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STRATEGY AND STRUCTURE CONFIGURATIONS: AN EXAMINATION OF FIT AND PERFORMANCE by GREGORY TYGE PAYNE, B.S.Pharm., M.B.A. A DISSERTATION IN BUSINESS ADMINISTRATION Submitted to the Graduate Faculty of Texas Tech University in Partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY Approved
August, 2001
Copyright 2001, Gregory Tyge Payne
ACKNOWLEDGEMENTS
The completion of this dissertation, and the degree that it represents, can be attributed to many people—all of whom I owe much but can never repay. Most importantly, my gratitude and love go to my wife, Marie, who has seen me through all the joy and pain involved in the entire doctoral process. To her, this dissertation is dedicated. Her support, patience, and perseverance has been untiring, and I can never place into words my gratefiilness to her. To my Mom and Dad I owe much. They raised me with unconditional love and taught me the importance of an education; little did they know how far I would take it. Other family members also contributed to my successes through financial, emotional and/or spiritual support. Donny, Traci, Reagan, Tray, Heidi, Mabry, Camie, Monnie, Papa, Jo, Doug, Elizabeth, Tree, Carla, Nico, Rebecca, Johnny, Deb, Misty, Mandy, Cody, Colby, Coltyn, and Corey—your love and prayers did not go urmoticed. I would like to thank Dr. John Blair, my advisor and committee chair, for his continuous involvement in not only this project, but also in countless others. I feel most fortunate to have been able to work so closely with Dr. Blair; my career and my life would not have been the same without his participation. I would also like to recognize and thank my other committee members who not only served as advisors and mentors, but also as fiiends: Dr. Myron Fottler, Dr. Jim Hof&nan, Dr. David Robinson, and Dr. Carlton Whitehead. Their willingness to work collaboratively with me on this dissertation has been vital to its successful completion.
Recognition should be given to other members of the faculty and staff at Texas Tech who contributed to my progress with their knowledge, experience, and support. Each of the following persons deserves special recognition: Dr. Kim Boal, Dr. John Buesseler, Dr. Todd Chambers, Cindy Ewing, Dr. Bob Giambatista, Dr. Jerry Hunt, Kevin Kermedy, Dr. Barry Macy, Dr. Tim Nix, Robin Rekieta, and Jeff Smith. Thanks also needs to be extended to the Medical Group Management Association (MGMA) and the Center for Research in Ambulatory Health Care Administration (CRAHCA) for their willingness to provide me with the data used in this study. In particular, I would like to thank Dr. Neill Piland and Andrea Rossiter for their support and assistance. Finally, I thank God for providing me with the skills and opportunities necessary for the completion of this personal journal. His mighty hand has held me close throughout my life and He continues to bless me.
ill
TABLE OF CONTENTS
ACKNOWLEDGEMENTS
ii
ABSTRACT
x
LIST OF TABLES
xii
LIST OF FIGURES
xiv
CHAPTER L INTRODUCTION
1
Problematic Issues
3
Statement of Purpose
8
Problem Statement and Specific Research Questions
9
Organization of Dissertation
13
IL LITERATURE REVIEW.
15
Derivation of Configurations: Typologies and Taxonomies
17
Typologies
18
Taxonomies
20
Structural Classifications
22
Early Studies of Organizational Structure and Its Classification
23
Structure's Link to Strategy
25
Strategic Classifications
27
Strategic Groups
28
Dual Structural and Strategic Classifications IV
30
Recent Research in Mainsfream Management Literature
31
Configuration Issues in Table 2.1
35
Nature of Configuration
36
Basis of Configurations
37
Industry-Segment
38
Sample
39
Source of Variables
40
Results of Study
40
Conclusion to Configurations Literature Review m. THEORY AND HYPOTHESES DEVELOPMENT. A Case for Configurations
41 42 43
Heterogeneous and Homogeneous Forces
44
Temporal Stability Forces
48
The Cognitive Need for Configurations
50
Patterns in Organizational Forms and Behavior
51
A Model of Organizational Configurations Based on Realized Strategy and Structural Complexity Dimensions
54
Realized Strategy as a Central Component in Organizational Configurations
56
Level of Differentiation
57
Target Scope
58
Organizational Structural Complexity as a Central Component in Organizational Configurations Expansiveness in Structural Complexity
60 62
Interorganizational Linkages in Structural Complexity
64
Advantages and Disadvantages of lORs
65
Forms of lORs
68
A Realized Strategy - Structural Complexity Configurations Model Configurations, Strategy, and Structure Hypotheses Basic Configurations-Performance Hypotheses Hypotheses for Independent Strategy and Structure Dimensions
69 72 73 76
Differentiation-Performance Hypothesis
79
Target Scope-Performance Hypothesis
80
Expansiveness-Performance Hypothesis
81
Linkages-Performance Hypothesis
82
Alignment or Fit of Configurational Elements and Performance
83
Ideal Types
84
The Concept of Fit
85
Conceptual Classifications of Fit
88
Resource Fit
88
Environment Fit
89
Network Fit
90
Fit, Equifinality and Configurations
91
Fit Hypotheses
97
Conclusion to Theory and Hypotheses Development
VI
99
W. RESEARCH METHODOLOGY AND ANALYSES
101
Sample and Data
101
Measurement of Variables
103
Realized Strategy Variables
105
Pricing: Advertising Intensity
106
R&D: Continuing Medical Education Intensity.
106
Production and Operations Capacity: Procedural Efficiency
108
Scope of Activities: Practice Type
109
Distribution: FFS Ratio
109
Production and Operations Capabilities: Non-Medical Revenue Ratio Structural Complexity Variables
110 110
Organization Size: Number of FTE Physicians
111
Physical Size: Square Footage
113
Geographical Dispersion: Number of Clinics.
114
Management Contracting
115
Horizontal Integration: Other Medical Practices
115
Vertical Integration: Hospitals
116
Performance Variables
117
Return on Sales
118
Return on Equity
120
Return on Assets
120
vu
Average Profitability Context of Study and Control Variables Data Preparation
120 121 123
Data Normality and Outlier Influence
123
Missing Data
125
Construct Creation and Preliminary Analyses Strategy and Structure Constructs
127 128
Pearson Correlation Coefficients
128
Principal Components Analyses
131
Performance Construct
136
Fit Constructs
138
Empirical Analyses
138
Testing Basic Configuration Hypotheses
139
Testing Hypothesis 1
139
Testing Hypothesis 2
145
Testing Strategy, Structure, and Fit Hypotheses
150
Examining Differentiation
151
Examining Target Scope
157
Examining Expansiveness
157
Examining Linkages
158
Examining Fit
158
Testing Configurations Given Strategy, Structure, and Fit Constructs
VUl
159
Examining Configurations Conclusions to Methods and Analyses. V. DISCUSSION AND CONCLUSIONS
165 168 171
Discussion of Study Findings
171
Implications
174
Specific Implications for Managers
176
Definitional Issues in Configurations Theory.
177
Conclusions
177
Limitations to Study.
178
Secondary Analysis
178
Cross-Sectional Data
179
Generalizability.
180
Cluster Analysis Criticisms
181
Contributions to Study.
181
REFERENCES
183
APPENDIX
195
IX
ABSTRACT
Organizational configurations are groupings of firms that are connected by a common theme or profile (Miller & Mintzberg, 1984; Miller, 1996a). These themes are found within or across different categories of organizations and have led to debates as to their specific relationship to organizational performance. While Ketchen, Combs, Russell, Shook, Dean, Runge, Lohrke, Naumann, Haptonstahl, Baker, Beckstein, Handler, Honig and Lamoureux (1997) demonstrate that the configuration-performance relationship does exist, previous studies on configurations have been criticized (Barney & Hoskisson, 1990). In addition to other criticisms, configuration research typically fails to account for both strategic and structural elements of organizations (Miller, 1996a) and often lacks acceptable statistical power (Ferguson & Ketchen, 1999). Therefore, the actual relationship between organizational configurations and performance may still not be adequately shown. This study tests this relationship by following Miller's (1996a) and Miller and Chen's (1996) argument for researching configuration properties by placing specific focus on competitive activities and the complementary structural elements involved. In addition, equifinality and strategy-structure fit arguments are theoretically expanded upon and empirically tested as components of organizational configurations. Specifically, this study examines explicit configurations that place emphasis on two types of strategy dimensions—differentiation-cost and broad-narrow scope—^based on Porter's (1985) generic strategies and on two structure dimensions covering expansiveness and interorganizational relationships (lORs). Specific hypotheses are
developed and multiple empirical tests follow the conceptual arguments made for the existence of configurations that reside in the orchestrating themes and interactive mechanisms surrounding both strategy and structure. Results support the existence and importance of strategy and structure configurations in relation to financial performance. Additionally, all of the independent dimensions of strategy and structure demonstrate statistical significance in relation to financial performance. As anticipated, the strategy dimension of differentiation was positively related to financial performance, the strategy dimension of scope was inversely related. The structural dimensions of expansiveness and level of interorganizational relationships also showed a significant inverse relationship. Hypotheses regarding the fit between each of these dimensions are not entirely supponed however. Only the fit between target scope and expansiveness demonstrated statistical significance. Conclusions drawn from these results suggest that within a specified segment of a dynamic and uncertain industry, fit between strategy and structure is not important to overall financial performance. Implications are that true equifinality is non-existent in such controlled industry contexts. In other words, perhaps only one or a very few organizational configurations are successful in any given environment—failure to take that configurational form will result in diminished financial returns. This "successful" form is characterized by highly differentiated services, narrow target scope, and small physical and organization size with little geographical dispersion.
