Technology Analysis & Strategic Management

ISSN: 0953-7325 (Print) 1465-3990 (Online) Journal homepage: http://www.tandfonline.com/loi/ctas20

Competitive strategies, innovation, and firm

performance: an empirical study in a developing
economy environment

Cahit Ali Bayraktar, Gulsah Hancerliogullari, Basak Cetinguc & Fethi Calisir

To cite this article: Cahit Ali Bayraktar, Gulsah Hancerliogullari, Basak Cetinguc & Fethi
Calisir (2017) Competitive strategies, innovation, and firm performance: an empirical study in a
developing economy environment, Technology Analysis & Strategic Management, 29:1, 38-52,
DOI: 10.1080/09537325.2016.1194973

To link to this article: http://dx.doi.org/10.1080/09537325.2016.1194973

Published online: 13 Jun 2016.

Submit your article to this journal

Article views: 428

View related articles

View Crossmark data

Full Terms & Conditions of access and use can be found at

http://www.tandfonline.com/action/journalInformation?journalCode=ctas20

Download by: [Wagner College] Date: 31 March 2017, At: 02:31

TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT, 2017
VOL. 29, NO. 1, 38–52
http://dx.doi.org/10.1080/09537325.2016.1194973

Competitive strategies, innovation, and firm performance:

an empirical study in a developing economy environment
Cahit Ali Bayraktara, Gulsah Hancerliogullaria, Basak Cetinguca,b and Fethi Calisira
a
Department of Industrial Engineering, Istanbul Technical University, Istanbul, Turkey; bDepartment of Industrial
Engineering, Yalova University, Yalova, Turkey

ABSTRACT ARTICLE HISTORY

This paper studies the relationships between competitive strategies, Received 13 November 2015
innovation, and firm performance within the context of Turkish Revised 19 May 2016
manufacturing companies. The data were collected from top management Accepted 20 May 2016
of the firms via Computer Assistant Telephone Interviewing method. One
KEYWORDS
hundred and forty manufacturing firms operating in various sectors Strategic management; cost-
including textile, automotive supply, computer and electronics provide the leadership; differentiation;
basis for this empirical research. In order to test our model, we employ innovation; firm
structural equation modelling using partial least squares. The results show performance; Turkish
that competitive strategies such as cost-leadership and differentiation can manufacturing industry
lead to innovation, which, in turn, increase firm performance. Managers
implement cost-leadership and differentiation strategies to take part in
competitive market conditions; however, they should put additional
importance on innovation that plays a significant role as a bridge between
competitive strategies and firm performance.

Introduction
Competitive strategy is the relative positional advantage in the market place that leads a firm to out-
perform its competitors (Porter 1985). Since market structure and the economic environment affects
strategy selection, each business applies a specific competitive strategy. In order to identify the key
thrusts of competitive strategies, a number of generic strategy typologies have been developed, and
these typologies are applicable to almost all businesses. The two foremost classifications of business
strategy are Porter’s (1980) generic strategy and Miles and Snow’s (1978) typology; they received
scholarly attention and remain the most widely cited and tested. Miles and Snow’s (1978) typology
emphasised prospector, analyser, defender, and reactor approaches; on the other hand, Porter’(1980)
typology identifies cost-leadership, differentiation, and focus orientations. The goal of this research is
to study the relationships between competitive strategy and innovation strategy, and their effect on
firm performance. Specifically, we study the influence of cost-leadership and differentiation strategies
on innovation. Furthermore, we investigate the impact of cost-leadership and differentiation strat-
egies on firm performance.
Although it was not a common practice prior to the 1980s, today, strategic management concepts
are widespread in Turkey. There have been several studies linking operations strategy to business
performance (Dincer, Tatoğlu, and Glaister 2006; Eraslan 2008). This paper contributes to the existing
knowledge on innovation strategy in several ways. Existing research has not simultaneously exam-
ined the relationships between competitive strategies (cost-leadership, differentiation), innovation,
and firm performance in the context of developing economy of Turkey. In this paper, we address

CONTACT Fethi Calisir calisirfet@itu.edu.tr

© 2016 Informa UK Limited, trading as Taylor & Francis Group
 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 39

this gap and seek to contribute to not only the strategy implementation literature, but also the inno-
vation literature by focusing on the strategy–capability–performance paradigm.
In this study, we examine the relationships between innovation and competitive strategy in the
developing economy of Turkey and their impact on firm performance. If we can establish that
Porter’s (1980) typology, which has been argued to be valid in various industries and countries, is
also applicable in such an environment, it will enhance the robustness of the typology. Structuring
of the rest of the paper is as follows. First, we review the theoretical background for the study, con-
ceptualisations of competitive strategy, and innovation strategy. Second, we describe our hypotheses
and research model, followed by the methodology. Next, we present the results and its discussion.
The paper ends with our conclusion and suggestions for future research.

