Competitive strategy, performance measurement

and organizational performance:

empirical study in Thai listed companies

Luliya Teeratansirikool* and Sununta Siengthai**

The purpose of this research is to examine the relationship between

competitive strategy, performance measurement, and organizational
performance in listed companies in Thailand. About 101 Thai listed
companies executives participated in this study. Using SPSS version
11.5, path-analytical model is adopted to analyze the survey data
obtained. This study finds that overall competitive strategy positively and
significantly enhances organizational performance through performance
measurement. Specifically, it is found that the differentiation strategy of
firms has not only direct and significant impact on the organizational
performance but also has indirect and significant impact on organizational
performance through financial measures. Our results further show that
cost leadership strategy that firms pursue does not directly affect
organizational performance.
However, it does so indirectly and
significantly through financial performance measures. Thus, whether a
firm chooses to pursue a cost leadership or a differentiation strategy, a
strong emphasis on performance measurement will ensure the positive
impact on organizational performance in an intense competitive
environment.

Field of Research: competitive strategy, performance measurement, organizational

performance

_______________________
* Luliya Teeratansirikool, Ph.D. Candidate at the School of Management, Asian Institute of
Technology and a lecturer, Prince of Songkla University, Thailand. Email: st107853@ait.ac.th,
luliya_t@yahoo.com
** Dr. Sununta Siengthai, Associate Professor of HRM/IR, School of Management, Asian Institute of
Technology,P.O. Box 4, Klong Luang Pathumthani 12120,Tel: (662)-524-5661,Fax: (662)-524-5667
http://www.som.ait.ac.th, Email: s.siengthai@ait.ac.th sununta.siengthai@gmail.com

I. Introduction
Globalization makes the world small and interdependent. It also has greatly
increased the competition in business especially in the recessionary period. Facing
this pressure, firms try to compete and retain their business by finding a way to
achieve its competitive advantage. Listed companies in Thailand, with no exception,
are also faced with this competitive challenge.
In the past decade, numerous
studies have found significant association between competitive strategy and
organizational performance (Allen and Helms, 2006; Ortega, 2009). Selecting
appropriate competitive strategy which is supported by organization and
management system is important because it is the way firms use to achieve a
competitive advantage (Porter, 1980, 1985; Simons, 1987, 1990; Dent, 1990; Miles
and Snow, 1978; Kaplan and Norton, 1992; Nanni, Dixon, and Vollman, 1992;
Waterhouse and Svendsen, 1999; Hoque, 2004). It also impacts the competitive
strengths and firms performance (Anderson et al, 1989). Many studies also have
found the relationship between competitive strategy and performance measurement.
The management system plays a key role in developing a strategic plan, evaluating
the achievement of organizational objectives and compensating managers (Ittner
and Larcker, 1998a). It also helps managers in tracking whether they are moving in
the direction they want. However, it still remains a critical and much debated issue
among academics and practitioners of what are the most appropriate performance
measures to align to competitive strategy. Managers are still struggling with the issue
of performance measurement, and are overwhelmed with performance data. Hence,
this study aims to investigate the relationship between competitive strategy,
performance measurement, and organizational performance.

II. Literature Review

Competitive strategy and organizational performance
To achieve sustained competitive advantage, firms can choose and implement a
generic strategy (Porter, 1985). Parthasarthy (2007, p. 7) describes strategy as a set
of decisions and actions that managers make and take to attain superior company
performance relative to rivals. Beard and Dess (1981) find both corporate-level
strategy and business-level strategies are significant in explaining variation in firm
profitability. The business strategy choices are found to be significant in explaining
firm profitability (Beard and Dess, 1981) and its long-term performance.
Two main typologies of competitive strategy are cost leadership and differentiation.
The cost leadership strategy is an integrated set of actions taken to produce goods
or services with unique features that are acceptable to customers at the lowest cost
relative to that competitor or reduce cost structure in order to achieve superior
profitability. Allen and Helms (2006) find that cost leadership strategy has only one
significant tactic- minimizing distribution costs that affect organizational performance.
Dess and Davis (1984) find that the overall low cost cluster has the higher average
return on assets. Differentiation strategy is an integrated set of actions taken to
produce goods or services (at acceptable cost) that customers perceive as being
2