XI
LIST OF TABLES
2.1
3.1
4.1
4.2
4.3
4.4
Recent Configuration Research in Top Management Journals (1995-2000)
32
Patterns of Multiple Strategic Management and Organizational Theories
53
Survey Response Frequencies and Descriptive Statistics for Strategy Variables
107
Survey Response Frequencies and Descriptive Statistics for Structure Variables
112
Survey Response Frequencies and Descriptive Statistics for Performance Variables
119
Frequencies and Descriptive Statistics for Environmental Control Variables
124
4.5
Correlations of Primary Variables Arranged by Construct
129
4.6
Correlations of Configurations, Constructs, and Fit Variables
130
4.7
Principal Component Analysis for Strategy Variables
132
4.8
Principal Component Analysis for Structure Variables
134
4.9
Principal Component Analysis for Strategy and Structure Variables
135
4.10
Principal Component Analysis for Performance Variables
137
4.11
Final Cluster Centers for 5-Cluster K-Means Analysis
142
4.12
ANOVA Table for Configurations and Multiple Performance Variables Post Hoc Waller Duncan Test of Homogeneous Subsets of Configuration Groups
148
Results of ANCOVA and MANCOVA Tests for Performance in Configuration Groups
149
4.13
4.14
Xll
146
4.15
Regression Analysis for Return on Sales
152
4.16
Regression Analysis for Return on Equity
153
4.17
Regression Analysis for Return on Assets
154
4.18
Regression Analysis for Profitability.
155
4.19
Regression Analysis for Total Performance
156
4.20
Configuration Regression Analysis for Return on Sales
160
4.21
Configuration Regression Analysis for Return on Equity.
161
4.22
Configuration Regression Analysis for Return on Assets
162
4.23
Configuration Regression Analysis for Return on Profitability.
163
4.24
Configuration Regression Analysis for Return on Total Performance
164
4.25
Means of Key Variables for Configuration Groups
166
4.26
Dimensions, Fit, and Performance Rankings for Configurations Groups
167
Summary of Hypotheses Support
169
4.27
Xlll
LIST OF FIGURES
3.1
Arguments for Configurations' Existence
45
3.2
Multidimensional Matrix of Possible Organizational Configurations
71
3.3
Configuration - Performance Model
74
3.4
Matching Fit Among Independent Strategy and Structure Dimensions
95
3.5
Realized Strategy and Structural Complexity Fit Model
98
4.1
Multidimensional Matrix of Approximate Placement of Configuration Groups
144
XlV
CHAPTER I INTRODUCTION
The strategy-structure relationship has been a central debate in the strategic and organization theory literature for an extended period. Specifically in the strategic management literature, this debate has emerged to be principally concerned with not only how the two concepts are interrelated, but also how they, together, impact firm performance (Hrebiniak, Joyce, & Snow, 1989). Researchers have proposed structure as both a follower (Chandler, 1962; Rumelt, 1974) and as a precursor to strategy (Hedberg, Nytsrom, & Starbuck, 1976). Each has also been seen as a central predictor of how and why certain organizations outperform others. However, the current consensus seems to recognize a reciprocal relationship between organizational strategy and structure (Amburgey & Dacin, 1994), where common alignments or themes are created (Miller, 1986, 1996a). These alignments of sfrategy and structure elements are often termed configurations, which typically categorize or classify organizations according to contextual, structural and/or strategic components. Many classifications of organizations exist that are based around the strategy and/or structure configuration concept. They have been labeled typologies (e.g., Galbraith & Schendel, 1983), gestalts (Miller, 1981), modes (Mintzberg, 1973), archetypes (Miller & Friesen, 1978; 1984) or taxonomies (e.g., Hambrick, 1984). Whichever term is used, the grouping of organizations based on configurations assumes that individual members of each group have similar elements, characteristics, or themes. These classifications of
organizations are typically proposed as usefiil to strategy research because of the ability to predict the success or failure of the organization, usually given certain environmental conditions (Miller, 1986). Organizational configuration research is built around the basic premise that certain patterns of strategy, structure and/or processes will tend to lead to certain levels of performance (Miles & Snow, 1978; Miller, 1996a; Ketchen et al., 1997). In other words, due to choice, determinism or some combination of the two, groupings of organizations that have similar patterns of strategy and/or structure will cling together into groups and have the ability to predict performance to a certain degree. The central idea of configurations, therefore, lies in configurations themselves— as an independent quality. Configurations can be a source of competitive advantage for a firm because that advantage resides in the interaction of many elements centered and coordinated along a pivotal theme (Black & Boal, 1994). But in viewing configurations as a theme of elements that encompass multiple areas, limitations of time and resources exist where if more attention is paid to one element, less must be paid to others. This paradoxical nature of configurations makes it a difficult concept, because many seemingly conflicting strategic and structural elements constantly interact to become what is seen as the organization as a whole (Blair & Payne, 2000; Miller, 1990; Payne, Blair, & Fottler, 2000). Thus, given that configurations can indicate complementary and integrative mechanisms within an organization, certain configurations might have important normative implications (Blair & Payne, 2000). So, competitive advantage for any
organization may not be based on specific resources or abilities per se, but rather those integrated mechanisms or relationships between or among organizational components (Black & Boal, 1994). It is the imiqueness of any organization—the configuration—that is the essence of an organization and has a central impact on performance. This implies that organizational effectiveness and even overall success may be determined by the exhibition of certain themes or configurations rather than certain others. At the heart of the organizational configuration notion is this interaction between and among elements of sfrategy and structure. Configurations take into account the reciprocity that exists between these two primary elements through recognition of individual as well as synergistic effects. As part of configurations research, more recent concepts of equifinality have come to represent the notion that high organizational performance can be achieved through multiple different organizational forms. Equifinality is thus said to entail sfrategic choice and is often used as an argument to explain the absence of contingency theory findings (Gresov & Drazin, 1997). Studies by Doty, Glick, and Huber (1993) and Ketchen, Thomas, and Snow (1993) support the concept of "configurational equifinality" (Gresov & Drazin, 1997) as it draws on previous strategic management research (e.g.. Miles & Snow, 1978; Mintzberg, 1979; Porter, 1980; Zammuto, 1988).