Theoretical background
This section provides theoretical background on the main constructs underlying the models tested
in this study: competitive strategy, innovation, and firm performance, and a brief review of the
literature.
In order to explain organisations’ achievements and failures, strategic management researchers
have attempted to define the strategic behaviours. Business strategy typologies were developed
and used as a theoretical basis for classifying strategic groups across firms (Zahra and Covin 1993).
As early mentioned, there have been a number of generic strategy typologies proposed, some dis-
tinctive and others building on previously developed framework (Wolf and Floyd 2013). Majority
of the published research at the business strategy level applies Porter’s typology in a variety of indus-
tries (Acquaah and Yasai-Ardekani 2008). Hence, Porter’s original typology remains among the most
widely cited, tested, criticised, and refined (Parnell 2011). As Porter’s (1980) generic strategy has
received considerable empirical support over time, being widely used in analyses of fit in the strategic
management literature, and more accepted in innovation research, the present study incorporates
Porter’s typology (Ryu, Lee, and Choi 2015). With the help of the Porter’s typology, it is expected
to help explaining how managers conceptualise the relationships among cost-leadership, differen-
tiation, innovation, and firm performance.

Generic competitive strategy

Porter (1980) describes five competitive forces: rivalry among existing competitors, threat of new
entrants, threats of substitute products or services, bargaining power of customers or buyers, and
bargaining power of suppliers. To deal with these forces, he necessities taking offensive or defensive
actions in competitive strategy to be strong in an industry. Competitive strategy perception appreci-
ates the significance of a competitive advantage, which is consequence of strategic activities of the
company. To this end, generic strategies, including cost-leadership, differentiation, and focus, which
can be used singly or in combination, is identified to outperform competitors in an industry.
Existing literature has mostly focused on cost-leadership and differentiation as means of the com-
petitive advantage. Apart from cost-leadership and differentiation, focus refers to a niche strategy,
and there is its combination with either cost-leadership or differentiation. If a firm operates at a
lower cost than its rivals do, the firm can achieve cost-leadership; on the other hand, if the customers
unfailingly perceive its offerings as superior to those of its rivals, then the firm can achieve differen-
tiation (Porter 1985).
In this paper, Porter’s (1980) typology of two generic strategies, which are cost-leadership and
differentiation, are studied since they are the commonly used strategy dimensions in the literature
(Nayyar 1993). Porter’s typology suggests that firms on pursuing these competitive strategies
would lead to competitive advantage. Recent literature has highlighted that both cost-leadership
and differentiation influence firm performance positively (Acquaah and Yasai-Ardekani 2008).
40 C. A. BAYRAKTAR ET AL.

Cost-leadership
According to Porter (1980), cost-leadership strategy requires cost minimisation in various areas, such
as service, advertising, R&D, cost reductions from experience, tight cost, and overhead control. While
keeping up quality and service, the managers’ great concern is to have low cost, relative to compe-
titors. Firms pursuing cost-leadership strategy must continuously compare themselves against com-
petitors to evaluate their relative cost position in the market (Day and Wensley 1988).
The low-cost position preserves the companies against competitive forces. It provides firms to
defend themselves against rivalry from competitors, powerful buyers, and suppliers. By eliminating
the cost through the economies of scale, the cost-leadership strategy increases market share of com-
panies, which is an advantage (Nayyar 1993). However, stressing too much on reducing the costs may
cause incapability to respond to changes in the economical environment, technology, and customer
or market needs; therefore, there are certain risks related to cost advantage.
Market structure and economic environment influence a company’s choice of strategy. For
instance, it has been argued that the cost-leadership strategy seems to be more suitable for stable
and predictable environments; whereas, differentiation and focus are more appropriate for
dynamic and uncertain markets (Porter 1980).

