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Strategy Type and Performance: The Influence of Sales Force ManagementAuthor(s): Stanley F. Slater and Eric M. OlsonSource: Strategic Management Journal, Vol. 21, No. 8 (Aug., 2000), pp. 813-829Published by: John Wiley & SonsStable URL: http://www.jstor.org/stable/3094398
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Strategic Management JournalStrat. Mgmt. J., 21: 813-829 (2000)
STRATEGYTYPE AND PERFORMANCE: HEINFLUENCEOF SALES FORCEMANAGEMENT
STANLEYF. SLATER'*and ERICM. OLSON2'University of Washington, Bothell, Washington, U.S.A.2College of Business Administration, University of Colorado, Colorado Springs,Colorado, U.S.A.
The basic premise of the strategy implementation literature is that different business strategies
require different configurations of organizational practices to achieve optimal performance.
Sales force management is a key functional activity and should contribute to the successful
implementation of business strategy. In this study, we examine the relationship between multiple
sales force management practices and performance within each of Miles and Snow's (1978)
strategy types. The explanatory power of the eight models tested is quite high (incrementaladjusted R2 > 0.25 for six of the eight models). Thus, we find substantial support for the
general proposition that the different strategy types require individualized profiles of sales force
management practices for optimal effectiveness and that sales force management is important
to the successful implementation of business strategy. Copyright ? 2000 John Wiley & Sons, Ltd.
INTRODUCTION
Business strategy implementation is concernedwith the fit between the organization's business-or competitive-strategy and its internal processes(Galbraith and Kazanjian, 1986). An appropriatematch should contribute to enhanced effectivenessand superior performance. Over the past 15 yearsa substantial body of empirical research has
emerged that considers the match between busi-ness strategy and: (1) managerial characteristics
(Gupta and Govindarajan, 1984; Slater, 1989), (2)strategic planning system characteristics(Veliyath, 1993), (3) human resource managementpractices (Balkin and Gomez-Mejia, 1990; Rajag-
opalan, 1997), (4) technology strategy (Dvir,
Segev, and Shenhar, 1993), (5) organizationalstructure (Powell, 1992), (6) control systems(Govindarajan and Fisher, 1990, (7) corporate-
Key words: strategy implementation; strategy types;
marketing strategy; sales force management* Correspondence to: Stanley F. Slater, University of Wash-ington, 22011 26th Avenue SE, Bothell, WA 98021, U.S.A.
Copyright ? 2000 John Wiley & Sons, Ltd.
SBU relations (Golden, 1992), (8) middle man-agement involvement (Floyd and Wooldridge,1992), and (9) managerial consensus (Homburg,Krohmer, and Workman, 1999).
An additional area that seems to hold promisefor contributing to the understanding of strategyimplementation is the match between businessstrategy and marketing policy. We focus on mar-keting because of its prominent role in the cre-ation of customer value (Day, 1992; Porter,1985). We specifically consider the sales man-agement element of the marketing mix becausesales management, the primaryform of promotionfor business-to-business marketers, is the activitythat most uniquely belongs to marketing. Webegin with a brief overview of the relevant litera-
ture on business strategy and marketing practice.
BUSINESS STRATEGY
Business strategy is concerned with how busi-nesses achieve competitive advantage. The Milesand Snow (1978) and Porter (1980) typologies
Received 2 February 1999Final revision received 14 March 2000
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814 S. F. Slater and E. M. Olson
are the two dominant frameworks of businessstrategy in the strategic management and strategic
marketing literatures. Miles and Snow (1978)developed a comprehensive framework that
addresses the alternative ways in which organi-
zations define and approach their product-market
domains (the entrepreneurial problem) and con-struct structures and processes (the administrativeand technical problems) to achieve success in
those domains.Prospectors continuously seek to locate and
exploit new product and market opportunitieswhile Defenders attempt to seal off a portion of
the total market to create a stable set of products
and customers. Analyzers occupy an intermediate
position between the two extremes by combiningthe strengths of both the Prospector and Defender
to cautiously follow Prospectors into new prod-
uct-market domains while protecting a stable setof products and customers. A fourth type, the
Reactor, does not have a consistent response to
the entrepreneurialproblem.
Miles and Snow (hereafter M&S) also proposedthat Prospectors, Analyzers, and Defenders would
achieve, on average, equal performance (seeZahra and Pearce, 1990, for a review of support-ing studies). The implication of this proposition is
that there is greater performance variation within
strategy types than there is between strategy typeswhich leads again to an emphasis on strategyimplementation.
Porter (1980) proposed that the entrepreneurial
problem should be viewed as a product of how
the firm creates value (i.e., differentiation or low
cost) and how it defines its scope of market
coverage (i.e., focused or market-wide). Walker
and Ruekert (1987) synthesized these typologies
of entrepreneurial behavior by discriminatingbetween Low Cost Defenders and Differentiated
Defenders. We conducted a pilot study to assessthe appropriatenessof considering the alternative
types of Defender strategies. Interviews withmanagers who characterized their businesses asDefenders revealed that they could also readilyarticulate whether differentiation or low cost wasthe basis for their value proposition.
Although Walker and Ruekert dropped theAnalyzer strategy type from their hybrid typology,we believe that the evidence (e.g., James andHatten, 1995; Slater and Narver, 1993; Zahra andPearce, 1990) does not warrant this alteration.Thus, the remainder of this study will be con-
Copyright ? 2000 John Wiley & Sons, Ltd.
cerned with four strategy types-the Prospector,the Analyzer, the Differentiated Defender, and
the Low Cost Defender-and how sales force
management practices contribute to their success-ful execution. We do not offer hypotheses for theReactor type because they seem to represent a
small segment of the total population, a findingthat was confirmed in this sample.