Problematic Issues The configuration-performance question has met its share of scrutiny and has had mixed empirical results. These differences have led some researchers to question the
validity or usefuhiess of further study (Barney & Hoskisson, 1990; Hatten & Hatten, 1987). However, a few very complex issues exist that require further investigation into this topic—specifically, those involving the concept of fit and configurational equifinality. First, much of the previous configuration research has only classified organizations according to sfrategic or structural elements or themes, not both. So despite the reciprocity that exists between sfrategy and structure (Amburgey & Dacin, 1994), configurations of organizational elements have been typically discussed in terms of either sfrategy or structure—^not as themes of multiple strategic and structural elements that are reflected broadly as patterns across all aspects of an organization, including performance. Second, most of the negative conclusions and ambiguous findings come from the most prominent form of configuration research—sfrategic groups. Among other problems in sfrategic group research, these groupings typically do not account for structure, tend to be placed into groups on an ad hoc basis, and generally lack any real theoretical ties (Ketchen & Shook, 1996). So, rather than theorizing about how certain elements should interact to form specific types or classification groups, researchers tend to simply group data in an ad hoc marmer and label such groups with generic and meaningless names. Each of these two problems with previous research is very complex and warrants further discussion. Attempts have been made by some prominent scholars like Miller (1986) and Mintzberg (1988) to broaden views concerning generic sfrategies to include
more holistic views of organizations through configurations. Little success has been achieved to this end and a few strategic group theories actually seem to impede advancement into this line of thinking because of their intuitive sense and popularity in teaching. The most prominent theories based on strategic groups are Porter's (1980) generic sfrategy typology and Miles and Snow's (1978) typology. Both of these typologies are theory-based and have been the subject of much investigation—although with conflicting results. Porter (1980) described strategic groups as groups of firms in an industry that follow the same or similar strategy along sfrategic dimensions. He combined two primary elements—^market scope and source of competitive advantage—to develop a typology of sfrategic behavior. Market scope is defined as either narrow or broad focus, while the source of competitive advantage is based on either achieving low cost or a certain level of differentiation from competitors. Porter maintained that a choice must be made to follow either a low cost or differentiation strategy at either a broad or narrow focus; failure to do so results in inferior performance. The firms that fail to choose between the strategies and therefore follow a mixed strategy are deemed "stuck-in-themiddle." However, the "stuck-in-the-middle" - low performance relationship has been questioned; some researchers even advocate a mixture or hybrid as being the likely high performer in any given environment. Miles and Snow (1978) also developed four primary types. They proposed a framework for analyzing internal organizational relationships between strategy, structure and process as part of the adaptive cycle. This framework describes three major patterns
of organizational behavior that can be identified and even predicted as ways to adapt to environmental change. These three problems are identified as the entrepreneurial problem, the engineering problem, and the administrative problem. The enfrepreneurial problem is generally associated with organizational domain, while the engineering problem's focus lies in operationalization. The administrative problem involves the integration of the organizational system to solve problems in the other two areas. In analyzing these three problems, the typology was developed to include the Defender (high focus on the engineering problem), the Prospector (high focus on the enfrepreneurial problem), the Analyzer (mixed focus), and the Reactor (no focus). With its original intent. Miles and Snow demonstrate an excellent configurational typology that combines both strategy and structure elements. However, most researchers in testing this typology operationalize it as only dealing with strategic issues, even commonly referring to it as a "sfrategic typology." Over the years, strategic groups (including Porter's and Miles and Snow's typologies) have been primarily analyzed according to group differences in profitability (e.g., Fiegenbaum & Thomas, 1990; Cool & Dierickx, 1993). Although the question of profitability variance among strategic group members has met with conflicting empirical support, it remains a popular subject and is highly used for its descriptive value because of the tendency of managers (and researchers) to view organizations in conceptual categories (Reger & Huff, 1993). The literature suggests, as will be covered in more depth in the literature review section of this document, that perhaps more theory development and use of conceptual
ideas needs to be done rather than simply generating generic groupings and testing for differences among them. Further, even when the empirically generated groups are tied to theory, say to Porter's generic sfrategies, the measurements are often too simplistic to truly accoimt for the complexities of the organizational realities of the sfrategy. This is especially true of highly complex and extensively diversified organizations that simultaneously follow different strategies. Again, part of the problem with strategic groups may come from the lack of imderstanding or acknowledgement that strategy and structure do work integratively with one another and that they caimot be so easily separated. In this realization, Miller (1996a: 506) differentiates configurations from sfrategic groups by defining configurations as "complex systems of interdependency brought about by cenfral orchesfrating themes." In other words, configurations are holistic and should therefore encompass more aspects of the organization than just strategic behavior. It might be argued that in studying sfrategic groups, structural elements were held constant—as confrols. However, as will be discussed in more detail later, this is typically not the case as most studies use cluster analysis of only sfrategic variables to empirically develop groups then simply analyzed the differences in performance through ANOVA. Also, although sfrategy may be the driving force behind configurational themes and may tend to serve as a proxy for those themes, conflicting results may be the result of shortcomings in the number and type of variables used to determine the configurations. Therefore, the primary argument is that in order to more fully understand the complexities of organizations, organizational strategic behavior and performance,
thematic configurations of multiple strategic and structural elements must be examined. So it seems that under Miller's definition, the strategic group literature often fails to truly come under the heading of organizational configurations and may have difficulty with explanative power because of its incompleteness.
Statement of Purpose In light of the arguments present thus far and following Ketchen et al.'s (1997) call for more programmatic configurational research, this study has five major purposes. The first purpose is to aggrandize and further imderstanding and knowledge of the sfrategy-structure relationship specifically in regards to configurations research. The second purpose is to fiirther develop the configuration concept and increase its legitimization as a theoretical and methodological approach to studying organizations, their competitive behavior and performance. Third, the hope is to generate erudition concerning strategy-structure fit and equifinality, especially given these concepts' importance in configurations and performance. The fourth purpose is to further understanding about industry effects and its impact on configurations and performance. This specifically is done in relationship to medical groups and the health care industry as an example of a highly uncertain and changing environment. Finally, the fifth purpose is to expand knowledge about interorganizational relationships and their role in defining organizational structure and their relationship to strategy, internal organizational structure and performance.
However, in achieving these purposes, two essential clarifying statements must be made concerning the nature of organizations and performance. First, organizations and firms are considered interchangeable terms throughout this dissertation. That is, in analyzing configurations at the organizational level of analysis, the term "firm" is often used to differentiate organizations whose primary goal is profit maximization from those that may have alternative measures of success (e.g., charitable or religious organizations). Here, each of these terms is considered equivalent and representative of organizations that principally seek business-level competitive advantage and subsequent higher economic returns over business competitors. Therefore the second statement is related to the first and comes in the form of an assumption: that the primary goal of any firm or organization is achieving higher levels of performance, where performance is a comprehensive term that includes profitability, efficiency and effectiveness.
Problem Statement and Specific Research Questions The issue of configurations and their relationship to organizational performance is the broad research problem that is to be addressed in this study. This problem is not new, for it has been the focus of much research (Ketchen et al., 1997). However, following Miller's (1996a) and Miller and Chen's (1996) argtiments for researching configuration properties, this study will place specific focus on both strategic competitive activity as well as the structural elements involved. In addition, this study will draw on Gresov and Drazin's (1997) notions of configurational equifinality to investigate new patterns among different organizations within a single, dynamic indusfry and the fianctional demands that
influence sfrategic choices. Although specific preexisting typology is utilized. Porter's ideas (1980, 1985) concerning generic strategies do play a vital role in this stiidy. Equifinality and fit are explicitly examined in an effort to understand these configurational patterns rather than simply recognizing their existence. Also, interorganizational relationships are examined as an explicit part of organizational structure because of their increasing importance in strategic management. So, although the broad research question is not new, the approach to the specific nature of configurations in organizations in this particular study is new and should, at a minimum, encourage others to break from traditional methodologies to look into new issues and develop new ideas concerning this important topic of strategy and structure. So, to fiirther the understanding of organizations and their strategies and strucfrires, and following ideas from Porter (1980, 1985), Miller (1986, 1996a), Mintzberg (1979) and others, four key constructs will be conceptually developed to drive both an empirically based classification scheme of configurations and multiple measures of fit. The four constructs and ensuing theoretical models are based on two key dimensions: (1) the realized sfrategy of the organization, and (2) the structural complexity of the organization. A series of specific research questions regarding configurations of organizations, strategy-structure fit, and their relationship to performance are given below. These research questions are closely tied to the previous arguments. The first research question deals with the patterns of configurations themselves. Essentially, the question involves whether or not configurations of organizations can be meaningfully and clearly
10
differentiated in a specified industry using multiple variables of strategy and structure. Specifically, the first research question states: Research Question 1: Do thematically differentiated organizational configurations, which reflect specific combinations of strategic and structural characteristics, exist as theoretically interpretable empirical groupings? Assuming that such configurations of organizations appear through empirical induction, the second research question seeks to determine the nature of the relationship between the configuration types and organizational financial performance. If performance differences between the empirically generated types are discovered, more evidence supporting configurations as an actual and factual collection of organizations •vwuld be generated. In other words, the determination must be made about whether or not one configurational pattern outperforms another and does the relationship make sense conceptually. This is a particularly interesting question given the concept of equifinality, which implies that high performance of an organization can be achieved through multiple and different organizational structures (Gresov & Drazin, 1997; Doty, Glick & Huber, 1993). Further, this type of demonstrated empirical relation would further refute Bamey and Hoskisson's (1990) propositions concerning organizational groupings. The second question therefore reads: Research Question 2: Do thematically differentiated organizational configuration groups differ in performance? In a related question and again assuming that a meaningful classification or extension thereof does exist, the third question seeks to determine the role of industry in
11
the concept of equifinality. It may be that any given industry context will generally support only one organizational form rather than multiple configurational patterns. If performance differences exist in a single, controlled industry, it might be argued that equifinality does not really exist in a controlled industry, or sub-industry segment. Or, it may be that equifinality exists in relationship to survival, but not in relation to high performance. Thus, the third question is: Research Question 3: Does equifinality exist in homogeneous industry contexts? Once the overall relationship between the classified configurations and performance is determined, a more specific question becomes how and why do they vary in relationship to performance. This question rests at the heart of all strategic management research, and in a quest to inform this base question, strategy-structure fit is examined as a possible explanation. Strategy-structure fit has been touted as a possible reason for high performance among firms, but has met with much empirical difficulty given its multidimensional and elusive nature. Therefore, the fourth research question asks: Research Question 4: Does strategy-structure fit relate to performance in individual organizations? The final research question deals with comparing answers obtained from previous questions. Two levels of analysis will be utilized—organizational groups and individual organizations—to examine strategy, structure, fit and performance. By examining both configurational groups and individual organizations, more insightful and complete answers might be obtained. So, the final research question seeks to conglomerate
12
findings from multiple outlooks to inform notions of fit, equifinality and configurations of organizations. Research question five is: Research Question 5: Do the findings for both the organizational configuration groups and the individual organizations coincide and support a positive relationship between high sfrategy-structure fit and high levels of performance? Each of these research questions is similar or extends upon previous work in this field in an exploratory fashion. However, each has met with theoretical and empirical limitations or suffers from a lack of attention. Some key areas that are clear extensions include: (1) the concepts of fit and equifinality in relation to organizational configurations, and (2) the use of interorganizational relationships as a specific part of organizational structure.