Differentiation
According to Porter (1980), differentiation strategy gives firms an opportunity to compete. Differen-
tiation offers firms to differentiate their products or services and create something unique (Banker,
Mashruwala, and Tripathy 2014). Therefore, it requires being different or unlike from competitors
by providing superior information, prices, communication, distribution channels, and prestige to
the customer. Differentiation can take various forms including R&D projects, price, design, brand
image, technology, patents, features, customer service, distribution, dealer network, and other
dimensions (Lin and Chang 2015).
Product or service differentiation may generate new demand or require a high price for an existing
product or service. One of the requirements of differentiation strategy is product customisation that
is done by developing close relationships with the customers and cannot be easily imitated by com-
petitors. In the long run, this also results in building customer loyalty and sustainable firm perform-
ance (Heskett et al., 1994). Due to customer loyalty and lower sensitivity to price, differentiation
protects firms against competitive rivalry.
Contrary to cost-leadership, to implement differentiation strategy, a decentralised and informal
organisational structure is necessary. Differentiation tends to facilitate innovation (Russell and
Russell 1992). Frambach, Prabhu, and Verhallen (2003) hypothesise and support that a firm’s relative
emphasis on pursuing a differentiation strategy has a positive significant direct influence on new
product activity.

Innovation
In addition to competitive advantages of generic strategies mentioned in Porter (1980, 1985), Porter
(2001) argues that innovation enables operational improvements, which enhance cost efficiency.
Innovation is an organisational capability to adopt and apply new ideas, products, and processes
(Hurley and Hult 1998). To achieve long-term success and competitiveness, innovation has been
shown as one of the most crucial strategic positioning necessary for firm (Clark and Guy 1998).
Being in a critical position for building organisational value, innovations enable firms to adapt
their strategy to market alterations by developing new products, or altering the processes (Tajeddini
2010). Innovation requires organisations to be open to new ideas, products, processes, technologies,
and new routines. In this way, innovation enables firms to act faster to changes in dynamic and com-
petitive scenarios (Bergek, Berggren, and Tell 2009).
 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 41

Firms, that are open to innovations, are more prepared to advance superior knowledge about
technologies, products, and processes, which qualifies them to associate their strategy (Ziegler
and Nogareda 2009).
Firms involve in new product development activity depending on the strategy they adopt that
results in more product innovation than others (Frambach, Prabhu, and Verhallen 2003). According
to Miles and Snow (1978), prospector firms are likely to be involved in new product development
activity; therefore, they are more engaged in innovation than defender.

Firm performance
Competitive strategies, in other words, competitive tactics, have a great influence on firm perform-
ance (Spanos, Zaralis, and Lioukas 2004). Measuring firm performance has been a method for all sta-
keholders, such as business owners, investors, management, etc., who invested in an organisation;
and it is not straightforward because there is no universally recognised single measure of this
concept. Even non-profit organisations have started to track firm performance so as to deal with
scarce resources (Kaplan 2001).
To assess how well a business is performing, stakeholders use not only financial performance
measures (e.g. stock price, revenue, earnings per share), but also non-financial measures (e.g. custo-
mer satisfaction, employee satisfaction, employee compensation, supplier relations relative to the
competitors, franchisee’s satisfaction) (Kaplan 2001). In addition to financial business performance,
a significant relationship between generic strategies and non-financial business performance exists
(Hoque 2004). Therefore, evaluation of the firm performance can be either objectively or subjectively
(Dess and Robinson 1984). While the objective method refers to the financial performance, the sub-
jective means non-financial performance or perception of the respondent (Croteau and Bergeron
2001). In our study on firm performance, we use both an objective and a subjective measurement,
as Bergeron and Raymond (1995) did.