MATCHING MARKETING PRACTICETO BUSINESS STRATEGY
Walker and Ruekert (1987) developed a theory,embodied in a set of propositions, of how market-ing policies and activities may contribute to the
effective implementation of different business
strategies. Viswanathan and Olson (1992)
developed a conceptual model of the sales man-agement function's role in the implementation of
competitive strategy. Empirical research on the
business strategy-marketing competency relation-
ship has found that prospector and analyzerorganizations place greater emphasis on marketingactivities than do defender organizations and that
prospector organizations emphasize marketingactivities more than analyzer organizations
(Conant, Mokwa, and Varadarajan,1990; McDan-
iel and Kolari, 1987; McKee, Varadarajan,and
Pride, 1989). However, the performance impli-
cations of matching marketing practices to differ-
ent strategy types have not been examined. The
objective of this study is to address that issue.
SALES FORCE MANAGEMENT ASMARKETING PRACTICE
Sales force management is subsumed in theM&S administrative problem as it is concernedwith the development of selling strategy and sales
force structure, control, and compensation. Inorder to test whether or not linkages betweencompetitive strategy and sales force managementactually exist-and, if so, how strong they are-we focus on five key sales managementpractices.These practices are representative of the threebroad critical sales management issues identifiedby Churchill, Ford and Walker (1990) (i.e.,sales plan formulation, implementation, andevaluation). The practices include: (1) sellingstrategy (e.g., Dwyer, Schurr and Oh, 1987;
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Ganesan, 1994; Morgan and Hunt, 1994), (2)internalizationof selling activities (Anderson andWeitz, 1986), (3) extent of managerial supervision(Anderson and Oliver, 1987; Oliver and Ander-son, 1994), (4) focus of salesperson control (e.g.,Anderson and Oliver, 1987; Cravens et al., 1993;
Jaworski, 1988), and (5) salesperson compen-sation plans (e.g., Anderson and Oliver, 1987;Cravens et al., 1993; Jaworski, 1988; Oliver andAnderson, 1994). In this section we describe therange of alternatives within these practices andoffer hypotheses for which alternatives shouldlead to superior performance for the Prospector,Analyzer, Low Cost Defender, and DifferentiatedDefender strategy types.
Selling strategy
Over the past two decades the development ofstrong and enduring relationships with key cus-tomers has become accepted as a foundation forcompetitive advantage. Relationship selling isbased on interdependence between sellers andbuyers, sharing of critical information that isbased on trust between the two parties, and lon-gevity of the relationship that enables both partiesto enjoy financial rewards from coordinated stra-tegic investments (Ganesan, 1994; Morgan andHunt 1994; Shapiro, 1988). This relationshipgives the seller greater insight into the buyer'slatent needs, enabling the seller to develop newofferings before the competition or to augmentcommodity-like products with high value-addedservices (Levitt, 1980).
However, relationship selling is an intensiveand expensive activity. At the opposite end ofthe continuum of selling strategies is transactionselling, a discrete activity with the transactionbeing the near-termoutcome of the selling effort.Transaction selling is most appropriatefor fairlysimple products that require little service or sales
support (Shapiro, 1988). Thus, transaction sellingtends to be more efficient for standardizedprod-ucts while relationship selling is more effectivefor complex products or products that have adegree of risk associated with them.
Prospectors, with their emphasis on productand market development, should work closelywith lead-users to identify problems and definesolutions (Moore, 1995; Slater and Narver, 1998).Analyzers also work closely with customers tounderstand the shortcomings of Prospectors'
Copyright ?D 2000 John Wiley & Sons, Ltd.
Strategy Type and Performance 815
efforts and develop an enhanced version of theproduct that corrects deficiencies or targets neg-lected market segments. On the other hand, LowCost Defenders compete primarily on price. Theirquest for efficiency diminishes their ability tomake substantial investments in long-term
relationships. The preceding propositions are con-sistent with Slater and Narver's (1993) findingthat Prospectors and Analyzers benefited frombeing market oriented, which we believe is aprerequisite to having a relationship strategy,while Low Cost Defenders did not. Finally, theobjective of Differentiated Defenders is to protectkey customers or markets by continuously provid-ing superior value that is based on product bene-fits or services. This strategy indicates a need forclose customer ties. Thus:
Hypothesis la: Prospectors achieve superiorperformance when utilizing a relationship sell-ing strategy.
Hypothesis lb: Analyzers achieve superior per-formance when utilizing a relationship sellingstrategy.
Hypothesis Ic: Low Cost Defenders achievesuperior performance when utilizing a trans-action selling strategy.
Hypothesis Id: Differentiated Defendersachieve superior performance when utilizing arelationship selling strategy.
Contracting of selling activities
Transaction cost theory tells us that markets(contracting) and hierarchies (firms) are alterna-tive mechanisms for coordinating transactions,and that the choice of one or the other is basedon the respective costs associated with the trans-
action (Williamson, 1975). A transaction occurswhen a good or service is transferred across aseparable interface, such as when a firm contractswith independent sales representatives to facilitatetransactions. The alternative is for the firm tointegrate forward and add the selling activity toits activities in product development and pro-duction (Anderson and Weitz, 1986).
The attributes of transactions that are of specialinterest are ones in which potential for a contrac-tor to act opportunistically is significant and
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816 S. F. Slater and E. M. Olson
include dependence on the owner of a specificasset, small numbers of potential contractors, andimperfect information. The theory predicts thatfirms will expand the scope of their activitieswhen opportunistic potential is significant and
will transact with contractors when threats due to
asset specificity, small numbers, and imperfectinformation are not significant (cf. Teece, 1984).
Prospectors and Analyzers both seek opportuni-ties in turbulent markets where market infor-mation is a critical asset (e.g., Dickson, 1992;Slater and Narver, 1995). Organizational com-petencies are embedded in key personnel such assales people and marketers (Miles and Snow,1978). Contracting with independent distributors
could seriously hinder the rapid transferof market
knowledge. Furthermore, independent distributorswould not be likely to invest in activity-specific
assets.Conversely, Low Cost Defenders are typically
sellers of commodity products and, as such, arenot as vulnerable to asset specificity or to rapidly
changing market information. Differentiated
Defenders, though, create customer value by pro-viding superior customer service. This service
capability is an asset that must be built and
protected. Thus:
Hypothesis 2a: Prospectors achieve superiorperformance when employing an internalsales force.
Hypothesis 2b: Analyzers achieve superior per-formance when employing an internal salesforce.
Hypothesis 2c: Low Cost Defenders achievesuperior performance when contracting withan external sales force.
