts, 50 percent in
construction materials and 40 percent in electrical appliances (Bangkok Post,
1998). The 11 major companies in telecommunications plummeted with only
two companies that are profitable in 1997 (Vivat, 1997). The controlling
stakeholders in the giant Metro Group’s companies were being offered to
foreign investors to offset a 16 billion bath debt (Bangkok Post, 1998). Bankrupt
companies were doubled in early 1998, with some 5,000 companies closing by
June 1998, and hundreds more were expected to follow (Bangkok Post, 1998).
The World Bank reported that more than 1,000 businesses a month were de-
registering during the last quarter of 1997 and through 1998. All production
indices saw massive declines over the same period (World Bank, 1999).
The main problem was the lack of good governance in many sectors and
debtors were no exception (Dasri, 2001). These are the inherent problems of
the economic structure such as the problem of weak competitiveness and
4
inefficiency (Kittiprapas, 2000; Krungman, 1994). A number of factors retarding
long-term sustainable economic growth such as low level of education,
deficiencies in infrastructure development and environmental management
were apparent before the crisis occurred (Kittiprapas, 2000). It seemed that the
financial problem might be only symptomatic of the real. In fact, some
established firms with good managerial practices were able to survive and to
sustain growth. On the other hand, firms having inappropriate strategic
decision-making and faulty practices such as selecting unsuitable strategy,
poor leadership style and misinterpreting environments were destined to
collapse.
Moreover, there is a lack of empirical research concerning the fit
between business strategy and leadership style, which is a gap in knowledge
on the subject. It necessitates research for better understanding the
relationships of business strategies, CEO’s leadership styles and organizational
performance. The research results are proposed as guideline to organizations
for improvement and sustaining growth. However, the functioning of
organizations is dictated by their external and internal environments influences
performance based on contingency theory. While, there were few researches in
the area of strategic leadership that supported the upper echelon theory
(Hambrick & Mason, 1984). Thus, this study attempts to investigate how
business strategy and leadership style influence organizational performance. If
these factors are related, is there a business strategy-leadership style fit that
enhances organizational performance? Additionally, this study will examine
whether the perceived environmental uncertainty and firm size moderate those
relationships.
5
1.3 The Research Question
This study aims to explore the answers to the research questions below.
These questions inquire into the association between the business strategy-
leadership style fit and the organizational performance of manufacturing firms
in Thailand.
1. How do business strategies influence organizational performance?
2. How do CEO’s leadership styles influence organizational
performance?
3. Is there any fit between business strategies and leadership styles
that have a positive association with organizational performance?
4. Do contextual factors (perceived environmental uncertainty (PEU)
and firm size) moderate the relationship between business
strategies, leadership styles, business strategy-leadership fits, and
organizational performance?
1.4 Research Objectives
The general purpose of this study is to establish the relationship
between business strategy and leadership style, and how their fit influences
organizational performance. The specific objectives of this study are:
1. To examine whether firms using different business strategies will
exhibit different organizational performance.
2. To examine whether the different leadership styles of CEO will
exhibit different organizational performance.
3. To investigate whether there is a particular fit between business
strategy and leadership style that has a positive association with
organizational performance.
6
4. To investigate the moderating effect of perceived environmental
uncertainty (PEU) and firm size on the relationship between business
strategies, leadership styles and the business strategy-leadership
style fit and organizational performance.
1.5 Significance of The Study
The study of business strategy-leadership style fits seems to be
important both from the theoretical and practical perspectives. Previous
researches have been done on particular matters such as the relationship
between business strategy and performance (Bahaee, 1992; Gimenez, 2000;
Hambrick, 1983; Parnell & Wright, 1993; Segev, 1987, 1989; Smith, Guthrie &
Chen, 1989; Snow & Hrebiniak, 1980), business strategy, leader characteristics
and performance (Gerstein & Reisman, 1983; Guthrie & Datta, 1998; Hambrick,
1984; Miller, Kets De Vries & Toulouse, 1982; Nahavandi, 1993; Nahavandi &
Malekzadeh, 1993; Szilagyi & Schweiger, 1984; Thomas & Ramaswamy, 1996;
Thomas, Litschert, & Ramaswamy, 1991) and leadership style and strategy
(Ansari, 1990).