Research model and hypotheses development

Numerous researches have focused on Porter’s generic strategies in various industries. A good
number of studies have suggested that Porter’s generic strategies positively associated with firm per-
formance. It was observed that firms following cost-leadership and/or differentiation strategies could
achieve superior performance, in terms of market share and profits (Yang, Xun, and He 2015). Hoque
(2004) found that there is positive relationship between the organisation’s choice of strategy and the
firm’s non-financial performance. In this study, while addressing firm performance, financial and non-
financial dimensions are included.
The relationship between cost-leadership and differentiation strategies and firm performance has been
widely studied in various industries in several countries (Banker, Mashruwala, and Tripathy 2014; Ruiz-
Ortega and García-Villaverde 2008; Voola and O’Cass 2010). They apply partial least square (PLS) to test
hypotheses, and show that there is positive relation of cost-leadership and differentiation to market orien-
tation, which has positive relation to firm performance. Thus, we offer the following hypotheses:

. H1. Cost-leadership strategy is positively related to firm performance.

. H2. Differentiation strategy is positively related to firm performance.

In the literature, there have been observations of the relationship between differentiation and
innovation. Frambach, Prabhu, and Verhallen (2003) proposed that cost-leadership and differen-
tiation strategies have positive significant direct influence on new product development activity.
According to Porter (1980), cost-leadership strategy may lead to process innovation to a certain
extent. Cost minimisation in several areas, such as service, advertising, and R&D, and cost reductions
from experience, tight cost, and overhead control are required to apply cost-leadership strategy. To
42 C. A. BAYRAKTAR ET AL.

Figure 1. Proposed literature-based research model.

minimise these costs, one should either eliminate the expenses (e.g. not advertising anymore, cutting
the budgets of R&D, etc.) or propose innovative improvements. In line, Frohwein and Hansjürgens
(2005) suggested that to gain cost-leadership advantage, the firm should involve innovation activities
and focus on cost minimisation. Qin (2007) proposes that innovation allows the organisation to
obtain economies of scale, reduce the cost, and gain market share. Gunday et al. (2011) investigated
that innovation assists the firm to reduce the cost of production and delivery, as well as enhance
quality features. Hilman and Kaliappen (2014) showed that cost-leadership strategy significantly
affects the process innovation, which significantly affects the organisational performance in
context of Malaysia hotel industry. To survive and gain competitive advantage in severe competition
environment, organisations must be innovative (Li and Calantone 1998). Recently, Ryu, Lee, and Choi
(2015) focused on a sample of service firms in Korea, and investigated the effect of innovation strat-
egy and business strategy on firm performance, which is assessed using both financial and non-finan-
cial measures. Therefore, we propose the following hypotheses:

. H3. Cost-leadership strategy is positively related to innovation.

. H4. Differentiation strategy is positively related to innovation.

The relationship between innovation and firm performance has widely been studied in various
industries (Aragón-Correa, García-Morales, and Cordón-Pozo 2007; Calantone, Cavusgil, and Zhao
2002; Choi and Williams 2013). For instance, Tajeddini and Trueman (2012) proposed that innovative-
ness in hospitality industry significantly and positively affects the financial and marketing perform-
ance. Acceptance of innovation is generally intended to be conducive for increasing the
performance of the firm (Damanpour 1991). According to Oh, Cho, and Kim (2015), in the case of
medium-high tech industries firm’s strategic innovation decisions impact its market performance
positively. Calantone, Cavusgil, and Zhao (2002) suggested and satisfied that higher innovation per-
formance produces higher firm performance. Thus, we offer the following hypothesis.

. H5. Innovation strategy is positively related to firm performance

Drawing from these findings, we propose the hypotheses of the study as follows (Figure 1).

Methodology
Sample and data collection
The sample for this study consisted of 140 Turkish manufacturing firms that employ more than 150
employees. Collection of the data was from top management, who fully understood the purpose of
 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 43

Table 1. Distribution by sectors.

Sectors Frequency %
Textile industry 45 32
Industrial machine industry 32 23
Automotive supply industry 20 14
Rubber and plastics industry 17 12
Chemical industry 15 11
Metal industry 8 6
Computer and electronics industry 3 2
Grand total 140

Table 2. Distributions of operating periods of firms.