Hypothesis 2d: Differentiated Defenders
achieve superior performance when employingan internal sales force.
Extent of supervision
The extent of supervision required is concernedwith the degree to which sales people are moni-tored and directed. Low supervision requirementsimply that sales people are knowledgeable and arebest able to determine the appropriateactivities toachieve the firm's goals and/or that the impor-
Copyright ?D2000 John Wiley & Sons, Ltd.
tance of retaining an individual account is rela-tively low. High supervision implies that sales
people require substantial guidance to selectactivities that will lead to the accomplishment oftheir goals and/or that the retention of a specific
account is of high importance (Anderson and
Oliver, 1987; Oliver and Anderson, 1994; Ander-son and Weitz, 1986).
The need for responsiveness to emerging mar-ket opportunities by Prospector organizationsrequires flexibility, decentralized decision making,and rapid communication from the field to mar-keting or to R&D. Salespersons in Prospectorfirms must be able to explain and demonstratethe benefits of New-to-the-World products to theirprimary customer group, early adopters. Because
many of these products are technology driven,salespersons in Prospector businesses must have
a strong grasp of the physical knowledgeassociated with the product's technology. These
conditions suggest that Prospectorbusinesses will
benefit from comparatively low levels of super-vision. This must be balanced with the objectiveof maintaining strong relationships with key cus-
tomers, which requires some managerial over-
sight. Thus, we expect that high-performingPros-
pector businesses will practice neither of theextremes of low or high levels of sales force
supervision and, instead, practice moderate
salesperson supervision.Miles and Snow note that the entrepreneurial
problem faced by Analyzer businesses is
determining how to locate and exploit new prod-uct and market opportunities while retaining abase of traditional customers. To accomplish this,Analyzers must be able to quickly follow thelead of key Prospectors. At the level of the salesfunction this means salespersons must be able torespond quickly to threats as well as to opportuni-ties created by Prospector organizations. Theseconditions call for salespersons with considerable
technical and customer knowledge, thus requiringrelatively little oversight. However, the need tomaintain a substantial base of traditional cus-tomers argues in favor of more extensive levelsof supervision to ensure that routine transactionsare handled expeditiously and with the degree ofservice required by key accounts. The dual natureof the sales job in Analyzer firms also suggeststhat a moderate level of supervision is most effec-tive.
Porter (1980) argues that cost minimization in
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areas like R&D, service, and marketing is the
hallmarkof overall cost leaders. Walker and Rue-
kert also suggest that high sales force expendi-
tures could negatively impact firm performance
as they could be inefficient uses of resources.
Given this lesser emphasis on personal selling and
our expectation that Low Cost Defenders will relyheavily on outside sales reps to sell their products,
we predict that high performers will engage in
comparatively low levels of supervision.
In direct contrast, Differentiated Defenders are
predicted to benefit from high levels of supervis-
ory control over their sales forces. Walker and
Ruekert (1987) predict that Differentiated
Defenders will have relatively high sales force
expenditures. Maintaining the loyalty of estab-
lished customers is essential, as the cost of replac-
ing a lost customer will be very high. We predict
that high-performing Differentiated Defenderswill engage in extensive sales force oversight to
prevent the loss of long-term customers because
of the substantial profit stream associated with
them and because of the considerable costsincurred in trying to replace them. Thus:
Hypothesis 3a: Prospectors achieve superior
performance when utilizing moderate supervis-
ory control.
Hypothesis 3b: Analyzers achieve superior per-
formance when utilizing moderate supervisorycontrol.
Hypothesis 3c: Low Cost Defenders achieve
superiorperformance when utilizing low super-
visory control.
Hypothesis 3d: Differentiated Defendersachieve superior performance when utilizing
high supervisory control.
Salesperson control
Regardless of the extent of supervision imposedon individual salespersons or independent reps,managers must articulate the expectations of the
salesperson or the sales force, and monitor per-formance compared to expectations. While differ-
ent competitive strategies require different and
varied selling behaviors, ultimately the sales force
must achieve certain outcomes related to revenue
or profit targets.
Copyright ? 2000 John Wiley & Sons, Ltd.
Strategy Type and Performance 817
Drawing from organization theory (e.g., Eisen-
hardt, 1985), Anderson and Oliver (1987) classi-
fied sales force control systems into two types:
outcome-based and behavior-based. Outcome-
based control focuses on the results that a sales-
person achieves. Sales people are allowed to
determine the most appropriatemeans to achievetheir objectives. Sales people must be sufficientlyknowledgeable to understand and respond to sig-
nals from a changing marketplace and be suf-
ficiently entrepreneurial o take the risk associatedwith independent action.
Behavior-based control systems ensure consis-
tency of action by prescribing and monitoring the
activities of the sales force. Management pre-
sumes to understandwhich behaviors will achieve
the desired results. In this environment, man-
agement assumes risk to gain control of sales
force behavior. In behavior-based control systems,managerial direction is substituted for salesperson
autonomy (Anderson and Oliver, 1987).As predicted in Hypothesis 1, high-performing
Prospectors, Analyzers, and Differentiated
Defenders are all expected to utilize a relationship
selling strategy. However, the nature of these
relationships cannot be characterized as identical.
Prospectors seek customers who are willing to
buy new products that utilize cutting-edge
technologies. To accomplish this, Prospectors
require a sophisticated and knowledgeable sales
force. Superior performance will be achieved
when outcomes, both short-term and long-term,
are collaboratively set and the salesperson is
given the autonomy to determine the most appro-
priate behaviors. Thus, Prospector firms should
adopt outcome-based control systems for their
sales forces.