different in ways that are important to them. A profit impact of marketing strategy
(PIMS) study by Phillips, Chang, and Buzzell (1983) finds a significant and positive
relationship between differentiation and market share. Firms choose from among
two business-level strategies to establish and defend their desired strategic
positioning against rivals. However, Porter (1998) and the PIMS study by Phillips,
Chang, and Hill (1983, ibid) suggest that differentiation can be a way of achieving a
low-cost position and there often is no unique low-cost position, a firm may have to
base its sustainable competitive advantage on the simultaneous and continuous
pursuit of both low cost and differentiation.Porter (1985) suggest that the
combination of cost and differentiation strategies will result in poor performance and
unlikely to generate a sustainable competitive advantage except in the most
exceptional circumstances that such a combination results in a sustainable
competitive advantage. However, some other studies have found that some firms
have successfully employed combination strategies (Dess, and Davis, 1984; Kim,
and Lim, 1988; Parthasarthy and Sethi, 1993).

Performance measurement:
Performance measurement is the way to measure performance across a range of
critical success factors that are derived from the competitive strategy and critical to
the survival of the business. A performance measure can be used to control and
improve organisational processes (Neely, et al., 1997). Performance measures
provides a set of mutually reinforcing signals that direct managers attention to
strategically important areas that translate to organisational performance outcomes
(Dixon et al., 1990) and guides managers behaviour toward key organisational
outcomes. Performance measures can be used to improve an organizational
process (Neely et al., 1996) by focusing on business processes that deliver value to
the customers (Bititci et al, 1997; Neely and Adams, 2001) and ultimately have a
significant positive link with organizational performance (Fleming et al, 2009; Joiner
et al., 2009) and organizational excellence (Moullin, M., 2007).

Organizational performance:
The strategy literature reveals contradictory results on the link between singular
generic strategy and performance. Empirical studies confirm that there are some
relationships between strategy and performance measures in various dimensions
(Maltz et al., 2003; Gosselin, 2005; Pongatichat and Johnson, 2008). Kaplan and
Norton (1996) suggest that a performance measurement system have a critical role
in translating strategy into action and also has a supporting role in the development
of strategies (Tapinos et al., 2005). While, the alignment between the measures,
measurement framework and the strategy is not linear but the relationship must be
continually reviewed and related as a dynamic and complex issue (McAdam and
Bailie, 2002). Hence, strategic priorities of firm affect performance measurement.
Gosselin (2005) finds a significant relationship between the types of measures and
contextual factors like strategy, decentralization, and environmental uncertainty, and
also found that defender firms seem to use less frequently non-financial measures in
Canadian manufacturing firms. While Chenhall (1997) suggest strategy should be
linked to operations via effective costing and performance management system
(PMS). Joiner et al. (2009) have found that a flexible manufacturing strategy utilizes
3

non-financial as well as financial performance measures; and the performance

measures are associated with higher organizational performance via non-financial
and financial measures. While Verbeeten and Boons (2009) suggest no support for
the claim that aligning the PMS to the strategic priorities of the firm positively affects
performance. The use of economic profit measures is associated with culture, size
and industry, while use of non-financial performance measures is correlated with the
growth priorities of the firm. Hoque (2004) found an indirect effect between
differentiation strategic priorities and organizational performance through the use of
performance measurement systems. He also finds a significant and positive
association between managements strategic choice and performance through
managements high use of non-financial measures for performance evaluation.
Spencer et al. (2009) study the mediating role of both non-financial and financial
performance measures in the relationship between differentiation strategies and
organizational performance; they focus on only differentiation strategy and
conducted within the Australian manufacturing sector. Hence, they suggest for
further study to test the relationship between cost leadership and performance
measures.
Thus, there are inconclusive evidences of the relationship between strategic priority,
performance measurement and organizational performance especially in the Asian
context. As Campbell-Hunt (2000) points out, the paradigm of competitive strategy is
now over two decades old, but it has yet to prove its adequacy as a descriptive
framework or move beyond its propositions about the performance consequences of
different strategic designs. Further research on the relationship between strategy
and organizational performance, including potential moderators of this relationship, is
clearly needed in order to advance strategic management theory.
Based on the literature reviews, the following hypotheses are formulated:
Hypothesis 1: competitive strategy is positively related to performance measures.
Hypothesis 2: performance measurement has a positive influence on organizational
performance.
Hypothesis 3: competitive strategy has a positive influence on organizational
performance
Hypothesis 4: There is an indirect positive association between a strategic emphasis
on each competitive strategy and organizational performance through the use of
performance measures.