However, there has been little effort devoted to research concerned with
business strategy - leadership style fit. The relationship between business
strategy - leadership style fit and organizational performance has not been
demonstrated conclusively because few research has been done. For instance,
previous researches on business strategies found that defender, prospector,
and analyzer strategies performed equally well, and all performed higher than
reactors (Miles & Snow, 1978; Snow & Hrebiniak, 1980). Later, Hambrick
(1983) found that defender strategy performed better than prospector in
innovative industries, while Smith et al. (1989) subsequently found analyzer
7
and prospector strategies perform better than reactor. They offered no
evidence for defender strategy.
Early researchers attempted to link business strategies and leadership,
but their focus was on leader characteristics (Finkelstein & Hambrick, 1996;
Hambrick, 1987; Szilagyi & Schweiger, 1984; Thomas & Ramoswamy, 1994).
This researcher has not been able to find literature on business strategy –
leadership style fit. Thus, this study intends to investigate the relationship
between business strategy-leadership style fits and organizational performance
incorporating the concepts of perceived environmental uncertainty and firm size
as moderators.
The literature review established that some researches had considered
the impact of firm size and environment as contextual variables. However, the
evidence is still vague. Indeed, these factors indirectly affect the managerial
process of organization (Gimenez, 2000; Segev, 1989; Sim, Teoh & Thong,
1996; Smith et al., 1989; Thomas & Ramaswamy, 1996). Hence, this study will
examine the effect of these factors in order to bridge a gap and strengthen
contingency studies.
Most previous researches were done in developed countries (such as
the U.S. and the U.K.). There has been limited research on strategic leadership
areas in developing countries, particularly Thailand. Still, there are a few
studies that have been conducted in this region. For instance, Sulaiman (1993)
researched strategy and structures of Malaysian manufacturing firms. Sim and
Yap (2000) made a comparison of business strategies in Malaysia and
Singapore. Ansari (1990) studied the relationship between leadership styles
and strategies in India. Hashim (2000) studied the relationship between
8
business strategy and performance of small and medium enterprises in
Malaysia.
It is well known that consequent to the economic crisis in 1997 many
companies in Thailand collapsed. The causes of organizational collapse might
have been wrong strategies, poor implementation of strategies, wrong
leadership styles and other elements. This study will assist to enhance the
understanding of business strategies, leadership styles and business strategy-
leadership style fit and environment as influencing factors in firm’s
performance. The results could be used as a guide for existing companies to
adopt in order to survive and to sustain growth. This study will contribute by
testing the relationships between business strategies, leadership styles,
business strategy-leadership style fit and organizational performance.
Certainly, strategic leadership is of prime importance in organizational
management. Yet there is still lack of understanding about the perception of
practitioners on what is the right decision under environmental uncertainty.
Strategic leadership is meant to connote two main things about people at the
top of an organization: the full scope of their activities and their strategic
choices (Cannella, 2001; Finkelstein & Hambrick, 1996). Some leadership
styles could be more effective than others. Therefore, this study can help
managers to correctly adopt leadership styles and strategic decision making
which can be used to activate, control and coordinate their activities more
effectively.
It is hoped that this study will contribute to the theoretical and empirical
literature on business strategy, leadership style and the contingency fit
approach in developing countries. It may be noteworthy that this study may be
9
the first attempt to apply a contingency fit framework to examining the impact of
environmental uncertainty in Thailand. Furthermore, firm size is considered as
a moderating effect on business strategies, leadership styles, business strategy
- leadership style fits and organizational performance.
1.6 Scope of The Study
The unit of analysis of this study is the organization. The chosen
organizations are manufacturing companies that are listed on the Stock
Exchange of Thailand (SET). In addition, this study focuses on areas that
involve the relationships between business strategies and leadership styles,
and how these relationships can explain the firms’ performance.
The unit of analysis chosen is the manufacturing company because
companies’ close interaction with the environment. They obtain inputs from the
environment and produce outputs that are diffused to the environment. There
are direct relationships between the environment and the organization, and this
is believed to adequately reflect the business strategy and leadership style of
the firms under study. Hence, it is more reasonable and appropriate to use
manufacturing companies than service companies.