Organization of Dissertation This dissertation is divided into five chapters. So far, the introduction section (Chapter I) has been discussed. The infroduction contained a specific statement of purpose and identified specific research questions as they relate to the broader research question of configurations, equifinality, sfrategy-structure fit, and performance. The second chapter of this dissertation will give an overview of the specific research literature relating to configurations. This overview is intended to synthesize the specific literature about configurations and point to: (1) possible deficiencies or gaps, and (2) areas for future research.
13
The third chapter uses previous literature to develop a series of key hypotheses concerning sfrategy and structure configiu-ations, fit, and performance. This section draws upon a section of the literature pertaining to organizational equifinality, strategystructure fit, and two dimensions of realized strategy and structural complexity. Ten hypotheses are presented following the basic direction of the research questions given previously. These hypotheses will focus on individual firms as the unit of analysis, as opposed to groups of organizations, although configuration groups are utilized and membership in a group plays a key role in the study. The fourth chapter of this dissertation first discusses the research design, data sources, specific variables, and methodology used to test the hypotheses. Included in this discussion are sample and unit of analysis issues, and questionnaire specifics. Then, forllowing the agenda set by the hypotheses of chapter three, multiple analyses are studied and discussed given their explicit findings. The fifth and final chapter concludes the document by discussing the results of the tests, giving impressions and implications of the findings for strategic management. The discussion leads to a conclusion by outlining limitations and contributions of the study. Final thoughts and conclusions revolve around areas for future research.
14
CHAPTER n LITERATURE REVIEW
Miller (1986) argued that previous research primarily dealt with either the diversification aspect of strategy or the fimctional issues of structure, but seldom did research include both aspects. In this line of thinking, he called for more integration of sfrategy and structure when he recognized the lack of research done that looked at this seemingly obvious relationship. Findings by Miller and colleagues since then have led to the conclusion that cenfral themes do in fact align many aspects of sfrategy and structure, and it is the configurations themselves that are often lacking in organizational research (Miller, 1996a). Historically, the individual variables of sfrategy or structure have been examined in an effort to determine which, if any, are related to other variables and whether or not they can be used as predictors of the remaining variables (Miller & Mintzberg, 1984). Despite Miller's (1996a) more recent call for more configurational research, most classifications have continued to focus on either the structural or strategic elements of organizations. So, although these classification studies follow in a long line of highly innovative and valuable research extending from early works in the 1960s, gaps in the literatiu-e still remain. To expose these gaps, the related literature will be reviewed; the relevant veins of research are divided into sections deemed structural, sfrategic and dual classifications. The term classification is used loosely and in only the broadest sense here to include
15
typologies, taxonomies, archetypes, or gestahs, even though in the strictest sense each term has a distinct meaning (McKelvey, 1982). Specifically, the terms gestalt and archetype seem to be synonymous with the term configuration. However, taxonomies and typologies have separate and distinct implications. Each of these terms is used to describe how configurations are derived or how they are studied in research. Therefore, prior to reviewing the literature, how configurations are derived in the literature is first discussed. This is done in an effort to clarify the meanings of these terms in order to imderstand the nature of configurations research. Again, specific attention is given to sfrategy-structure-performance issues. Following a brief historical review of configurations and classifications research, attention will be placed on the recent (over the last 6 years) configuration literature and the progress that has been made in the area. Structure, as an independent classification group, is only briefly discussed due to its deep history and its close alignment with structural contingency theory development. Therefore, in its entirety structural classification is considered beyond the scope of this dissertation. Additional attention to health care organizations, in this and the following chapters, is explicit due to the data sample and variables to be used. It must be expressly stated prior to the examination of the current research that the intention of this review is not to be overly critical of previous work, but to highlight research gaps and potential areas for future study. However, a certain level of criticism and judiciousness is necessary given the nature of learning and knowledge extension in this long line of important and enlightening research.
16
Derivation of Configurations: Typologies and Taxonomies One of the primary purposes for the use of organizational classifications is to define and distinguish a group of organizations from another collective and then use these classifications to predict the occurrence of other variables (e.g., performance). A fine line exists when studying configurations because the importance of commonalties must not overshadow the importance of individual organizational distinctiveness. In other words, the constructions that we use to classify organizations are often important and helpful, yet these same constructions can, at times, cover distinctions that are just as important. However, McKelvey's (1982) outlook on this issue is that solid findings about a very narrow population are more usefiil to organization science than marginal findings concerning a broader population. So, classifications of organizations are considered by many to be an important part of understanding organizations (Rich, 1992; Sanchez, 1993). Two main approaches to configuration derivation are typically taken: (1) typologies, which are conceptually driven and complex theoretical statements, and (2) taxonomies, which are empirically generated classification systems. Each derivation method has positive and negative aspects and has been discussed extensively in previous literatiire (Carper & Snizek, 1980; Doty & Glick, 1994; Rich, 1992; Sanchez, 1993). However, in agreement with Meyer, Tsui and Hinings (1993), typologies and taxonomies are not as divergent as many researchers would many times argue. That is to say, typologies, while conceptually derived, are often (and should be) grounded in
17
empirical knowledge and experience. Similarly, taxonomies, while based on empirical quantitative techniques, should be theoretically grounded if they are to be useful. The difference, therefore, is simple. One is the result of conceptual ideas based on empirical experience, while the other is a result of empirical techniques only made useful through conceptualization. Each of these two derivation techniques will be briefly discussed, but with the understanding that each has strengths and are equally viable as a technique for producing knowledge in configurations given the right situation and use. Further, using the two in tandem is likely to produce the best results. For specifics beyond what is given below, the reader is referred to several very comprehensive discussions and reviews of typologies and taxonomies, including Carper and Snizek (1980), Doty and Glick (1994), Rich (1992), and Sanchez (1993).
Typologies Miller and Friesen (1984) outline three important distinctions that make any typology significant. First, a typology must recognize distinctive characteristics of any given phenomena that suggest certain causes and effects associated with the classification. Second, a typology must be recognizable and occur regularly in reality. Third, it must stimulate and facilitate empirical investigation. These are important distinctions because they separate typologies from simple classification schemes (Doty & Glick, 1994). While throughout this dissertation many terms are used interchangeably under the larger heading of "configurations," typologies
18
do represent a specific derivation construct. Following Doty and Glick's (1994) definition, a typology refers to a set of ideal types that are conceptually derived. A typology differs from a simple classification because it is developed with the intent of making predictions vis-a-vis certain specified dependent variables, like performance. The ideal types of a given typology are not considered exhaustive, but rather attempt to describe a selected number of characteristics that are particularly relevant to the question at hand (Doty & Glick, 1994). Typologies, therefore, when centered on ideal types, are sophisticated information systems (Rich, 1992) which are used to compare organizations at a reasonable level without loosing the inherent richness of organizations themselves (Hambrick, 1983b). However, in trying to attain this richness, typologies are often based on very few dimensions. In fact, many early typologies were based on just a single dimension (e.g., Blau & Scott, 1962; Etzioni, 1961; Parsons, 1960; Perrow, 1970; Thompson, 1967). Further, when even more characteristics or dimensions are considered, like with Mintzberg (1979), these dimensions are often assumed to be all-inclusive. Therefore, organizations are assigned to a type based on subjectivity alone, not on any empirical evidence that measures a distinct cut-off point where organizations are either in or out of the class (Sanchez, 1993). Despite these basic problems, typologies have a long and powerful history in the sfrategic management field. Both the Porter (1980) and Miles and Snow (1978) typologies, as discussed previously, have remained highly viable both in research and teaching. The fact that they bring parsimony to a complex subject is their sfrength.