III. Data and Methodology

Sampling Frame:
A survey was administered to 561 Thai listed companies in manufacturing and
service industries. Each company was initially contacted by telephone to identify the
name of the most suitable person within each business unit, his or her job title and
the business units current address. These sample respondents include chief
executive officer (CEO), chief executive within business unit or vice president or
4

senior manager who is related to strategy divisions or senior manager of human

resource department. The questionnaire was sent to chief executive officer and then
telephone calls to follow up. One hundred and one (101) completed and usable
questionnaires were received which is the response rate of 18%.

Measurement of variables
A model was developed in this study, based on the relevant literature review, which
hypothesizes the relationships between the four independent variables including two
variables for competitive strategy, two for performance measurements, and the
dependent variable, which is organizational performance. The 5-Likert scale
measurement items were used for all variables. The original research instrument
was then developed based on the literature review (see, i.e., Govindarajan, 1984;
Govindarajan and Gupa, 1985; Abernethy and Stoelwinder, 1991, Abernathy and
Guthries, 1994, Chong and Chong, 1997, Chenhall and Langfield-Smith, 1998; Le
Cornu and Luckett, 2000; Hoque, 2004; Hitt, Ireland, and Heskisson, 2005;
Parthasathy, 2007; and Joiner et al., 2009). The data were analyzed using SPSS
version 11.5.

IV. Findings and Discussion

Profiles of sample respondents
Table 1 suggests that most of the companies (58.4%) are manufacturing. Over half
of the companies operate more than twenty years. About 55% of the sample firm
respondents are male and 77% are within the age group of 31-50 years old. The
majority of them (i.e., 67%) are director and managers of the firm.

Table 1: Profiles of Sample Firm Respondents

Characteristics
Company type
Companys age

Respondents profile
Gender

Age

Respondents job position

Group
Manufacturing
Service
Total
< 10 years old
10-20 years old
>20 years old
Total

n
59
42
101
6
19
76
101

%
58.4
41.6
100
5.9
18.8
75.2
100

Male
Female
Total
Under 30 years old
31-40 years old
41-50 years old
More than 50 years old
Total
Chief executive officer
Vice president
Assistant Vice President
Director
Manager
Total

55
46
101
6
39
38
18
101
7
14
13
33
34
101

54.5
45.5
100
5.9
38.6
37.6
17.8
100
6.9
13.9
12.9
32.7
33.7
100

Descriptive statistics and correlation matrix for competitive

strategy,
performance
measurement,
and
organizational
performance.
Table 2 shows the correlations among the variables. There are significant
correlations for all variables of competitive strategy, performance measurement, and
organizational performance except cost leadership and organizational performance.
The correlations between the variables in Table 2 are generally less than 0.6
indicating the absence of the multicollinearity.

Table 2 Means, standard deviation, correlations and reliability coefficient

Variable

1. Cost leadership

0.540

0.381** 0.196*

2. Differentiation

0.851

3. Financial measures

Mean

s.d. skewness Kurtosis

3.35

0.80

-0.036

-0.739

0.256** 0.383** 0.480** 3.57

0.92

-0.484

-0.155

0.760

0.515** 0.339** 4.12

0.51

-0.135

-0.725

0.914

0.212

-0.442

-0.632

-0.142

4. Non financial measures

5.
Organizational
performance

0.314** 0.117

0.207*

3.09

0.75

0.902

3.79

0.55

Note: **Correlation is significant at the .01 level(2-tailed) *Correlation is significant at the .05 level(2tailed). Cronbachs alpha for reliability test is shown on the diagonal line.