Operating period Frequency %
1–9 7 5
10–19 39 28
20–29 36 26
30–39 33 24
40–49 9 6
50–59 9 6
60+ 7 5
Grand total 140

the scope of the study, via Computer Assistant Telephone Interviewing method. Advantages of this
method are lower costs, quicker response time, and easier access to respondents. These 140 firms,
which agreed to answer the survey questions, were classified in 7 different manufacturing sectors
that are shown in Table 1. The largest share was from textile industry with 32%. Industrial machines
industry followed the textile industry by 23%. After that, there was listing of the automotive supply
industry, rubber and plastics industry, and chemical industry consecutively with 14%, 12%, and 11%,
respectively. At the end of the list, metal industry with 6% and computer and electronics industry with
2% showed up.
Moreover, Table 2 shows the distribution of operating periods of firms in terms of year. There can
be a conclusion that most of the firms (i.e. 78% of the sample) are between 10 and 39 years old. Only
5% of the firms are younger than 9 years and older than 60 years.

Measures
The questionnaire comprised of pre-existing scales found in the literature, and it can be found in
Appendix. In this study, each measure has multiple items with 7-point Likert Scale with anchors of
1 being not at all important and 7 being extremely important.
As seen in Figure 1, there are four core constructs in our research, and all these constructs are
latent variables, which mean that they are not directly observed but are estimated by observed vari-
ables. Cost-leadership was measured by four items (e.g. CL_1, CL_2, CL_3, CL_4), differentiation by
eight items (e.g. DIFF_1, DIFF_2, … , DIFF_8), innovation by four items (e.g. INN_1, INN_2, INN_3,
INN_4), and firm performance by eight items differentiation by eight items (e.g. FP_1, FP_2, … , FP_8).

Results
In order to test our theoretical model, we have employed the structural equation modelling (SEM),
which is very popular multivariate analysis technique in many disciplines. The SEM has the advantage
of allowing researchers to comprise latent variables in the context of a group of causal relationships (Ju
and Sohn 2014). Basically, there are two different statistical methods to estimate the relationships in
SEM: covariance-based SEM (CB-SEM) and partial least squares SEM (PLS-SEM). The PLS-SEM does
44 C. A. BAYRAKTAR ET AL.

not require the data to be normally distributed, providing robust results even in cases of non-normality
(Hair et al. 2012). Moreover, even though researchers rarely make use of this functionality, the PLS-SEM
includes the ability to extract and model multiple dimensions from given set of indicators (Rigdon
2012). When the theory is less developed, variance-based PLS-SEM is preferable (Hair et al. 2013).
Insights from the forecasting literature proposes that PLS-SEM, a composite-based method
rather than a factor-based, has strengths as a tool for prediction. Composite-based methods
including PLS-SEM provides complete and consistent approach to measurement that is factor-free
(Rigdon 2012).
During the literature review of this research, there were findings that although the relationships
between generic strategies and firm performance, and innovation and firm performance are
studied, the relationship of innovation between generic strategies and firm performance has not
been studied yet. In this case, we have used PLS-SEM technique with SMARTPLS software, instead
of covariance-based models since it is more suitable for the implementation of predictive studies,
which explore complex problems, as is the case in our research and in which previous theoretical
background is scarce (Hulland, Ryan, and Rayner 2010). This technique, which is a method mainly
designed for predictive casual analysis, uses a component-based to estimation; therefore, it places
minimal demands on sample size and residual distributions. Furthermore, only the PLS-SEM tech-
nique enables modelling variables of a formative nature, something not achievable with CB-SEM
such as LISREL or AMOS (Úbeda-García et al. 2014). The technique has been previously used in
similar research as well because of its potential to describe relatively new phenomena from theoreti-
cal models and measures without a through theoretical background (Madueño et al. 2016).