1.7 Definition of Key Terms
1.7.1 Business Strategy
A business strategy is a plan to guide an organization to achieve its
goals. This guideline plan focuses on improving the competitive position of a
firm’s products or services, which serve a specific industry or market segment
(Croteau & Bergeron, 2001; Hunger & Wheelen, 2001; Mintzberg, 1978; Segev,
1987). Previous researches have conceptualized strategies in many typologies;
10
this study utilizes the Miles and Snow (1978) typology. The four business
strategy variables are defined as follows:
1. Prospector Strategy refers to the firms that have very broad
product-market domains, a focus on innovation and change, and a flexible
administrative structure (Smith et al., 1989). They tend to have complex
coordination and communication mechanisms, rely on participative and
decentralized decision- making (Hambrick, 1983). They monitor a wide range of
environmental condition. Technological flexibility is a crucial aspect of this
strategy (Thomas & Ramaswamy, 1996). These firms are frequently first-to-
market with new products or service concepts.
2. Analyzer strategy is hybrid strategy that firms exhibit some features
of the prospector and defender strategies (Thomas & Ramaswamy, 1994).
They have multiple products; in some product markets they resemble
prospectors, while in others they more closely resemble defenders (Smith et
al., 1989). They adopt dual core technologies that have both stable and flexible
components. They are usually administered through matrix structures, which
include the benefits of centralized control and functional specialization which
providing the flexibility normally associate with product-oriented structures
(Thomas & Ramaswamy, 1994). They are assertively penetrating more deeply
into markets which they currently serve, while adopting new products only after
proven potential (Conant, Mokwa & Varadarajan, 1990).
3. Defender strategy refers to the firms, which have narrow product-
market domains, a focus on production efficiency, and a stable administrative
structure (Smith et al., 1989). They devote a lot of attention to controlling
operating cost since efficiency is an important prerequisite for their success.
11
Their technology choices favour inflexible but cost-efficient methods, often
involving substantial levels of vertical integration to control costs (Thomas &
Ramaswamy, 1996). They make substantial efforts toward rationalizing
production and delivery of their goods and services, tend to have relatively
simple coordination mechanisms rely on centralized decision-making
(Hambrick, 1983).
4. Reactor strategy refers to the firms have no consistent strategy or
pattern in responding to pressures of the marketplace or environment (Conant
et al., 1990; Smith et al., 1989). These firms focus the activities or business
functions, which most need attention given the opportunities or problems that
they currently confront. They identify the best possible solutions to those
problems or challenges even through they may possess only moderate
potential, which require immediate attention.
1.7.2 Leadership Style
Leadership style is the behavior of leader that has expressed ability to
influence the subordinates toward the achievement of goals (Armandi,
Oppedisano & Sherman, 2003; DuBrin, 1995; Robbins, 1993; Yousef, 1998).
Leadership style has been classified in different ways in prior researches. This
study attends to four leadership style variables that are defined as follows.
1. Participative leadership style is defined as a leader who shares
decision making with group members or subordinates (DuBrin, 1995). The
leader will identify the problem, generate solutions and evaluate the alternatives
together with subordinates. The decision-making of participative leadership
style is decentralized authority throughout the organization (Steers, 1977).
12
2. Democratic leadership style is defined as a friendly, helpful leader
who encourages participation. A leader with a democratic leadership style
shares his or her power with subordinates, and decisions are made by
consensus or majority vote (Seidenberg & Snadowsky, 1976). Democratic
leaders encourage subordinates to discuss and make decisions as a group on
the policy and steps toward achieving goals.
3. Paternalistic leadership style is defined as leader who acts like a
father and takes care of the subordinates like a parent (Kabasakal & Bodur,
1998). The leader prepares everything for the subordinates to do. The
subordinates obey the leader. The leader will punish a subordinate who makes
mistakes and reward those who conform to the organizational rules.
4. Autocratic leadership style is defined as a directive leader,
controlling, discouraging or suppressing participation. An autocratic leader
centralizes power with little or no room for subordinates to participate in
decision-making processes (Seidenberg & Snadowsky, 1976). Autocratic
leaders determine all policies, dictate techniques and activities, assign tasks
and work partners to group members, and are personal in their criticism and
praise.