The reliability of the measures was assessed through the determination of the
Cronbach alpha coefficients. The items of each variable were from previous studies.
The reliability coefficients measures by Cronbachs alpha of each measure are
shown on the diagonal in Table 2. The reliability coefficient range from 0.540 to
0.914. Although one of them is slightly below 0.60, many researchers have noted
that alphas of between 0.50 and 0.60 are generally acceptable for exploratory
research. (Srinivasan, 1985; Nunnally and Bernstein, 1994; Gupta and Somers,
1996)

Result from path analysis

Ordinary least-squares regression-based path analysis was adopted to test the
hypotheses. This technique allows a dependent variable in one equation to become
an independent variable in another equation, and it is often employed to test
relatively simple relationships (Schumacker and Lomax, 1996). This technique was
used to show the relationship between strategy and performance measurement, the
relationship between performance measurement and organizational performance,
and the indirect relationship between strategy and organizational performance via
performance measurement.
The use of multiple regressions requires certain assumptions of the data, especially
in relation to distributional characteristics. Data screening was conducted to
ascertain that the data satisfied the relevant assumptions for multiple regressions.
First, no evidence of multicollinearity was found by considering variance inflation
factors for each variable. Second, data were found that the data approximately
followed a multivariate normal distribution based on kurtosis and skewness analyses.
As a rule of thumb, a variable is reasonably close to normal if its skewness and
kurtosis have values between -1.0 and +1.0.
Four models have been developed to test the study hypotheses (see Table 3). The
regression result for competitive strategy and performance measurement is reported
in Model 1. Models 2, 3 and 4 report respectively the regression results for
performance measurement and organizational performance (Model 2); competitive
strategy and organizational performance (Model 3); and competitive strategy,
performance measurement and organizational performance (Model 4). In each case,
7

the regression results were used to compute the magnitudes (standardised beta
coefficients) of the direct effects in the path models, and the method was also used
to test the significance of the mediating effects.

Result of Hypotheses
The results of the path analytic model for testing H14 are presented in Table 3
Hypothesis 1 (H1) states that competitive strategy is positively related with
performance measurement. This hypothesis is supported. It is found that both cost
leadership and differentiation strategies are significantly associated to all
performance measurement components. Similarly, H2 states that performance
measurement has a positive influence on organizational performance. This requires
that at least one significant path exists between the performance measurement
dimensions and organizational performance. Financial measures are found to link to
organizational performance for both the cost leadership and differentiation models.
These results indicate that H2 cannot be rejected.
H3, which states that competitive strategy has a direct positive influence on
organizational performance, requires that a positive and significant path exists
between at least one of the competitive strategy components and organizational
performance. The results indicate that cost leadership is not significantly associated
to organizational performance, while differentiation is significantly associated to
organizational performance. Thus, the result is inconclusive and H3, therefore,
cannot be rejected. The results also show significant paths from both cost leadership
and differentiation to financial measures and significant paths from financial
measures to organizational performance. While, both all dimensions of competitive
strategies show significant paths to non-financial measures, but non-financial
measures show insignificant effect on organizational performance.

Table 3: Path coefficients for the model

Cost Leadership model

Differentiation model

Impact of
Path coefficient

t-value

Path coefficient

t-value

Financial measures on
-

Organizational performance

0.329**

3.395

0.231**

2.609

0.189

1.817

0.027

0.284

Non Financial measures on

-

Organizational performance

Cost leadership on
-

Financial measures

0.196*

1.992

Non financial measures

0.314**

3.288

Organizational performance

0.117

1.173

Differentiation on
-

Financial measures

0.256**

2.632

Non financial measures

0.383**

4.121

Organizational performance

0.480**

5.444

* P <0.05 ; ** p<0.01

Table 4 Total effects of competitive strategy on organizational performance

Impact of

Effect
Direct

Financial measures

Non financial measures

indirect

Total effect

Indirect

Total effect

Cost
leadership
on 0.117
organizational performance

0.064

0.181

0.059

0.176

Differentiation
on 0.480
organizational performance

0.059

0.539

0.010

0.490

To test H4, path coefficients were used to examine the total effects of competitive
strategy on organizational performance through two performance measurement
dimensions and then compare them with the direct effect of competitive strategy on
organizational performance. The indirect effect is calculated by multiplying the
contributing path coefficients. Table 4 shows the direct, indirect and total effects of
the competitive strategy components on organizational performance. The indirect
effect is calculated by multiplying the contributing path coefficients. For example, the
9

