Strategic groups and performance of the firm : towards a new competitive environment in the Finnish telecommunications industry

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
School of Business | Doctoral thesis (monograph) | Defence date: 2005-03-18
Checking the digitized thesis and permission for publishing
Instructions for the author
Yrittäjyys ja pienyritysten johtaminen
Entrepreneurship and SME Business Managament
Degree programme
x, 290, [2] s.
Acta Universitatis oeconomicae Helsingiensis. A, 248
This dissertation contributes to the understanding of the strategy-performance differences of the firms within an industry. The theoretical framework is positioned to the joined perspectives of the Business Policy tradition (BP) and the Strategic Group discipline (SGdiscipline) - an enlargement of the Industrial Organisation Economics tradition (IO). Specifically, the empirical focus has been on the Finnish Telephone Companies (FTC), which have operated in a remarkably changed competitive environment. The research problems cover the critical strategy and performance elements of the firm, the construction of the advanced strategy-performance model (ASP-model), the identification of the strategic groups, the reconstruction strategy and performance models followed among the strategic groups in the FTC, and the strategy and performance differences between the best and worst performing telephone companies in the strategic groups. The strategy management literature suggests that the strategy-performance connections should be defined through the scope and resource configurations as well as the external effectiveness and the internal efficiency of the firm. Depending on the perspective of the tradition, it seems that the performance of the firm is influenced either by the industry structure (IO), by the strategy of the firm (BP) or by the strategic group (SG-discipline) as an intermediate level between the industry and the firm. The SG-discipline stresses the role of the entry, exit and mobility barriers. Furthermore, the managers’ mental models have been emphasised. However, it is evident that none of these perspectives can alone explain the differences between firms within an industry. The extant strategy-performance perspectives above include inaccuracies and some relevant aspects have been ignored. The present study introduced the revised role of the effectiveness that refers to the strategic direction of the firm. Respectively, the efficiency shows how the strategy is implemented. These definitions also earn their logical role in the SG-discipline context. As entry and exit barriers refer to the industry portfolio of the corporate, the mobility barriers refer to the business level effectiveness. To complete the strategy-performance connections, a new strategy implementation level mechanism, the flexibility barrier, has been introduced as the counterpart for the efficiency. Furthermore, by including the internal and external process results as the preceding stages of the economic performance in the ASP-model, the importance of the strategy implementation measurement, the knowledge of the market needs and the strategy engagement of the personnel of the firm are emphasised. The size of the firm has been used as the clustering criteria for constructing the strategic groups. The size, in terms of the firm’s total resources, reflects the strategic market possibilities, among which the strategic choices are relevant. It is also a most convenient referral point for the managers, who, with their mental models, make the strategic decisions for the firm. The ASP-model was also applied within the strategic group to show the strategy and performance dynamism among the strategic group members. The ASP-model was empirically applied during a unique period in the FTC. Due to the deregulative actions, the industry turned from a monopoly towards the oligopolistic competitive environment. Also the new services changed the economic performance possibilities remarkably and in turn the need for renewing the earlier strategies followed within the strategic groups. The data has been collected from the public statistics from Finnet Group Association, Sonera Ltd and Mainostieto Ltd. and by means of market research. The internal personnel research data has been collected using a questionnaire. In the data analyses, direct distributions and principal component analysis methods have been utilised. The empirical findings strongly support the theoretical presumptions of the present study. A National Group, Helsinki Group, Regional Group and Local Group were identified, logically covering the geographical market. The applied ASP-model shows differences between the strategic groups. The National Group with the one large-sized group member was the leader of the industry evolution from the geographically limited market towards the new potential market. The mobility barriers were constructed through the growth of the fixed-assets and the personnel resources. The flexibility barriers consisted of the mobile phone and data transmission business growth, reduced prices for company customers, enormous advertising growth and the increase of company accesses and personnel. The strategy resulted in a rapid increase in turnover share, but a decreased profitability share. The Helsinki Group with one large-sized group member moved slowly towards the same strategic direction as the industry leader. The ingredients for mobility barriers were the increase in fixed assets and personnel education by internal financing. The flexibility barriers were created from the fixed-net and mobile call business, price level and advertising increase as well as capital cost and channel rent decrease. The strategy process resulted in profitability share growth but only a moderate turnover share growth. The Regional Group with mid-sized group members focused on local markets, but moved towards the mobile call and data transmission market. The mobility barriers were constructed with personnel and fixed-assets growth. The flexibility barriers show moderate service growth, cautious price increase together with growth in personnel and capital costs as well as with channel rent growth. The strategy resulted in the decrease of turnover and profitability shares. Altogether, the Regional Group developed slowly towards the new competitive environment in the industry’s evolution. The Local Group with small-sized group members focused on local markets, but moved towards the new market. The mobility barriers were constructed with high solvency growth and a decrease in personnel size. The flexibility barriers are labelled with cautious price changes, decreased capital costs and channel rent growth. The strategy resulted in a small turnover share growth and a decreased profitability share. The Local Group developed slowly towards the new competitive environment. The dynamism and the role of the managers’ mental models within the strategic groups is shown through the best and the worst performers. The strategic group evolution leaders were clearly identified. Despite the varying potential, the best performing group members followed systematically different strategies and performed systematically better in nearly all aspects compared with the poor performers. Altogether, the contributions of the present study show that as the strategy-performance connections and industry evolution are explained on the business level strategy, the explanation model should include the observation of the influence of the strategic group mobility barrier effectiveness and the operational level flexibility barrier efficiency, both of which together reflect the managers’ mental decision models in practice.
Supervising professor
Lahti, Arto, professor
Other note
Permanent link to this item