Because Analyzers place great emphasis on
maintaining a base of traditional customers while
simultaneously exploiting new market opportuni-
ties, they must utilize a control system that
defines expectations for results in some situationsand prescribes behaviors in others. Thus, we pre-dict that these firms will adopt a mixed control
system.Low Cost Defenders are characterized by hav-
ing comparatively low prices as well as lower
levels of service (Walker and Ruekert, 1987). As
their customers tend to base purchase decisions
primarily on price, there are few behaviors a
salesperson or rep could be measured on other
than the ability to close deals. Consequently,
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818 S. F. Slater and E. M. Olson
high-performing Low Cost Defenders are thegroup most likely to adopt pure outcome-based
control systems (Govindarajanand Fisher, 1990).In contrast, the competitive advantage of Dif-
ferentiated Defenders lies in their ability to create
customer value in a way that is perceived as
unique. The development of close customerrelationships provides essential information
regarding unique value creation opportunities.Key success factors for Differentiated Defenders
include effective communication of this infor-
mation between the sales force and R&D or
between the sale force and production, and highlevels of service before and after the sale. As
effectiveness in accomplishing these factors is
very difficult to measure in the short term, a
behavior-based control system is most appropriatefor Differentiated Defenders (Govindarajan and
Fisher, 1990). Thus:
Hypothesis 4a: Prospectors achieve superiorperformance when utilizing an outcome-basedcontrol system.
Hypothesis 4b: Analyzers achieve superior per-
formance when utilizing a mixed control system.
Hypothesis 4c: Low Cost Defenders achievesuperior performance when utilizing an out-come-based control system.
Hypothesis 4d: Differentiated Defendersachieve superior performance when utilizing abehavior-based control system.
Compensation
Compensation systems span a spectrum fromstraight salary or 'fixed' to straight commissionor 'incentive-based.' Fixed compensation systemsoffer greater protection from risk to the salesper-
son. Sales people are more likely to place theorganization's needs above their own in this situ-ation. Sales people tend to be more loyal to theorganizationand are willing to follow managementdirectives more closely. Incentive-oriented com-pensation systems shift risk from the firm to thesalesperson. They require entrepreneurial salespeople who tend to place their personal goalsabove those of the organization. These sales peopleoften have low loyalty to the organization andmay be easily enticed to switch employers.
Copyright ? 2000 John Wiley & Sons, Ltd.
Between these two extremes lie hybrid systemsthat provide both a base salary and some form
of commission or bonus as an incentive. These
hybrid systems are used in over 80 percent of
businesses (Churchillet al., 1990: 535). Thus, theissue is the proportionof fixed compensation (i.e.,
salary) to incentive-based compensation (i.e.,commission)in the overallcompensationplan ratherthan the adoptionof one extreme or the other.
Prospector organizations succeed by beinginnovative and entrepreneurial. [T]he salespersonis made an entrepreneur,responsible for his or her
own performancebut free to select the methods of
achievement' (Anderson and Oliver, 1987: 77).While Anderson and Oliver are describing the
environment of an incentive-based compensationsystem, they could easily be describing a Prospec-tor organization.
Because of their dual emphasis on change andstability, Analyzers should provide a balancebetween salary and commission. The risk of pur-suing new technologies must be rewarded, butnot to such an extent that the stable base ofcustomers is ignored.
Conventionalwisdom tells us that a salary-basedcompensation system is not appropriatewhen con-
tracting with an independentsales force, as wehypothesized would be the case for Low CostDefenders.When efficiency is the dominantobjective,an incentive-oriented ompensationsystem is con-sidered most effective (Andersonand Weitz, 1986).
Sales people in Differentiated Defender organi-zations generally should be motivated by salary toencourage conformity and ensure a standardizedproduct-service offering. Of course cash flowsare still an importantelement for keeping Differ-entiated Defender businesses healthy, so someincentive to generate sales must be a componentof the compensation system. Thus:
Hypothesis 5a: Prospectors achieve superior
performance when utilizing a predominantlyincentive-oriented compensation system.
Hypothesis Sb: Analyzers achieve superior per-formance when utilizing a balanced compen-sation system.
Hypothesis Sc: Low Cost Defenders achievesuperior performance when utilizing a pre-dominantly incentive-oriented compensationsystem.
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Hypothesis Sd: Differentiated Defenders
achieve superior performance when utilizing a
predominantly salary-based compensation sys-
tem.
SAMPLE
We purchased a commercial mailing list of 1000
sales executives in manufacturing firms operating
in 24 different 2-digit SIC codes primarily from
the 20 and 30 series to serve as our sampling
frame. We mailed each executive a letter
explaining the general purpose of the study, a
copy of the questionnaire, and a return envelope.
The questionnaire defined the meaning of busi-
ness unit and asked respondents to refer either to
the largest SBU in their organization or the one
they were most familiar with. Two weeks afterthe first mailing we sent a follow-up letter with
a duplicate copy of the questionnaire and another
return envelope. We received 278 usable
responses that, after accounting for undeliver-
ables, constituted a 28 percent response rate.
Although nonresponse bias is always a concern
in survey research, this response rate is within
the range of typical response rates for studies of
this type. Furthermore, Armstrong and Overton
(1977) found that late responders more closely
resemble nonresponders than do early responders.
Significant differences between late responders
and early responders would indicate the presence
of nonresponse bias. We found no difference
between early and late responders on key mea-
sures.
Measures'
We compute values for the multi-item scales as
simple averages of the scores for those items
since the number of items in each scale varies.
Performance is a complex multidimensionalconstruct (e.g., Chakravarthy, 1986; Kaplan and
Norton, 1996; Walker and Ruekert, 1987) that is
influenced by both the level of analysis (e.g.,functional vs. business strategy) and strategy type
(e.g., Prospector vs. Defender). We focus on prof-itability and market performance (i.e., sales and
market share effectiveness) because they are
1 All of the measures are contained in the Appendix.
Copyright ?) 2000 John Wiley & Sons, Ltd.
Strategy Type and Performance 819
widely recognized as two of the most important
indicators of financial performance (e.g., Capon,Farley, and Hoenig, 1990; Kaplan and Norton,1996; Varaiya, Kerin, and Weeks, 1987) and
because of their relevance regardless of strategylevel or strategy type. We use Babakus et al.'s
(1996) 7-point measures of profitability and mar-ket performance.
We have not discriminated between prof-itability and market performance in our hypo-
theses because managers often make trade-offs
between the two (Kaplan and Norton, 1996; Miles
and Snow, 1978; Walker and Ruekert, 1987).If there is a significant relationship between an
independent variable and both dependent vari-
ables, we characterize this as support for thehypothesis. If there is a significant relationship
between an independent variable and only one
dependent variable, we characterize this as partialsupport for the hypothesis and specify to which
performance measure the independent variableis related.