Confirmatory factor analysis

There has been development of confirmatory factor analysis (CFA) based on empirical or theoretical
foundations (Brown 2015). There is usage of CFA to verify the factor structure of a set of observed
variables. In this paper, there is conduction of CFA in SmartPLS Software 3.2.0 and Table 3 provides
the results. The factor loadings are expected to be greater than 0.6, which is the case in our paper
after rounding off the values. In addition to factor loadings, Table 3 provides the reliability of
scales (i.e. Cronbach’s α values). Cronbach’s α is commonly used for determining the internal consist-
ency and the higher is the better, and it is expected to be at least 0.5. According to our CFA results, the
scales are reliable since all the Cronbach’s α values are greater than 0.5.
In addition to CFA, there is performance of the composite reliability (CR) to test how well its
assigned items measure a construct. CR values higher than 0.6 are judged as satisfactory. On the
other hand, average variance extracted (AVE) comprise a variance that is found by division of the
total squared factor loadings by the number of indicators (items) (Götz, Liehr-Gobbers, and Krafft
2010). There is consideration of AVE values less than 0.5 as unsatisfactory, since the variance due
to error is higher than the variance explained by the item. However, AVE is a strict measure of con-
vergent validity. According to Malhotra and Dash (2011), AVE is a more conservative measure than CR.
Based on CR alone, the researcher may conclude that the convergent validity of the construct is sat-
isfactory, while more than 50% of the variance is due to error. Table 4 summarises the CR and AVE
analyses results.
Having calculated the composite measures, next discriminant validity was evaluated. Fornell and
Larcker (1981) stated that there is presentation of discriminant validity if the square root of the AVE is
greater than all corresponding correlations. As shown in Table 5, these values are consistently greater
than off-diagonal correlations, suggesting discriminant validity.
To evaluate PLS-SEM estimations, non-parametric evaluation criteria based on bootstrapping is
performed since only a single goodness-of-fit criterion is not offered. In bootstrapping, there
is random drawing of subsamples with replacement from the original set of data. Then, there is
usage of each subsample to estimate the model. Repetition of this process is until there is creation
of 5000 random subsamples. There is usage of the parameter estimates estimated from the
 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 45

Table 3. Confirmatory factor analysis.

Factor t-
Cronbach’s α loadings Values
Cost-leadership (CL) 0.594
CL_1 Lower prices than competitors 0.583 4.424
CL_2 Economy of scale 0.665 5.484
CL_3 Strict cost control policy 0.805 10.817
CL_4 Cost element in selecting raw material and distribution system 0.566 5.621
Differentiation (DIFF) 0.852
DIFF_1 Taking great efforts in building a strong brand name 0.741 11.562
DIFF_2 New product development to differentiate from the competitors 0.552 4.859
DIFF_3 Integrating latest technology and features in our products 0.703 9.262
DIFF_4 New marketing techniques 0.682 8.449
DIFF_5 Seeking new business/market opportunities and benefit from growth 0.716 9.170
opportunities
DIFF_6 Advertisement and marketing of the products 0.763 16.161
DIFF_7 Developing existing products 0.719 8.649
DIFF_8 Improving sales team 0.708 7.167
Innovation (INN) 0.836
INN_1 Make major changes in products 0.583 4.505
INN_2 Review and improvement of manufacturing process 0.868 23.396
INN_3 Make major changes in new product design 0.794 12.403
INN_4 Development of new business manner 0.875 28.619
Firm performance (FP) 0.801
FP_1 Increase in sales 0.795 16.410
FP_2 Profitability 0.695 10.844
FP_3 Market share 0.684 8.157
FP_4 Return on assets 0.523 3.759
FP_5 Customer satisfaction 0.754 12.834
FP_6 Turnover 0.575 5.593
FP_7 Employee satisfaction 0.778 13.716
FP_8 Return on equity 0.601 7.794

Table 4. CR and AVE values.

Components CR AVE
Cost-leadership 0.753 0.437
Differentiation 0.884 0.491
Firm performance 0.872 0.465
Innovation 0.866 0.622

Table 5. Discriminant validity.

Cost-leadership Differentiation Firm performance Innovation
Cost-leadership 0.661
Differentiation 0.429 0.700
Firm performance 0.308 0.264 0.682
Innovation 0.380 0.396 0.368 0.789

subsamples to derive standard errors for the estimates. With this information, there is calculation of t-
values to assess each indicator weight’s significance (Hair et al. 2013). Table 6 shows the standardised
parameters.
Hypothesis H1 expected that cost-leadership strategy would have a positive effect on firm per-
formance. As shown in Table 6, the effect of cost-leadership (coefficient = 0.170, not significant) on
firm performance is not positive and not significant. Hence, H1 was not supported. H2 stated that
the effect of differentiation strategy on firm performance would be positive. The result shows that
differentiation does not have a positive effect on firm performance (coefficient = 0.085, not signifi-
cant), thus H2 was not supported. H3 addressed the effect of cost-leadership strategy on
46 C. A. BAYRAKTAR ET AL.

Table 6. Path coefficients and hypothesis decisions.