1.7.3 Business Strategy-Leadership Style fit
Business strategy – leadership style fit means that a firm uses a specific
business strategy type and that the CEO of the firm behaves in a particular
leadership style that enhances organizational performance. This study
conceptualizes business strategy – leadership style fits that reflect eight types
of fits defined as follows.
13
1. Pr-Pa (Prospector-Participative) fit means that the organization
uses prospector strategy and the CEO has a participative leadership style.
2. Pr-Dm (Prospector-Democratic) fit means that the organization
uses prospector strategy and the CEO has a democratic leadership style.
3. An-Dm (Analyzer-Democratic) fit means that the organization uses
analyzer strategy and the CEO has a democratic leadership style.
4. An-F (Analyzer-Paternalistic) fit means that the organization uses
analyzer strategy and the CEO has a paternalistic leadership style.
5. De-F (Defender-Paternalistic) fit means that the organization uses
defender strategy and the CEO has a paternalistic leadership style.
6. De-Au (Defender-Autocratic) fit means that the organization uses
defender strategy and the CEO has an autocratic leadership style.
7. R-F (Reactor-Paternalistic) fit means that the organization uses
reactor strategy and the CEO has a paternalistic leadership style.
8. R-Au (Reactor-Autocratic) fit means that the organization uses
reactor strategy and the CEO has an autocratic leadership style.
1.7.4 Contextual Variables
1. Perceived environmental uncertainty (PEU) refers to the perceptual
views of the CEO regarding the organization’s environmental uncertainty.
These perceptions are obtained from CEO’s consistent predictable level to the
environmental uncertainty (Miller, 1993).
2. Firm size is measured by number of full-time employees of firm.
Number of employee is one of the more common methods and reliable
indicator of firm size (Smith et al., 1989).
14
1.7.5 Organizational Performance
This study focuses on organizational performance, which is measured
by profitability and sales growth. Profitability is viewed as the operational
measure of the efficiency of a firm (Dess & Robinson, 1984). This study
measures growth by using sales growth. Sales growth reflects how well an
organization relates to their environment in order to successfully expand its
product-market domain (Ansoff, 1965; Dess & Robinson, 1984; Hofer &
Schendel, 1978).
1.8 Summary and Organization of Chapters
This study aims to distinctly understand the congruence of business
strategy and leadership style as a fit that influences organizational
performance. Additionally, this study also scrutinizes the effect of perceived
environmental uncertainty and firm size on the relationship between business
strategies, leadership styles, business strategy – leadership style fits and
organizational performance. This study comprises six chapters in which
Chapter 1 presents the overview of the study via the background of the study,
problem statement, research questions, research objectives, scope of the study
and significance of the study.
Chapter 2 reviews the literature, which is related to the study variables.
The variables of this study include business strategy, leadership style, business
strategy-leadership style fits, perceived environmental uncertainty, firm size,
and organizational performance. The relevant theories are also examined.
In addition, historical perspectives on business in Thailand and Thai leadership
styles are included in this chapter.
15
Chapter 3 presents the theoretical framework and research hypotheses.
This section illustrates the link among the study variables, which are drawn into
a research framework. In addition, the relevant theories and literatures are
utilized for ascertaining the theoretical framework. The research hypotheses
are stated as main and sub hypotheses that refer to each link of the
relationships.
Chapter 4 presents the methodology. The research design includes
population and sample, questionnaire design, variables and measurements.
The pre-testing of questionnaire and pilot study are posted in this chapter.
Moreover, the statistical approaches used for the data analyses are
demonstrated at the end of this chapter.
Chapter 5 reveals the data analysis and findings. The results presented
are respondent profiles, response bias test, preliminary analyses of study
variables and hypothesis testing. The preliminary analyses show the results of
factor analysis, reliability analysis, descriptive statistics and intercorrelation,
cluster analysis and discriminant analysis. The summary of the results of
hypothesis testing is presented at the end of this chapter.
Chapter 6 presents the discussion of results. This includes recapitulation
of the study’s findings, the complete model, implications of the study, limitations
and future research. This chapter ends with the conclusions.
16
CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
From 1990 until now, firms have encountered rapid changes of
environments and new regional and global competitive challenges. Industries
in Thailand have had to become more competitive because they have to face
free trade under the WTO (World Trade Organization) and AFTA (Asean Free
Trade Area). In 1997, a serious economic crisis engulfed Thailand, which
produced swerving circumstances and strengthened the challenges of
competitiveness and productivity especially for the survival of Thai businesses.