19
Taxonomies Taxonomies are empirical classifications that use multiple dimensions and multivariate techniques to derive configurations. Taxonomic methods can be used to either test previously derived classifications or to derive new ones. Similar to the criteria for typology distinction, Bakke (1959)—as reported by Rich (1992)—suggested three major criteria for taxonomically describing organizations. First, taxonomies must be consistent with reality. Second, taxonomies must be comprehensive and useful. And third, interdependence and interaction must exist between the given attributes, as well as between the attributes and the organization itself As an example, one of the most famous taxonomies in the relatively recent management literature is that by Miller and Friesen (1984). From the analysis of 81 case studies of organizations, they empirically derived their classification from 31 environmental, structural and strategy decision-making variables. The cases were divided into successful and unsuccessful firms, and separate analyses were run for each group— inverse factor analysis (Q-type). Ten different archetypes (as they declared them) were demonstrated, four unsuccessful firms and six successful. The unsuccessflil firms include Fl: the impulsive firm, F2: the stagnant bureaucracy, F3: the headless giant, and F4: the aftermath. The six the successfial firms include SI a: the adaptive firm under moderate challenge. Sib: the adaptive firm in a very challenging environment, S2: the dominant firm, S3: the giant under fire, S4: the entrepreneurial conglomerate, and S5: the iimovator.
20
Miller and Friesen's (1984) taxonomy, especially at the time, was exceptional in two primary ways. First, it used a large, comprehensive set of variables to determine the organizational configurations. Second, it had a rather large sample size (81). These two issues lead to several criticisms of recent studies centered on taxonomies. The first is, of course, the lack of large, comprehensive sets of variables. Not only is the number of variables (or lack of them) a problem, but the type of variables used is also a problematic issue. This criticism concerns the general lack of agreement about how to select the relevant dimensions on which taxonomic studies should be based and which variables are best able to accomplish the said goals (Sanchez, 1993). Further, even if some variables are included in multiple studies, they are seldom operationalized the same and thus are assumed to have totally different meanings (Carper & Snizek, 1980). The second criticism brought about by looking at Miller and Friesen (1984) is the size and type of sample. Simply stated, samples have been relatively small and populations have been widely defined (Sanchez, 1993). This is especially true in "longitudinal" studies, where the tradeoff for long-term examinations is small sample sizes, many being less than 30 (e.g., Bierly & Chakrabarti, 1996; Bogner, Thomas & McGee, 1996; Cool & Dierickx, 1993; Fiegenbaum & Thomas, 1995; Reger & Huff, 1993). Miller and Friesen's (1984) study also calls attention to a few of the major issues involving taxonomic methodologies in general. So, with these issues in mind, the following sections will look at major historical classifications in the literature, as related to strategy and structure, then focus on the recent management and sfrategic management
21
literature to determine the natm-e of the current research in the field. HopefiiUy, this review will discover gaps or shortcomings in the current literature and offer up opportunities for future research, of which this study is part.
Structural Classifications Structural classifications of organizations have long been central to the study of organizations (Carper & Snizek, 1980; McKelvey, 1982). While classifications may not be directly involved, several different organizational structure paradigms have emerged to offer explanations for different organizational structures. Some of these paradigms include resource dependence theory (Pfeffer & Salancik, 1978), institutional theory (Powell & DiMaggio, 1991), population ecology (Hannan & Freeman, 1989), agency theory (Jensen & Meckling, 1976), contingency theory (Donaldson, 1996), and fransaction cost economics (Williamson, 1981). Each of these studies attempts to explain why organizations differ but not necessarily how they differ. How organizations differ in structure has long been an important subject of much study and theorizing. Even more important, though, is the sfream of organizational structure studies that attempts to make sense and utility of those recognized differences. Questions by sfrategists into this area of study have largely come in the form of organizational performance. Early organizational studies led to complex and often conflicting theories regarding organizations, structure and their relationship to performance. A central theory involved is structural contingency theory. Structural contingency theory basically argues
22
that the success of different aspects of organizational structures of organizations is largely dependent on the appropriate organizational structure-environment fit (Ketchen, Thomas, & Snow, 1993). Major theories in structural contingency theory focus on couplings of contingency and structural factors, which leads not to a single contingency theory, but rather a contingency approach. Therefore, given that numerous factors have been examined throughout its history, including size, bureaucracy, strategy and structure, this section only briefly discusses some seminal works in structural classification. Then, because the sfrategy -structure contingency relationship to performance is examined closely in this study, I offer a brief discussion concerning structure's relationship to sfrategy.
Early Studies of Organizational Structure and Its Classification Primarily since the work of Weber (1946), organizational structures have been examined as important part of organizational research. Numerous researchers have developed different typologies and taxonomies since then, including early works by Blau and Scott (1962), Bums and Stalker (1961), Chandler (1962), Hall (1963), Mintzberg (1979), Perrow (1967), WiUiamson (1975, 1981), and Woodard (1965). hi addition, structure is linked to other variables such as size, professionals, and the environment (e.g., Blau & Schoenherr, 1971; Lawrence & Lorsch, 1967; March & Simon, 1958). Bums and Stalker (1961), in particular, were seminal in the development of stmctural classifications by distinguishing between the mechanistic and the organic organization. Their work was important because it moved beyond simple classifications
23
(such as profit or non-profit groups) to classifications with multiple dimensions and variables. The mechanistic organizational stmcture was characterized by tightly defined roles and biu-eaucracy while the organic organization structure was characterized by loosely defined roles, high knowledge disbursement and high communication among organizational members. Woodward (1965) followed closely in the footsteps of Bums and Stalker (1961) with a shghtly more complex conceptualization of stmcture that included technology as a key factor. Using quantitative arguments. Woodward argued that stmcture-technology fit was essential for high performance, thus making the performance tie that unwittingly added a sfrategic element to the stmctural classification literature. Mintzberg (1979), with another seminal work, took a multifaceted approach to classifying organizations according to stmcture. His typology was conceptualized into five distinct groups to include: (1) the simple stmcture, (2) the machine bureaucracy, (3) the professional bureaucracy, (4) the divisionalized form, and (5) the adhocracy. Each of these types offers a distinct insight into a particular organizational configuration and represents one of the key stmctural configurational theories utilized today. Briefly, the characteristics of each are reviewed and an example is given. The first type, specified by Mintzberg (1979) is characterized by direct supervision, little specialization, small size, and relatively simple technologies. This type is appropriately called the simple stmcture. A good example might be a solo physician practice where the physician acts as both sole owner and primary manager. The second type—the machine bureaucracy—has characteristics of standardized work, large size and
24
high confrol through formalized bureaucracy. A pharmaceutical-manufacturing firm might be a good example of a machine bureaucracy where the scale of operations allows for repetition and standardization of tasks. The professional bureaucracy, the third type, is more complex due to its dispersion of skill and confrol to the professionals within the organization. A medical center with multiple, highly standardized service lines might represent the professional bureaucracy well. The majority of hospitals also fall into this category. The fourth type is the divisionalized form. It is characterized by large size, multiple units or divisions, and separate control centers. Very large health services organizational systems are examples of this type. These large corporate entities tend to perform medical and non-medical functions that probably were previously executed by a single organization, but following extensive stmctural reorganization through merger, acquisition or consolidation, are now are part of one corporate organization. Finally, the fifth form developed by Mintzberg (1979) is the adhocracy. The adhocracy is highly organic (Bums & Stalker, 1961) with little formalization of behavior, high job specialization and a team orientation. It is both complex and non-standardized —often taking on a matrix stmcttire or project team form. Multidisciplinary medical research organizations might take on an adhocracy form because of their high professionalization and project-oriented atmosphere.
Stmcture's Link to Strategy The major works discussed above (Bums & Stalker, 1961; Mintzberg, 1979; Woodward, 1965) created the backbone of the contingency theory paradigm as well as
25
the need for replication and further sttidy in many related areas. As part of the extension that ensued, a primary topic area of study has become, of course, strategy and stmcture, their fit, and their relationship to performance. Empirical investigations guided many of the early works presented above and these only represent a few of the major works in stmctural classifications of organizations. Some of these early investigations, like Woodward (1965), made sfrategystmcttire-performance links, which now seem to dominant much of organizational theory and sfrategic management. Indeed, part of the strategy in an organization's behavior now seems to be based on choosing the most viable organizational form for competition in highly volatile and complex environments. In other words, the relationship between sfrategy and stmcture (the degree of fit or their configuration) has become of central importance to predicting performance (Hill, Hitt, & Hoskinsson, 1992). Contingency theory argues that sfrategy leads to stmcture (Donaldson, 1996). However, significant lag time is recognized where organizations currently in misfit might delay change for long periods of time especially during periods of high performance (Donaldson, 1987). It is possible, however, following a more strategic choice orientation, that the sfrategy could be changed to fit stmcture. This is much less likely to occur (Donaldson, 1987). The underlying issue here is that sfrategy plays a major role in determining organizational form or stmcture, and that this interaction has greatly influenced configurations literature. Even greater is the realization that although sfrategy is the
26
driving force, it is the interaction of strategy and stmcture—the fit or configuration—that often tmly makes the difference (Amburgey & Dacin, 1994). With this cenfral point in mind, I now turn to purely strategic classifications and then to the sfrategy and stmcture classifications.