Strategy Type is assessed using the self-typingparagraph approach that is commonly used in
both strategic management research (e.g., Jamesand Hatten, 1995) and marketing strategy research(McDaniel and Kolari, 1987; McKee et al., 1989).
Several studies (Conant et al., 1990; James and
Hatten, 1995; Shortell and Zajac, 1990) have
demonstrated that this is a valid measurement
approach.In this study, 33 percent of respondents
characterized their businesses as Prospectors, 15
percent as Analyzers, 15 percent as Low Cost
Defenders, 32 percent as Differentiated
Defenders, and 5 percent as Reactors. Although
the numbers of Analyzers and Low Cost
Defenders are considerably smaller than those
for Prospectors and Differentiated Defenders, the
numbers are adequate for hypothesis testing.
Selling Strategy is assessed with Heide and
Miner's (1992) 'Extendedness of Relationship'
scale. This four-item (7-point) scale assesses theseller's orientation towards the development of
long-term relationships with buyers. A high score
indicates a relationship selling strategy.Internalization of Selling Activities is assessed
with a single-item, 11-point scale that asks
respondent to indicate the proportion of sales
revenues generated by members of your own
sales force compared to the proportion generatedby independent sales representatives. The scale
goes from 'O percent by Company Sales
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820 S. F. Slater and E. M. Olson
Force/100 percent by Independent Sales Rep-resentatives' to '100 percent by Company Sales
Force/0 percent by Independent Sales Representa-tives.' A high score indicates extensive use of an
internal sales force.Extent of Supervision/Autonomy is assessed
with Oliver and Anderson's (1994) eight item (7-point) scale. A high score indicates high auton-
omy and low supervisory control.
Salesperson Control System is measured with
Babakus et al.'s (1996) seven-item (7-point)'Reward' scale that assesses whether sales peopleare evaluated and rewarded based on behaviors
or on outcomes. A high score indicates outcome-
based control while a low score indicatesbehavior-based control. Babakus et al. (1996)provided evidence of unidimensionality and
discriminant validity in a confirmatory factor
analysis.Compensation is measured with an 11-point
scale ranging from '0 percent by Commission/100
percent by Salary' to '100 percent byCommission/0 percent by Salary.' This is similarto the two-item measure used by Oliver andAnderson (1994) that asks for the percent of
salary in the compensation plan in both thepresent and last pay period. A high score indicates
a commission-based compensation system.We also control for the following market-level
and firm-level influences:Firm Size often confers performance benefits
such as superior cost position and stronger repu-tation. Smith, Guthrie, and Chen (1989) foundthat firm size is an important moderator of thestrategy-performance relationship. Respondentswere asked to indicate which one of nine catego-ries most closely reflected their business unit'sannual gross sales.
Product Complexityis an element of a differen-tiation strategy. More complex products shouldprovide buyers with additional benefits. The pro-
vision of superior benefits has broad implicationsfor performance, particularly within strategy type.For example, sales force design might be quitedifferent for Prospectors that market relativelysimple products than for those that market com-plex products. We use a two-item (7-point) scaleto assess complexity.
Market Turbulence is primarily concerned withcompetitive hostility, potentially the most influ-ential of Porter's (1980) five forces of industrystructure. Because of this influence, market turbu-
Copyright ? 2000 John Wiley & Sons, Ltd.
lence should have an impact on both strategyselection and on firmperformance.We use Jawor-ski and Kohli's (1993) five-item (7-point) scale.
ANALYTICAL APPROACH
Table 1 contains a correlation matrix of the con-
tinuously scaled variables and descriptive sta-tistics for each of the variables including Cron-
bach's a, where appropriate.We follow the lead of others who have
assessed the characteristicsof the individual strat-
egy types (e.g., Dvir et al., 1993; McDaniel and
Kolari, 1987; McKee et al., 1989) by conductingour analyses within each strategy type. We con-
duct two OLS regression analyses for each strat-
egy type, the first using market performance as
the dependent variable and the second using prof-itability as the dependent variable. Each
regression equation includes the three control
variables and the five hypothesis-relatedvariables.To test for a U-shaped relationship, we use a
second-order polynomial regression model inwhich the independent variable appears to thefirst and second powers (Neter, Wasserman, andKutner, 1983). We test for U-shaped relationshipsbetween all of the independent variables and per-formance. The key to whether a relationship isU- or inverted U-shaped lies in the second deriva-tive that contains only the coefficient for thesquared term. Thus, for y = a + bx + cx2, thefirst derivative is b + 2cx (meaning a maximumor a minimum at x = bl2c) and the secondderivative is 2c. If the second derivative is posi-tive (c > 0), it is a U-shaped curve. If c < 0, itis an inverted U.
A negative sign for the squared term indicatesthat the U-shaped relationship is inverted. Theregression models contain statistics for both thefirst power form of the independent variable and
for the second power form when it is statisticallysignificant. In Table 2 we report the standardizedregression coefficient (and its significance level)and the associated t-statistic.
We also tested for violations of the assump-tions of independence, normal distributionof errorterms, and homoscedasticity in the OLS analysesthrough the calculation of variance inflation fac-tors, the Kolmogorov-Smirnov one-sample test,and White's test, respectively (Table 3).
We find no evidence of damaging multi-
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Table1.
Descriptive
statistics,
Cronbach's
a,
and
correlation
coefficients
(n=
278)
Mean
S.D.