Many Thai firms collapsed after the financial crisis, including financial,
manufacturing, service and real estate companies. From the events,
economists have analyzed the causes of bankruptcy, and have established that
lack of funds, mistaken reading of environments, use of unsuitable business
strategies, inappropriate leadership style, and improper decision-making all
contributed to firms’ failures (Charoenseang & Manakit, 2002; Dasri, 2001;
Kawai, 2000).
This study proposes to investigate whether there is any significant
association among business strategy, leadership style and organizational
performance. If these factors do indeed affect performance, are there any fits
between business strategy and leadership style that influence organizational
performance in the context of Thailand? Moreover, this study examines the
moderating effect of environmental uncertainty and firm size as to whether they
impact those associations.
17
This chapter reviews the literature on organizational components that
constitute the key variables of interest for this study. As a result, the literature
review will reveal a gap in the research literature in terms of business strategy
and leadership style fit. Certain pertinent theories are presented insofar as
they provide the linkage in the study framework. In addition, Thailand’s
business history and the leadership styles of primary Thai leaders are
surveyed. This chapter concludes with a discussion of the gaps in the
literature: gaps that form the focus of the present research.
2.2 A Brief of Review Thailand’s Business
Since the end of the 19th century, there have been three main groups of
Thai capitalist structure: the Royal Privy Purse Bureau, European capitalists
and overseas or locally born Chinese businessmen. The capital of the Royal
Privy Purse Bureau was primarily begun through collecting royal taxes, and was
subsequently expanded to trade activities, the rice industry, and service to
compradors. European capitalists began with trading houses and commercial
banking, and then expanded to rice milling, saw milling and shipping. Other
overseas merchants traded at the seaports, and then expanded to the rice
industry.
In the 1930s - 1950s, the first stage of industrialization emerged under
military and bureaucracy control. It involved energy, transportation, tobacco,
glass and sugar. The second stage was transnational corporations (TNCs) that
involved resource-based industry (oil refining, gas, tin), import-substitution
industry (auto-assembly, synthetic textile fiber, chemical), export-oriented
industry (electronics and other.), consumer goods (cosmetics, medicines, soft
drinks, and other) and trading. The third stage focused three major sectors:
18
finance (financial, banking, assurance), manufacturing (cement, sugar, agro-
food, etc.) and export activities.
At the initial industry development stage there were no native capitalists
since most Thai people worked in paddy farming. The Chinese immigrants
became significant businessmen but they too lacked capital for modern
manufacturing since they sent their business profits to their mother country,
China.
After World War II, the Chinese had more influence in Thai business, as
the political system was based on patronage. The Chinese capitalists had taken
on a significant role in Thailand industrial development. Initially, Chinese
business emerged in the form of family businesses, which were small and
medium scale industries. They encountered the limitation of economic power,
narrow domestic market domain, and thus could not enter the international
market.
During that period, there was little Thai ownership because few Thais
had ability to establish factories or big businesses with expert technical
background. Big Thai business was concentrated in a few main families such
as Shinawatra, Sophonpanich, Jiaravanon, Jirathiwat, Lumsam, Techapiboon,
etc. They established giant conglomerates with activities in manufacturing,
trading, commercial banking and financial institutions. Thai industries began
with imported materials for processing to become finished products, consumer
goods serving the domestic market. Consistency of innovative technological
production was not required for these industries. For exports, foreign partners
were sought to form joint ventures. The foreign partners provided the necessary
technology.
19
From the 1990s until now, capitalists in Thailand have encountered rapid
environmental change, and new regional and global competitive challenges.
The industries must adapt to highly rapid changes for survival because of
Thailand’s free trade policy. In 1995, the Thailand economy was at a peak,
essentially due to the effect of real estate development. Unfortunately, the
economy slowed down by end of 1996. Many firms faced insufficient liquidity,
resulting in cessation of production. In 1997, the economic crisis enveloped
Thailand, bringing many firms to collapse or near bankruptcy (Bangkok Post,
1998). Only those firms, which had strong financial and management
capabilities could survive. Hence, this study proposes to investigate the
elements of management that could lead to organizational performance and
sustainability.