Strategic Classifications Sfrategy has also been linked to many variables, but primarily it has been associated with the level of an organization's performance, particularly in association with environmental fit issues (e.g., Zajac & Shortell, 1989). The configurational approach to studying organizations seems to be quite usefiil for sfrategy research because of the nature of sfrategy as patterns of actions (Mintzberg, 1979). As previously shown, Miles and Snow (1978) and Porter (1980) have largely influenced sfrategy with their work in configurations, or more specifically, sfrategic groups or generic sfrategy types. Mintzberg (1973) and Hambrick (1983b) also have played a major role in the strategic classifications area. Two primary areas of research seem to dominant the sfrategic classifications— strategic groups and generic competitive strategies. The first represents a grouping of cases or entities according to some general likeness among the members, while the second is a consequence of different sfrategic designs arranged around sfrategic variables. The difference is very difficult to discem because one is centered on the organization or firm, while the other is centered on activities or conduct.
27
However, this difference is negligible when empirically testing generic competitive sfrategies and their relationship to performance. This is because it is necessary to examine sfrategic organizational groups in either case. That is to say, one can create groups or classifications of types of sfrategies, but when testing them, sfrategic organizational groups are the products and subjects of study. In reference, Donaldson (1987) argued that key phenomena, such as organizational performance, caimot be discussed tmless organizational-level constmcts are analyzed as a system. This section is relatively brief considering the amount of literature covering sfrategic groups and competitive sfrategy. Specifically, sfrategic groups are very important and represent the bulk of the research done in this area. However, sfrategic groups were extensively discussed in the infroductory chapter, so repetition will be avoided by focusing on a few key areas.
Sfrategic Groups In the configurations literature, the strategy-performance relationship has primarily been studied in terms of strategic groups. Cool and Schendel (1987: 1106) define a sfrategic group as "a set of firms competing within an industry on the basis of similar combinations of scope and resource commitments." As noted in the infroductory chapter, the strategic group membership-performance link has been a central debate in the sfrategic management literature. The basis behind this relationship is that mobility barriers allow some organizational groups to consistently outperform others (Caves & Porter, 1977; Cool & Dierickx, 1993). However, whether or not a direct link exists
28
between sfrategic groups and performance has yet to be conclusively determined; empirical evidence has met with conflicting results. Hunt (1972) initially came up with the strategic group concept. Although he did not break from a stmcturalist paradigm, his observations concerning the role that organizational conduct plays on performance was very important. Michael Porter also played an integral role in developing the sfrategic group-performance link, principally due to his 1979 work. His proposal that mobility barriers protected against entry allowed research to move past focus on conduct attributes relative to performance (e.g., Hatten & Schendel, 1977) and look at sfrategic group memberships itself Essentially, mobility barriers limit entry into any given group by reducing the ability of others to imitate (Caves & Porter, 1977; Porter, 1979). Rumelt (1984) furthered this line of thinking in his discussions of uncertain imitability as an isolating mechanism. This implied that sfrategic groups might differ in their performance because isolating mechanisms may prevent similar performance. Cool and Schendel (1987) extended the sfrategic group notion by arguing that mobility barriers alone were insufficient in explaining profitability, but that individual firm and market characteristics must also be considered. Recently, Dranove, Peteraf and Shanley (1998) reviewed and extended the sfrategic group literature by attempting to answer the highly critical questions of do strategic groups exist and does it matter to performance (Bamey & Hoskisson, 1990; Thomas & Venkaframan, 1988)? These two primary problematic questions of strategic groups come with a plethora of criticisms including limited theoretical development with
29
poor model specification, the ac hoc nature of group creation, and multiple problems with group derivation and measurement (Bamey & Hoskisson, 1990; Cool & Schendel, 1987; Hatten & Hatten, 1987; Thomas & Venkatraman, 1988). Their conclusion, of course, is it depends; so definite conclusions about these questions have yet to be made.
Dual Stmctural and Strategic Classifications While the two independent research veins discussed above make great conceptual arguments for the presence of certain strategy or stmcture attributes and their interdependencies, each has also met with conflicting empirical evidence (Dess, Newport, & Rasheed, 1993; Ketchen, Thomas, & Snow, 1993). Likewise, empirical approaches geared toward the development of taxonomies (principally strategic groups) have been criticized for their often ad hoc approach as well as their conflicting and ambiguous findings (Bamey & Hoskisson, 1990; Miller, 1996a). Consistent with Miller (1996a), a primary argument in this dissertation is that previous typologies and taxonomies found in the general sfrategy and organizational literature have failed to account for both aspects of sfrategy and stmcture adequately. Therefore, conflicting empirical evidence is unavoidable. While it is recognized that differences in measurements, variables, samples and definitions play a role in inconclusive results when testing conceptual typologies or empirically deriving taxonomies, the argument is that contributing to that failure are the conceptual frameworks of configurations themselves. However, as Miller (1986: 237) pointed out, "there are notable similarities among Porter's (1980) differentiators. Miller and Friesen's
30
(1978) adaptive firms, and Miles and Snow's (1978) prospectors. By the same token, Porter's (1980) cost leaders roughly recall Miles and Snow's (1978) defenders and Miller and Friesen's giants under fire." So, even given their similarities identified by Miller (1986,1996a), these typologies and taxonomies do not clearly represent the same types of organizations. The thesis of Miller's (1986) argiunent is that elements of sfrategy and stmcture coalesce into a manageable number of configurations that may be predictively useful. He gives three primary theoretical arguments in support of configurations: (1) environmental selection, (2) need for intemal harmony among organizational components, and (3) change typically occurs as either simple changes that extend the current configuration or in rapid, quantum moments creating an entirely different configuration.
Recent Research in Mainstream Management Literature Over the last 6 years (1995 through 2000), there has been much work done that incorporates configurations into the sfrategic management and organizational studies equation. Table 2.1 is given as representative of the amount of current research done incorporating configurations into strategic management and organizations studies. Inclusion of a study into Table 2.1 was primarily based on four primary elements. First, the study should be centered on the development or testing of configurations or configuration groups, as broadly defined previously. Second, the research should be conducted with the organization or individual firm being the primary unit of study. Third, the research should incorporate elements of strategy and/or stmcture into the
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The strategy and structure characteristics that showed direct relationships to performance are high levels of differentiation, very focused strategic scope, less expansiveness, and lower levels of linkages. Each of these results supported hypotheses 3 through 6 and basically supported the idea that the industry and broader (i.e., national) environment the major force behind organizational financial success. Finally, only one type of fit, that between expansiveness and target scope, showed any statistically significant relationship to performance. This significance was moderately supportive of hypothesis 7. However, in general, the concept of fit, as operationalized in this study, has very little support as a determinant of high performance. Hypotheses 8 through 10 were therefore not supported. I now turn to more discussion regarding these findings and then conclude with limitations, areas for future research and concluding statements.