indirect effect of differentiation on organizational performance through financial

measures (0.059) is obtained by multiplying the coefficient from differentiation to
financial measures (0.256) by the coefficient from financial measures to
organizational performance (0.231). The total effect (0.539) is the sum of the direct
(0.480) and indirect effects (0.059). Table 4 shows the direct, indirect, and total
effects of the competitive strategy components of cost leadership and differentiation
on organizational performance. For H4 to be rejected, the total effect of the
competitive strategy on organizational performance through performance
measurement should be less than the direct effect of each competitive strategy on
organizational performance. The total effects of cost leadership and differentiation on
organizational performance through performance measurements are greater than
the direct effect of cost leadership and differentiation on organizational performance.
These results imply that H4 cannot be rejected.

Discussion
The goal of this study was to examine the relationships between competitive strategy
and performance measurement, and their impact on organizational performance.
The result fully supports the importance of using both non-financial and financial
performance measures for firms pursuing both cost leadership and differentiation
strategies. This is consistent with the conventional view that differentiators tend to
place a high emphasis on the use of non-financial measures (Porter, 1980;
Govindarajan and Gupta, 1985; Hoque, 2004). The empirical results also provide
support for the surprising findings of Simons (1987) that differentiators also use
financial measures.
Our study also has found that firms use financial measures to enhance
organizational performance while non-financial measures are not. Financial
measures are direct reflections of current profitability and operating efficiency, which
unction as the 'dashboard' to monitor and continuously enhance the firm's financial
performance (Simons, 1990). Financial measures can also be used as an indicator
for future earnings potential, which publicly-traded firms simply cannot afford to
neglect when reporting to their stakeholders in order to attract more capital and
increase public confidence. However, non-financial measures are also important
because they are more actionable and future-oriented, and their use can improve an
organization's capabilities in future planning and strategy implementation. For this
study, financial measures are significant association with non-financial measures,
correlation coefficient 0.515, show in Table 2. Therefore both financial and nonfinancial measures are important to organizational performance. In other words,
effective performance measures should provide a map that guides managers'
behaviors toward critical firms outcomes, such as, profit, cash flow, new product
development and personnel development. Hence, the findings of this study support
the idea that the use of performance measures can enhance organizational
performance.

10

Our results also offer further insights into the relationship between strategy and
organizational performance by exploring the mediating role of performance
measurement. Consistent with the work of Hoque (2004), he found empirical support
for an indirect effect between differentiation strategic priorities and organizational
performance through the use of performance measurement system.
Finally, our study was conducted within the Thai listed firms where firms face
domestic and international competition in addition to rapid shifts in customer
demands. Our study further demonstrates that competitive strategies, designed with
appropriate performance measurement could further enhance the competitiveness of
Thai
listed
firms.

V. Conclusion
An important aspect of strategy development is the translation of firm level
competitive strategies into performance measurement. We have demonstrated that
even in less developed economies performance measures represent one of the
means through which firm level strategic objectives can be achieved. We found
significant relationship between competitive strategy and performance measurement.
Our findings confirm that performance measurement is the means through which a
firm can implement its competitive strategies. Of the two performance measures
components, our findings indicate that only financial measures appear to significantly
influence organizational performance.
We have found direct relationship between differentiation strategy and organizational
performance, while cost leadership did not. However, both cost leadership and
differentiation strategies influences organizational performance through financial
measures. In that sense, the results are not only interesting but also unexpected.
The expectation in the literature is that aligning both financial and non-financial
measures with competitive strategy will lead to enhanced organizational
performance. As the result is inconclusive, we therefore cannot refute those
expectations.
Although the alignment of competitive strategy with non-financial measures did not
lead to significant improvements in performance, the alignment of competitive
strategy with financial measures leads to significant improvements in organizational
performance. Thus, it appears that firms in developing economies which are faced
with increased competition brought about by trade liberalization and other reforms
will benefit greatly from an emphasis on financial measures in combination with their
selected competitive strategy.

11

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