1
2
3
4
5
6
7
8
9
10
Market
4.96
1.04
a=
0.874
performance
Profitability
5.02
1.18
0.490b
a=
0.809
Selling
Strategy
4.11
1.10
0.3
9b
0.316b
a=
0.785
Internalization
of
8.06
2.37
0.248b
0.131a
0.214
NA
selling
activity
Extent
of
2.63
0.80
-0.279b
-0.289b
-0.241l
-0.021
a
=
0.768
supervisionSalesperson
4.59
0.94
0.241b
0.159a
0.167b
0.043
-0.306b
a=
0.697
control
system
Compensation
4.93
3.07
0.104
0.040
-0.025
-0.105
0.000
0.286b
NA
Firm
Size
2.35*
1.11
0.168b
0.074
0.015
0.075
0.005
0.032
-0.031
NA
Market
4.81
1.17
-0.083
-0.179b
-0.054
0.046
-0.046
0.131a
-0.095
0.124a
a
=
0.749
turbulence
Product
4.41
1.77
-0.064
-0.101
0.025
-0.081
0.011
-0.031
-0.142
0.010
0.201b
a=
0.853
complexity
ap
c
0.05;
bp
-
0.01
*Average
business
unit
size
is
in
the
$10-15
million
range
Copyright ? 2000 John Wiley & Sons, Ltd.
Strategy Type and Performance 821
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822 S. F. Slater and E. M. Olson
Table2.
Results
of
multiple
regression
analysis
within
strategy
type:
Standardized
regression
coefficient/t-statistic
Prospectors
(n=
93)
Analyzers
(n=
42)
Low
Cost
Defenders
(n=
43)
Differentiated
Defenders
(n=
89)
Market
Profitability
Market
Profitability
Market
Profitability
Market
Profitability
performance
performance
performance
performance
HI:
Selling
strategy
0.031/0.35
0.216b/2.02
0.241/1.61
0.286b/2.17
0.004/0.02
1.02/0.73
-0.623/-1.56
0.
142a/1.94
0.957b/2.42
H2:
Internalization
1.28c/2.74
0.050/0.46
0.465c/3.08
0.594c/5.03
-0.049/-0.31
-0.334c/-2.67
0.209b/2.50
1.067c/2.80
of
selling
activity
-l.Olb/-2.
15
-0.906b/_2.38
H3:
Extent
of
2.39c/4.72
1.41b/2.32
-1.63a/-1.92
-0.013/-0.097
-0.161/-0.96
0.012/0.071
-1.27c/-3.23
-1.74c/-4.74
supervision
-2.37c/-4.66
-1.4b/-2.30
1.93b/2.15
0.874b/2.21
1.29c/3.54
H4:
Salesperson
0.235b/2.34
0.231a/1.92
0.317b/2.08
0.373c/2.84
0.268/1.43
0.480c/3.19
0.062/0.861
-0.290c/4.39
control
system
H5:
Compensation
0.120/1.35
0.045/0.42
1.75c/3.32
-0.051/-0.44
0.269a/1.69
-0.032/-0.27
-0.726c/-2.62
0.252c/-3.57
-1.68c/-3.12
0.612b/2.25
Firm
size
0.183b/2.11
-0.069/-0.67
-0.375b/-2.26
0.202/1.56
0.507c/3.62
-0.179/-1.26
0.1
16a/1.71
0.022/0.33
Market
turbulence
-0.117/-1.20
-0.032/-0.27
-0.289b/_1.98
-0.250b/_1.99
0.199/1.28
-0.121/-0.84
-0.186c/-2.71
-0.238c/-3.66
Prod.
Complexity
0.106/1.17
0.033/0.31
0.172/1.10
0.080/0.65
0.008/0.05
-0.165/-1.42
-0.156b/-2.05
-0.128a/-1.88
A
Adjusted
R2
0.365
0.155
0.436
0.606
0.147
0.248
0.615
0.583
Adjusted
R2
for
full
0.400
0.124
0.436
0.559
0.355
0.611
0.623
0.664
model
F-Statistic
7.12c
2.45b
4.17c
7.50c
3.89c
8.33c
14.21c
18.36c
ap
C
0.10;
bp
<
0.05;
cpc
0.01
(2-tailed
tests)
A
Adjusted
R2is
the
reduction
in
the
variation
of
the
dependent
variable
thatis
gained
by
adding
the
hypothesis-related
variables
to
the
model
with
only
the
control
variables.
Itis
possible
for
theA
adjusted
R2to
be
greater
than
the
adjusted
R2
for
the
full
modelif
the
decreasein
SSEis
more
than
offset
by
the
loss
ofa
degree
of
freedom
from
adding
an
additional
independent
variable
(Neter
et
al.,
1983).
The
F-statistic
is
for
the
full
model.
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Strategy Type and Perfformance 823
Table 3. Regression diagnostics
Prospectors (n = 93) Analyzers (n = 42) Low Cost Defenders Differentiated
(n = 43) Defenders (n = 89)
Market ProfitabilityMarket ProfitabilityMarket ProfitabilityMarket Profitabilityperformance performance performance performance
Maximum 1.524 1.524 1.845 1.845 2.058 2.058 1.382 1.382varianceinflationfactora
Kolmogorov- 0.77 0.74 0.66 0.68 0.87 0.46 0.61 1.40Smirnovone-sampletestb
White testc 11.85 11.59 12.99 8.39 23.84 21.16 15.65 9.53
aA maximum variance inflation factor in excess of 10.0 indicates that multicollinearity may be unduly influencing the least-
squares estimates. VIFs are not calculated for the second-order factors.
"The Kolmogorov-Smirnov one-sample test indicates how well the residuals fit a normal distribution. A value below 1.28
indicates that the null hypothesis of normal distribution cannot be rejected.cThe value calculated with the White test is compared with the critical value of chi-square with (# of IVs) degrees of
freedom. If the value from the White test < the critical value of chi-square (typically at the p = 0.05 level), the null
hypothesis of homoscedasticity cannot be rejected. In the case of Low Cost Defenders, the null hypothesis of homoscedasticity
is rejected at the p = 0.05 level but not at the p = 0.01 level.
collinearity, evidence of a skewed distribution of
residuals for Differentiated Defenders with prof-
itability as the dependent variable, and evidence
of moderate heteroscedasticity (the null hypothesis
of homoscedasticity cannot be rejected at p '
0.01 instead of the common standardof p' 0.05)
for the Low Cost Defender subsample. Weighted
least squares should be used when heteroscedastic-
ity is present to derive efficient parameterestimates
(Neter et al., 1983; Pindyck and Rubinfeld, 1991).
Thus, results for Low Cost Defenders in Table 2
are obtained by weighted least squares.