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CHAPTER V DISCUSSION AND CONCLUSION
Discussion of Studv Findings It is extremely clear that configurations, as thematic groupings of organizations, are important ways of analyzing organizations, their composition, and their performance. Further, it is also clear that both strategy and structure independently contribute to these groupings and their performance, although thematic pattems across both seem to exist. This insight, that thematic pattems tend to conglomerate certain strategies and structures together, is of particular importance given the lack of attention stmcture in configurations research has received and the criticisms that has met many configuration studies. These findings leave little doubt as to the importance of matching both strategy and stmcture to environmental conditions, and matching them to each other. However, this matching of strategy and stmcture to one another takes a non-equifinality position. This means that their individual fit with the environment moderates the fit between them. Therefore, the broad implication is that equifinality may not tmly exist in a single, highly controlled environment. In other words, the fit that is found intemal to the firmbetween strategy and stmcture—may not be a significant factor that influences performance, given the overall importance of the strategy-environment fit and the stmcture-environment fit. This study's finding suggests that Porter's generic strategies (1980) or Miles and Snow's typology (1978), although very beneficial to understand strategic issues in a
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broader realm, may be limited in their contention that any one of the basic strategies are equally effective if implemented and managed correctly. In short, the contention that firms (with different strategies and stmctures) can be equally successful in a given industry is simply not tme. Findings demonstrate that firms following a focused-differentiation strategy performed the best financially, given the uncertain environment of health care and medical groups. Differentiation, in this case, includes aspects of innovation and marketing differentiation (Miller, 1988), which have each shown to provide more competitive products or services in highly dynamic and changing environments (Bums & Stalker, 1961; Porter, 1980). Alternatively, cost-leadership firms, on the opposing end of a differentiation continuum, demonstrated a significant negative relationship with performance in the same unpredictable, uncertain environment. This negative performance relationship is particularly strong if the target scope is a broad one. This supports the contention that cost leadership may work best in business or industry environments that are more stable and predictable. The environment, as just discussed, is primarily referring to the industry or task environment. Not surprising is the lack of impact the "regional" environmental control variables had on predicting organization or configuration group performance. Regional differences, such as buyer or competitor concentrations, seemed to lack any significance in determining overall financial performance. Therefore, it seems that industiy (or subsegment industiy) fit (i.e., environmental fit) is the dominant parameter that largely
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dictates success or failure in terms of financial performance, given the strategy and stmcture of the organization. Stiategy and stmcture interact in an interesting way, which is not overly surprising, but surprisingly informative. The configuration groups themselves tell this story well—that certain strategies and stmctures actually work together to form thematic groups, which differentiate on performance. Group numbers 1 and 2 are the very clearly representative of the polar ends of this thematic continuum. Group 2 is characterized as the more expansive, complex, and low-cost oriented organizations that seem to focus on economies of scale and scope in efforts to overwhelm competition. Group 1, on the other hand, consists of relatively smaller, leaner focused-differentiators. It is unclear if Group 2 actually amasses a substantially larger number of customers per production imit and thus achieves a very large market share in comparison. But it is clear, regardless, that Group 2 organizations' efforts to be efficient or even moderately profitable are failing. Group 1 organizations, alternatively, display a theme that supports the notion that pattems for high performance do exist given a tightly controlled environment setting. However, taking into account the configurational viewpoint, the thematic nature of successful organizations encompasses both environmental fit with strategy and stmcture simultaneously. Therefore the strategy may drive the stmcture (as it is expected to), and thus create the theme with which the organization adheres. As previously argued, strategy and stmcture are individually related to the environment and each other (e.g., Hambrick, 1983a).
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However, much of the historical stiadies of stiategy and stmcture examine diversification as the key stiategic issue rather than business-level strategies (Porter, 1980). This hmitation in previous studies has been further limited by the focus on SBUs (strategic business units) rather than individual autonomous organizations. This is of key relevance because of the corporate influence most organization must deal with when making strategic decisions.
Implications As previously mentioned, the implications firom this study revolve around two major issues which represent the major research questions originally setting this project into motion. First, the issue of equifinality is questioned, which implies that high performance of an organization can be achieved through multiple and different organizational stiategies and stmctures (Gresov & Drazin, 1997; Doty, Glick, & Huber, 1993). Findings in this study clearly argue against the presence of equifinality in very narrow and highly contioUed environments. Thus, the role of industry in the concept of equifinality suggests that any given industry context will generally support only one (or a very few) organizational strategies or forms rather than multiple configurational pattems. Thus, equifinality may exist, but only across industries which makes corporate diversification decisions more demanding because the choice of "which business should we be in" becomes more a question of "does our stiategy work in this industry?" Corporate-business strategy fit therefore may be an area to explore in the future.
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The second issue questions the role that fit, between strategy and stmcture intemal to the organization, plays in determining performance. This intemal fit exists apart from environmental fit and represents something conceptually distinct. Strategystmcture fit has previously been touted as a possible reason for performance differences among firms, but has met with much empirical difficulty given its multidimensional and operationally elusive nature. This study operationalized fit as a match between multiple dimensions of strategy and stmcture; findings suggest this type of fit has little impact on predicting the overall performance of an organization. In general, organizational researchers and practicing managers can make use of this study by analyzing several key factors that influenced the findings. These basic issues are summarized in the following statements: •
Industiy and market environments play a major role in determining successful organizationsfi"omunsuccessful ones.
•
Choice of strategy and stmcture may be more limited than often expected because of the overall influence of the environment.
•
High differentiation is likely to be a more successful strategy in imcertain environments.
•
Focused stiategies are likely to be more successful in uncertain environments.
•
Small and flexible organizations are likely to be more successful in uncertain environments.
•
Configuration groups serve as good predictors of performance and may help develop conceptual classifications that support stirategic decision-making.
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Specific Implications for Managers The general implications listed above may be applied more specifically to certain practicing managers—particularly those working within the health care industiy or a similar environment. Of primary concem to any manager is how best to keep the organization alive. This basic survival goal is likely best achieved by mimicking other successful organizations within the industry segment. In other words, managers should scout out existing, successful organizations that are very similar to their own and copy their strategies and stmctures. In this case, within the medical group segment of the health care industry, the group would likely be more profitable if it is small, highly focused on a specific target market, and follows a very differentiated strategy. Mimicking such an organizational configuration is likely to lead to the most successful outcomes, especially given the uncertain environment. Managers of organizations within similar environments as the medical group segment studied here would likely be more successful, at least financially, if they used small, flexible stmctures that match a highly focused and differentiated strategy. This type of configuration has proven to be the most financial viable in such changing and dynamic environments. These implications hold particularly tme for new, entrepreneurial organizations. Any given environment tends to support some configurations, while suppressing others. Early strategic decisions in start-up organizations are key to long-term success. Therefore, basic strategic decisions conceming the thematic alignment of the organization must be made that follow the most successful of organizations. If a small group of physicians wish to start a new medical group, several key success factors are
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prevalent. First, the group should attempt to differentiate the group as delivering the highest quality care with the highest level of service through relatively high advertising and marketing intensity. Second, focus should be placed on fee-for-service payment schemes and the group should keep the physicians in their primary role of providing medical care to patients, rather than working as administrators or in leadership roles. Finally, the group should maintain a single-specialty scope and small size, keeping overhead to a minimum. Each of these characteristics works to form the type of configuration that promotes the highest level of financial success in medical groups.
Definitional Issues in Configurations Theory Finally, configurations theory needs to redefine itself so as to place specific boundaries around what is and what is not considered an organizational configuration. Although, a large, diverse set of studies have focused on configurations in some form or another, many of them lack the comprehensiveness necessary to tmly represent an intemal organizational configuration. Most tend to truncate the number of interrelated variables into a few defining ones that are then used to classify organizations at a mesolevel of analysis. These likely should be referred to as extemal configurations as they extend beyond the intemal operations of organizations.
Conclusions This dissertation has reviewed an extensive amount of literature, filtered through numerous theoretical constmcts and hypotheses, and waded through a massive number of
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variables. It has also used a large number of these variables to inform a matiix model and to test hypotheses conceming configurations, strategy and stiTJCtiire fit, the enviromnent, and financial performance. Although some of the analysis methods are commonly used in similar settings, the actual number of tests and the complexity that has developed in their interpretation has been a large task. Throughout the dissertation, several limitations of the study may have been readily apparent. This section briefly addresses some of these limitations with the understanding that a given number of limitations are inherent in almost all research, particularly in large and complex ones such as this. Following the limitations to the study, contributions of this study are briefly outlined. These contributions principally focus on many of the same issues discussed in the discussion above.
Limitations to Studv A number of limitations exist within the methods and data. Many of these limitations can be attributed to the very nature of the secondary data used because of the specific industry and type of organization studied. Other limitations are a result of the type of analyses used for testing hypotheses.
Secondary Analysis The first principal problem occurs with the use of secondary data. Because the data were gathered independently, a secondary analyst has no ability to improve upon many of the uncertainties often associated with surveys. Sampling, question
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development, device design, pre-testing and pilot testing are all beyond any control of the researcher. Thus, the operationalization of variables and the nattire of their use in the proposed stiidy can be questioned. One specific variable that was not available is the relative market share held by each organization. Market share could have had a major influence in the findings because of the stiidy's findings regarding financial performance. Utilizing an altemative variable for performance, such as market share, in fiitiire stiidies would be beneficial. In addition to some omitted variables of interest, some variables and constmcts used in this sttidy may be limited in their ability to captiire the necessary measurement constiiicts. Future research using these data should come in the form of reevaluation of the fit consti^cts in particular. The use of interactions instead of differences may reveal additional findings not previously seen in this study's analyses. Other insights and findings may comefiromlooking more closely at the contiol variables of clinic, hospital, and nursing facility concentration. Perhaps there exists some interaction between the stiategy and stmcture dimensions and the region differences among the organizations.
Cross-Sectional Data Another problem with this study, and many others reviewed in the literature review section, is its cross-sectional nature. Although this study's intent is exploratory and focuses quite an amount of attention on theoretical correlations and explanations, attempting to empirically demonstrate much of the implied causation is beyond the reach of the proposed study. Further, the study is limited in its ability to shown any stability of
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empirical classifications over time. This is of course unfortunate and I am forced, no matter what the findings of this study, to make a call for longittidinal studies of similar issues. However, this survey does take a very detailed look at many complex variables, most which are representative of an entire year's actions. Thus, because of the very breadth and detail of the survey, a great extent of reliability can be placed in the fmdings.