2.3 The Organization
An organization is a social entity that is designed to achieve goals and is
deliberately structured, which means that tasks are divided and the
responsibility for organizational performance is assigned to organization
members (Daft, 1997). Preliminary researches on organization have focused
on the organizational structure and context (Burns & Stalker, 1961; Chandler,
1962; Lawrence & Lorsch, 1967). Organizational structure has been defined as
mechanistic and organic (Burns & Stalker, 1961; Dessler, 1998; Segev, 1989;
Woodward, 1965). Mechanistic structure is typically highly formalized, non
participative, hierarchical, tightly controlled, and inflexible, whereas organic
structure is characterized by informality, decentralization of authority, open
channels of communication, and flexibility (Khandwalla, 1977; Miles, Convin &
Heeley, 2000; Randolph, Sapienza & Watson, 1991).
20
Additionally, organizational structure has been classified by its hierarchal
forms, which are named decentralization, centralization, formalization,
specialization and professionalism (Daft, 1996; Hall, 1991; Lawrence & Lorsch,
1967). Organizational structure has been influenced by contextual factors such
as firm size, technology and environment (Daft, 1997; Gunebez, 2000;
McDoniel & Kolari, 1987; Smith et al., 1989; Thomas & Ramaswamy, 1996).
Then again, an organization can be classified as a system, of which
there are two types: closed and opened systems. A closed system refers to the
organization that seals off external environmental effects. Therefore, a closed
system organization has stable controlled environments that can be predicted
and not influenced by external problems (Daft, 1997). An open system refers to
the organization that is open to the vast complexity of environments (Daft,
1997). These organizations must necessarily adapt themselves to
environmental changes for survival. Thus, resources such as employees, raw
materials, other physical resources, information and financial are required in
order to transform products or services. The attainment of organizational goals
that achieve high performance must be supported by appropriate managerial
organization.
2.4 Organizational Performance
Performance is the competency of an organization to transform the
resources within the firm in an efficient and effective manner to achieve
organizational goals (Daft, 1997). Organizational goals vary depending on the
purpose for which they are established. Business organizations have profit,
growth and survival as the main goals. The popular ratios that measure
organizational performance can be summarized as profitability and growth:
21
return on asset (ROA), return on investment (ROI), return on equity (ROE),
return on sale (ROS), revenue growth, market shares, stock price, sales growth,
liquidity and operational efficiency (Chakravarthy, 1986; Dess & Robinson,
1984; Gimenez, 2000; Hambrick, 1983; Parnell & Wright, 1993; Smith et al.,
1989; Thomas & Ramaswamy, 1996). Dess and Robinson (1984) proposed
two measures of return on assets and sales growth for measuring firm
performance: objective (actual amount) and subjective (perception). If objective
performance measures are available, they should be utilized (Dess & Robinson,
1984). Otherwise, subjective performance measures will be the alternative due
to the absence of accurate objective performance measures (Dess & Robinson,
1984).
This study emphasizes organizational performance as a dependent
variable measured by profitability and sales growth. Profitability is measured by
return on assets, return on equity, return on sales, and earnings per share.
Growth is measured by sales growth. The objective and subjective
measurements are added as a part of questionnaire.
2.5 Business Strategy
A strategy is a plan for interacting with the competitive environment to
achieve organizational goals (Wheelen & Hunger, 2000). A business strategy
focuses on improving the competitive position of a firm’s products or services
within the specific industry or market segment in which the firm exists (Wheelen
& Hunger, 2000). Business strategy types have emerged as important to the
strategic management research field (Buzzell, Gale & Sultan, 1975; Miles &
Snow, 1978; Mintzberg, 1973; Porter, 1980; Schendel & Hofer, 1979; Wissema,
Van der Pol & Messer, 1980; Smith et al., 1989; and others).
22
According to Mintzberg (1978) strategy is the intended or unintended
actions taken to match the organization with its environment (Segev, 1987).
While Hofer and Schendel (1978) surveyed the evolution of the concept of
strategy, the concept itself began with Chandler (1962). The strategies of a firm
are determined on the basis of long-term goals, objectives of organization, the
adoptive operation, and allocated resources. These are differentiated from the
process of strategy making (Segev, 1987).