RESULTS
In the following paragraphswe discuss the results
in the context of each of the strategy types. Thisallows us to develop a profile of the sales forcemanagement practices that are associated withincreased performance within each strategy type.If there is a significant relationship between an
independent variable and both dependent vari-
ables, we characterize the strategy type as highperforming and the hypothesis as supported. If
there is a significant relationshipbetween an inde-
pendent variable and only one dependent variable,we specify which dependent variable is in the
Copyright ? 2000 John Wiley & Sons, Ltd.
relationship and characterize the hypothesis as
partially supported.For Prospectors, relationship selling tends to
be associated with increased profitability
(indicating that Hypothesis la is partially
supported). Moderate levels of supervision
(Hypothesis 3a supported) and outcome control
systems (Hypothesis 4a supported) also seem to
be associated with increased performance for
Prospectors. Instead of relying primarily on an
internal sales force, higher market performance
Prospectors seem to strike a balance between
using an internal sales force and independentsales representatives (Hypothesis 2a rejected).
Outcome control systems may reduce the risk
associated with the higher than expected reliance
on independent sales reps. Although the relation-
ship between compensation system and both per-formance measures is in the hypothesized direc-tion, the relationshipis not significant (Hypothesis5a rejected).
To summarize, higher-performing Prospectors
appearto build strong relationships with customerorganizations to develop a clear understanding of
their latent needs, which provides the foundation
for the Prospector's product development efforts.
Because they motivate the sales force by focusingon what is produced (outcome), Prospectors allow
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824 S. F. Slater and E. M. Olson
their sales forces, whether internal or independent,to work with moderate levels of supervision.
For Analyzer organizations relationship selling,which gives them insight into opportunities that
Prospectors may have overlooked, also seems to
be associated with increased profitability
(indicating that Hypothesis lb is partiallysupported). Because of their fluid orientations,
Analyzer organizations require the clear com-
munication channels that come from having pri-
marily internal sales forces (Hypothesis 2b
supported). Surprisingly, either high or low levels
of sales manager supervision tend to be associated
with increased market performance in Analyzer
organizations (Hypothesis 3b rejected). This find-
ing may be due to the dual nature of the entrepre-
neurial and administrativechallenges which could
lead to organizational instability and requirelesser
or greater management direction as they shiftbetween exploiting new opportunitiesand protect-ing part of their domain. Instead of having a
balance between outcome and behavior-based
control systems, higher-performing Analyzersseem to place the greatest emphasis on outcome
(Hypothesis 4b rejected). To reduce some of the
risk associated with the dual nature of the entre-
preneurial and administrative challenges, a bal-
ance between salary-based compensation and
commission-based compensation in their reward
structures appears to be associated with increased
marketperformancefor Analyzers (indicating par-
tial support for Hypothesis 5b).Thus, higher-performing Analyzers seem to
pursue a relationship selling strategy and use an
internal sales force to accomplish this and to deal
with the instability in their strategic focus. Theyutilize an outcome-based control system, and
reduce risk to the firm by using moderately highlevels of supervision to provide clear direction tosales force members and seem to reduce risk tothe salesperson by balancing commission-based
compensation with a salaried foundation.Counter to our prediction, Low Cost Defendersdo not seem to benefit from either selling strategy(Hypothesis Ic rejected). For Low Cost Defendersan external sales force is associated withincreased profitability (indicating that Hypothesis2c is partially supported). With regard to thelevel of management supervision we failed tofind support for the TCA model that suggestedlow levels of hierarchical control would be
associated with higher performance (Hypothesis
Copyright C 2000 John Wiley & Sons, Ltd.
3c rejected). Consistent with our predictions, forLow Cost Defenders outcome-based control sys-tems tend to be associated with increased prof-itability (indicating that Hypothesis 4c is partiallysupported) and incentive-based compensation sys-tems are associated with increased market per-
formance (indicating partial support for Hypoth-esis 5c). These findings are consistent with theuse of independent contractors.
Consistent with Porter's (1980) theory, the pic-ture of the successful Low Cost Defender thatemerges is an organization that outsources its
selling function to concentrate on its core com-petency, which is production. To obtain desiredresults, more profitable Low Cost Defenders seem
to use an outcome-based control system and
superiormarketperformanceLow Cost Defenders
seem to utilize commission-based compensation.
For Differentiated Defenders, a relationshipselling strategy is associated with increased prof-itability. This enables them to understand how
they should differentiate in order to create
superior customer value. However, higher market
performingDifferentiated Defenders may also use
a transaction-based selling strategy to maximize
selling opportunities, at least in the short run
(thus indicating that Hypothesis Id is partially
supported). Consistent with Hypothesis 2d,higher-performing Differentiated Defenders relyon an internal sales force. However, somewhatcounter to Hypothesis 2d, the most profitableDifferentiated Defenders seem to utilize someindependent representatives to keep their costslow (indicating partial supportfor Hypothesis 2d).For Differentiated Defenders, either high orlow levels of supervision seem to be associatedwith increased performance (Hypothesis 3d par-tially supported). For Differentiated Defendersbehavior-based control systems and salary-oriented compensation systems are associatedwith increased profitability (indicating partial sup-
port for Hypotheses 4d and 5d).Our findings are consistent with Walker andRuekert's (1987) proposition that DifferentiatedDefenders will benefit from greater oversight bysales management than will Low Cost Defendersbecause of the critical role that the sales functionplays in maintaining a differentiated position inthe market. This is supported by the greaterreliance on an internal sales force and the use ofmoderate levels of supervision coupled with agreater emphasis on developing and maintaining
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826 S. F. Slater and E. M. Olson
Is the internal competition inherent to brand man-agement systems more beneficial for some strat-egy types than for others?
Another key decision area is pricing. There are,of course, several pricing philosophies. Is value-based pricing appropriateregardless of strategy?
Within a value-basedpricing framework,managersmust still determine how much of an inducementto give to customers to switch suppliersor to switchfrom solution to their generic problem to anothersolution. Is there a level of inducementthatis mostappropriate for Prospectors and another for LowCost Defenders? This is a question thathas receivedlittle or no attention.