Generalizability A third and very relevant problem associated with this study is extemal validity. Because organizations within a single industry are used, the explanative power of any findings can only be applied to other industries with caution. Specific issues do reside within the health care industry, and even more specifically within the medical group industry, that limit generalizability. These differences include, but are not limited to such elements as: (1) the prominence of interorganizational relationships and cooperative agreements, (2) the professionalized nature of medical groups, (3) the overall action orientation associated with service organizations, and (4) the variance of performance measurements and expectations. The fact that certain differences do exist within an given industry, including the one in this study, leads to the suggestion that replication in other industry settings, or with multi-industry samples, would be needed. However, similar empirical findings or related theoretical arguments do exist that related this study's environment to others that have been classified as turbulent, uncertain, or dynamic (e.g.. Miller, 1988). Therefore, to the
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extent that this organization may represent other fast-moving and constantly changing industries may be high.
Cluster Analysis Criticisms A final issue that is likely to be criticized is the use of clustering techniques to classify the organizational configuration types. Cluster analysis procedures present problems with: (1) variance differences among measures, (2) determining the number of clusters to form, and (3) testing statistical significance among groupings. The first problem is eliminated with the use of standardized scores; the other two problems remain significant issues. For more details about how these issues are handled, the reader is referred to Ketchen and Shock's (1996) review and analysis of cluster analysis techniques used in configuration research. However, it is clear from the findings that the taxonomic configuration groups foimd in this analysis are relevant, at least as determined by multiple differences in performance. Extemal reliability is largely supported when the groupings demonstrate significant differences in means based on an extemal variable that was not used in the initial clustering decisions. Thus, performance variables being unused in the clustering techniques serve this purpose, to validate the groups after their formation.
Contributions of Studv This study contributes to several areas or streams of research. Two areas are general management arenas, including configurations research and strategy-stmcture fit
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and equifinality. A second primary area of contiibution comes in the form of furthering an understanding of the relationship between stmctural complexity and organization financial performance. Finally, a contribution exists that is both a part of those previously mentioned, yet distinct—it is the contribution of such a study the research and literature associated with health care itself The health care literature, although not reviewed in terms of configurations in this study, may find the implications of this study highly beneficial to that specific industry's knowledge of strategy and stmcture relationships, equifinality, interorganizational relationships, and performance.
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APPENDIX
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Medical Group Management Association Cost Survey: 1997 Questionnaire for 1996 Data (Selected Questions)
Part rV: Medical Charges and Revenue A. Fee-for-Service Activity 18. 9. 10. 11 •
Gross fee-for-service charges Adjustments to fee-for-service charges Adjusted fee-for-service charges (#9 = #7 - #8) Bad debts due to fee-for-service activity Net fee-for-service revenue
B. Capitation Activity 12. 13. 14. 15. 16.
Gross capitation charges Capitation revenue Other capitation contract revenue Purchased services for capitation patients Net capitation revenue (#16 = #13 + #14 - #15)
C Other Medical Activity 17. 18. 19. 20. 21.
Subsidies and grants (from hospitals, etc.) Revenue from the sale of medical goods and services Gross revenue from other medical activities Cost of sales and/or cost of other medical activities Net other medical revenue (#21 = #19 - #20)
D. Total Medical Activity 22. 23.
Total gross charges (#22 = #7 + #12) Total net medical revenue (#23 = #11 + #16 +#21)
Part V: Operating Cost A. Support Staff Cost Support staff cost equals "Employed support staff compensation" plus "Contracted support staff cost." 24.
General administrative
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25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.
Business office Managed care administrative Information services Housekeeping/maintenance/security Other administrative support Registered Nurses Licensed Practical Nurses Medical assistants, nurse's aides Medical receptionists Medical secretaries/transcribers Medical records Clinical laboratory Radiology/imaging Physical therapy Optical Ambulatory surgery unit Other medical support services Total support staff cost (#42 = sum of #24 through #41)
B. Employed Support Staff Benefit Cost 43. 44. 45. 46. 47.
Taxes: FICA, payroll taxes, etc. Insurance: health, disability, life, workers' compensation, etc. Retirement and profit sharing Other benefits Total employed support staff benefit cost (#47 = sum of #43 through #46)
C Other Operating Costs 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62.
Information services Clinical laboratory Radiology/imaging Physical therapy Optical Ambulatory surgery unit Medical and surgical supply Building and occupancy Furniture/equipment Administrative supplies and services Professional liability insurance premiums Other insurance premiums Outside professional fees Promotion and Marketing Other interest
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63. 64. 65. 66-
Health business and property taxes Recmiting Miscellaneous operating cost . Total other operating cost (#66 = sum of #48 through #65)
D. Total Operating Cost and Net Medical Revenue before Distribution to Providers 6'76^-
Total Operating Cost (#67 = #42 + #47 +#66) Net medical revenue before distribution to providers (#68 = #23 - #67)
Part VI: Provider Cost and Total Cost A. Provider Cost and Total Cost 69. '70. ^l. 72. 73. 74. 75. 76. 77. 78. 79. 80.
Midlevel provider compensation Midlevel provider benefit cost Total midlevel provider cost (#71 = #69 +#70) Provider consultant cost Physician compensation Taxes: FICA, payroll taxes, etc. Insurance: health, disability, life, workers' compensation, etc. Retirement and profit sharing Dues, memberships and license fees Meetings and travel Other benefits Total physician benefit cost
81. 82. 83.
Total physician cost (#81 = #73 + #80) Total provider cost (#82 = #71 + #72 + #81) Total physician cost (#83 = #67 + #82)
B. Nonmedical Activity 84. 85. 86.
Nonmedical revenue Nonmedical cost Net nonmedical income (#86 - #84 - #85)
C Net Practice Income (or Loss) 87.
Net practice income (or loss) (#87 = #68 - #82 + #86)
Part VII: Balance Sheet Data
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88. 89. 90.
Current assets Noncurrent and all other assets Total assets (#90 = #88 + #89)
91. 92. 93.
Current habihties Noncurrent and all other liabilities Total habilities (#93 = #91 + #92)
94.
Total net worth (#94 - #90 - #93)
Part XI: Output Measures B. Medical Practice Activities: Number of Procedures Report the number of procedures attributed to each type of practice activity. 113. 114. 115. 116. 117. I'l 8. 119.
Number of nonsurgical procedures (inside the practice's facilities) Number of nonsurgical procedures (outside the practice's facilities) Number of surgery/anesthesia procedures (inside the practice's facilities) Number of surgery/anesthesia procedures (outside the practice's facilities) Number of clinical laboratory/pathology procedures Number of diagnostic radiology/imaging procedures Total procedures (#119 - sum of #113 through #118)
Part XII: Staffing A. How many full-time-equivalent (FTE) physicians were in the practice? 128. 129. 130. 131.
Number of FTE primary care physicians Number of FTE nonsurgical specialty physicians Number of FTE surgical specialty physicians Total number ofFTE physicians (#131 =#128+ #129+ #130)
Part XV: Medical Practice Data 179. What was the practice type? (Check only one option.) 1. Single specialty (with or without primary care) 2. Multispecialty with primary and specialty care 3. Multispecialty with primary care only 4. Multispecialty with specialty care only
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183. Did the practice have any branch/satellite clinics at sites other than the location of the primary clinic facility? 1Yes 2. No 184. If #183 is "Yes," how many branch/satellite clinics did the practice have? Number of branch/satellite clinics (Do not count the primary clinic location.) 186. What was the square footage of all the practice's facilities for which "Building and occupancy cost" (#55) was reported? Square feet Medical Practice Integration: Indicate which options describe the practice by circling Y for "Yes" or N for "No." 201. Y 202. Y 203. Y 204. Y 205. Y 206. Y
N Practice was a member of an independent practice association/organization (IPA/IPO) N Practice participated in a "group practice without walls." N Practice merged with/acquired/was acquired by another practice. N Practice management company or MSO provided managerial services to practice. N Practice physicians contracted to service the patients of a medical foundation. N Practice was a subsidiary of a parent corporation.
Hospital Integration: Indicate which options describe the relationship between the practice and a hospital by circling Y for "Yes" or N for "No." 209. Y N Hospital had whole or partial ownership interest in the practice. 210. Y N Practice had whole or partial ownership interest in a hospital. 211. Y N Practice physicians staffed hospital department(s) either as hospital employees or on a contiact basis. 212. Y N Practice and hospital participated in a physician hospital organization (PHO) 213. Y N Hospital contracted to provide managerial/administrative services to practice. 215. How many hours were required to complete all parts of this survey questionnaire y all personnel working on this task? Hours
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