In 1973, Mintzberg developed three modes of strategy making, namely
planning, entrepreneurial, and adaptive. He emphasized this concept based on
the process rather than on the content. The planning mode is done by those who
have power. They synthesize factors affecting the organization and then make
decisions on the appropriate strategy. The entrepreneurial mode emphasizes
new opportunities and organizational growth as propelled by chief executives
who have wide vision against the background of an uncertain environment.
Finally, the adaptive mode reflects an inconsistent cooperation of the members in
an organization unclear about its goals. This mode uses reactive rather than
proactive decision-making, which may be disjointed.
Miles and Snow (1978) described their typology based on strategic types,
emphasizing an organization’s orientation toward product-market development.
They suggested four strategic types: defenders, prospectors, analyzers and
reactors. The first three types of typology had similar degrees of success, while
the last was a strategic failure. Snow and Hambrick (1980) noted that this
typology has focused on the correlates of strategy, but not on the formulation and
implementation of strategy. Later studies clearly operationalized this typology
23
and used it to categorize strategic content (Hambrick, 1981, 1983; Snow &
Hambrick 1980).
Likewise, Burgelman (1983) suggested a parallel between Mintzberg’s
and Miles and Snow’s typologies in terms of the process and content, which
indicated the need for research in business-level strategy (Burgelman, 1984;
Segev, 1987). He enquired into the fit between strategic type and strategy
making mode that were defender compatible with planning mode, prospector
compatible with entrepreneurial mode, analyzer compatible with the
entrepreneurial as well as the planning mode, and reactor compatible with the
adaptive mode. Despite this, Segev (1987) has not found a relationship
between defender and the planning mode but has supported the relationship in
other pairs.
Later research by Segev (1989) attempted to combine the two typologies
of Miles and Snow (1978) and Porter (1980). Both typologies are at the same
level as they focus on business-level strategies. Porter (1980) has
conceptualized three dimensions. They are cost leadership, differentiation, and
focus strategies. Mintzberg (1988) had a different idea of differentiation strategy
that emphasized marketing image, product design, quality, support, and
undifferentiation. In addition to the focus strategy, he argued that the scope of a
market domain is founded on resource-based theory, whereas for Porter
strategy reflected how a firm competes in that market domain. In contrast, in
the cost leadership strategy, Mintzberg (1988) argued that cost leadership was
based on below average market price against Porter’s cost minimization.
From the comparison of both typologies it was found that Mintzberg’s
(1988) typology outperformed Porter’s (1980) typology in its conceptual clarity
24
and descriptive power. However, Dess and Davis (1984) and Robinson and
Pearce (1988) as supporters of the Porter typology state that these may have
not captured adequately the intended strategies of the manager. Somehow,
previous typologies of business strategy are perhaps inadequate in capturing
the complexities of the current environment (Kotha & Vadlamani, 1995).
However, from the strategy typologies emerged some lack of the
extensive detailed theoretical orientation, more focused and less generalizable
(Smith, et al. 1989). For example, Porter’s (1980) typology is described in
relatively general terms, and seems to be limited to explaining the competitive
market behavior of larger firms, while Mintzberg’s (1988) typology is quite
similar to Porter’s (1980) typology but is differently described with more details
(Smith, et al. 1989). For their part, Miller and Freisen’s (1978) typology is
broadly defined, lacks of specific detail, theory, and generalizability. In contrast,
Mintzberg’s (1973) typology is more focused on strategic implementation.
Miles and Snow’s (1978) typology is one of the more important and
popular in research strategic management research that had been undertaken
by many researchers, and has been cited by over 200 papers since publication
(Smith et al., 1989). The Miles and Snow (1978) typology has been used in
many researches to develop and broaden the relevant ideas. Moreover, the
Miles and Snow (1978) typology had been tested for validity and reliability over
time by later researchers (Conant, et al., 1990; Hambrick, 1983; Namiki, 1989;
Segev, 1987; Smith et al., 1989; Snow & Hrebiniak, 1980). The Smith et al.
(1989) study is one example of using the Miles and Snow typology to test the
extent of the effect of firm size on strategy and performance. Conant et al.
(1990) constructed a reliable instrument to measure Miles and Snow’s (1978)