A final area that we suggest warrantsattentionis channel structure. Channel structureencompasses both number and types of inter-mediaries, as well as relationships with inter-
mediaries. We found that high-performing LowCost Defenders made extensive use of inde-pendent distributors. How do they manage thoserelationships for maximum effectiveness?
CONCLUSION
Marketing does not operate in a vacuum. Market-ing decisions are strongly influenced by both mar-ket-level and organizational forces, and stronglyinfluence a firm's success at achieving competitiveadvantage (Porter, 1985). However, the perceivedimportance of marketing as a strategic disciplinehas been diminished over the past decade (e.g.,Day, 1992). Marketing has much to contribute tothe strategy dialogue, including insights on marketselection, constructionof a customervalue proposi-tion, and business strategy implementation. Weencourage other strategy and marketing scholarsto work at this importantinterface.
ACKNOWLEDGEMENTS
We gratefully acknowledge the helpful sugges-tions of Douglas MacLachlan, Robert Jacobson,and two anonymous SMJ reviewers.
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828 S. F. Slater and E. M. Olson
Appendix
Performance (7 points, from 'Much Worse' to'Much Better'): How has this business unit fared
over the past 24 months? (Based on Babakus et
al., 1996)
Market performance:
Sales growth compared to your major competi-tor.Market share compared to your major competi-tor.
Sales volume compared to sales unit objectives.Market share compared to sales unit objectives.
Profitability:
Profitability compared to your major competitor.Profitability compared to sales unit objectives.
Strategy Types
Prospectors: These businesses are frequentlythe first-to-market with newproduct or service concepts.They do not hesitate to enter
new market segments where
there appears to be an
opportunity. These businessesconcentrate on offeringproducts that push performanceboundaries. Their proposition is
an offer of the most innovativeproduct, whether based ondramatic performanceimprovement or cost reduction.
Analyzers: These businesses are seldom'first-in' with new products orservices or to enter emerging
market segments. However, bycarefully monitoringcompetitors' actions andcustomers' responses to them,they can be 'early-followers'with a better targeting strategy,increased customer benefits, orlower total costs.
Low Cost These businesses attempt toDefenders: maintain a relatively stable
domain by aggressively protecting
Copyright ( 2000 John Wiley & Sons, Ltd.
their product-market position.They rarely are at the forefront ofproduct or service development;instead they focus on producing
goods or services as efficiently aspossible. These businesses
generally focus on increasingshare in existing markets byproviding products at the bestprices.
Differen- These businesses attempt totiated maintain a relatively stableDefenders: domain by aggressively protecting
their product-market position.They rarely are at the forefront ofproduct or service development;instead they focus on providing
superior levels of service and/or
product quality. Their prices aretypically higher than the industryaverage.
Reactors: These businesses do not appear tohave a consistent product-marketorientation. They primarily act torespond to competitive or othermarket pressures in the shortterm.
Selling Strategy (7 points, from 'CompletelyInaccurate' to 'Completely Accurate'): How
accurately do the following statements reflect
your company (or division's) relationships withits customers? (Based on Heide and Miner,1992)
The parties expect relationships to last a lifetime.It is assumed that renewal of agreements inrelationships will generally occur.The parties make plans not only for the terms
of individual purchases but also for the continu-ance of relationships.The relationship with our customers is essen-tially 'evergreen.'
Internalization of Selling Activities (11 points):Please circle the point (x) on the scale that bestrepresents the proportion of sales (U.S. dollars)generated for your business unit by members of
your own sales force as compared with inde-pendent sales representatives.
Strat. Mgmt. J., 21: 813-829 (2000)
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% Sales by Independent Sales Representatives
100% 90 80 70 60 50 40 30 20 10 0%
x x x x x x x x x x X
0% 10 20 30 40 50 60 70 80 90 100%
% Sales by Company's Sales Force
Extent of Supervision (7 points, from 'StronglyDisagree' to 'Strongly Agree'): To what extent
do you agree with the following statements?
(Based on Oliver and Anderson, 1994)
Sales supervisors make sure every salespersonknows what to do.
Sales supervisors stay in close contact with
salespersons.Sales supervisors rarely ask salespersons for
information on how they are doing.Sales supervisors don't have much contact withindividual salespersons.
Sales supervisors here stay very well informed
of salespersons' activities.
Salespersons typically feel very isolated from
management.
Salespersons don't have much day-to-day con-
tact with management.
Salespersons are subject to very little direction
from management.
Salesperson Control System (7 points, from
'Strongly Disagree' to 'Strongly Agree'): To what
extent do you agree with the following state-
ments? (Based on Babakus et al., 1996)
We provide performance feedback to sales-
persons on a regular basis.
We compensate salespeople based on the qualityof their sales activities.
We use incentive compensation as the majormeans for motivating salespeople.
We make incentive compensation judgments
Copyright C 2000 John Wiley & Sons, Ltd.
Strategy Type and Performance 829
based on the sales results achieved by sales-
people.We reward salespeople based on their results.
We use nonfinancial incentives to reward sales-
people for their achievements.
We compensate salespeople based on the quan-
tity of their sales activities.
Compensation (11 points): Please circle the point(x) on the scale that best reflects the typical
Commission to Salary compensation plan formembers of the sales force in your business unit.
(Based on Oliver and Anderson, 1994)
% Salary
100% 90 80 70 60 50 40 30 20 10 0%x x x x x x X x x x X
Q% 10 20 30 40 50 60 70 80 90 100%
% Commission
Market Turbulence (7 points, from 'Strongly Dis-
agree' to 'Strongly Agree'): To what extent do
you agree with the following statements?
Competition in our industry is cut-throat.
There are many 'promotion wars' in our indus-
try.Anything that one competitor can offer, the
others can readily match.Price competition is a hallmark of our industry.
One hears of new competitive moves very fre-
quently.
Product Complexity (7 points, from 'Strongly
Disagree' to 'Strongly Agree'): To what extent
do you agree with the following statements?
Most buyers would say that we and our competi-tors sell a technically complex product.Our major product is relatively simple for most
buyers to understand.
Strat. Mgmt. J., 21: 813-829 (2000)