Standard error Standardised estimate t-Values p-Values Decision
H1: Cost-leadership → Firm performance 0.095 0.170 1.783 0.075 Not Supported
H2: Differentiation → Firm performance 0.106 0.085 0.801 0.424 Not Supported
H3: Cost-leadership → Innovation 0.084 0.258 3.089 0.002** Supported
H4: Differentiation → Innovation 0.099 0.286 2.899 0.004** Supported
H5: Innovation → Firm performance 0.113 0.270 2.385 0.017* Supported
*p < .05.
**p < .01.

innovation. It has been shown that cost-leadership has a positive effect on innovation (coefficient
= 0.258, p < .01). Therefore, H3 was supported. H4 posited that differentiation strategy would
have a positive effect on innovation. The results show that differentiation has a significant
positive effect on innovation (coefficient = 0.286, p < .01), thus H4 was supported. Finally,
H5 proposed the effect of innovation strategy on firm performance. As shown in Table 6, the
influence of innovation on firm performance is positive and significant as predicted (coefficient
= 0.270, p < .05); therefore, H5 was supported. Figure 2 provides the p-values of the structural
model.

Indirect and direct effects

Additional comments for this research can be important to foster the whole concept. In our model,
innovation has an intervening role. To highlight the relationship of generic strategies and firm per-
formance, we set up a new model to see the relationship between cost-leadership–firm performance
and differentiation–firm performance. In other words, we excluded effects of innovation in our
model. So that, we will be able to see the role of innovation in the implementation of generic strat-
egies. According to the p-values provided in Figure 3, there is a significant relationship between cost-
leadership and firm performance, whereas there is no significant relationship between differentiation
and firm performance.
Employment of PLS is to identify the impact of mediation, which is the strong relation between the
predictor and criterion variable. In this study, we observe whether innovation is the mediating vari-
able or not. Since direct effect of differentiation on firm performance is not significant, we cannot
refer the mediating effect of innovation for differentiation (Baron and Kenny 1986).
On the other hand, cost-leadership has a significant direct effect on firm performance as seen in
Figure 3. When cost-leadership and innovation were regressed on firm performance, cost-leadership
became insignificant (p > .05), which is the case in Figure 2. To be more precise, cost-leadership does
not affect the firm performance directly; however, it affects the firm performance indirectly through
innovation. Therefore, we can conclude that innovation is a mediator.

Figure 2. p-Values of the structural model.

 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 47

Figure 3. p-Values of direct effects.

Conclusions and directions for future research

The results of this research provide general support for our conceptual framework and hypotheses. The
main objective of this paper is to investigate the role of innovation on firm performance in the Turkish
manufacturing environment while focusing on the variables of competitive strategy. To analyse our
theoretical model, we conduct SEM using PLSs, which is a very popular methodology in many disci-
plines. As being discussed in the results section, as a first step, we perform CFA to verify the factor struc-
ture of a set of observed variables. The results show that the scales are reliable, since all the Cronbach’s
α values are >0.5. Furthermore, according to the CR analysis, which is also performed to test how well a
construct is measured by its assigned items, the convergent validity of the construct is satisfactory.
Finally, before we test our hypotheses, we present the discriminant validity.
This study expands the existing literature by studying the innovation’s relationships with firm per-
formance by focusing competitive strategies with cost-leadership and differentiation. We empirically
show that innovation strategy positively influences firms’ business performance. The results also
support conclusions that are more specific. It has been shown that the relationships between two
variables of the competitive strategies, cost-leadership and differentiation, and innovation, are posi-
tive and significant. Moreover, there is presentation of the positive relationship between innovation
strategy and firm performance. The existing studies also support that innovation activities enable firm
to obtain economies of scale, and lower the costs, in other words, they allow to gain cost-leadership
advantage and significantly affect the organisational performance. Innovation helps the firms to
reduce the cost of production and delivery and enhance quality features. Therefore, the relationship
can be interpreted on the other side as well; innovation will result in cost-leadership. According to
Frohwein and Hansjürgens (2005), the firm should involve in innovation activities in order to focus
on cost minimisation and gain cost-leadership advantage. Similarly, according to Qin (2007), inno-
vation enables the organisation to experience economies of scale, reduce the cost and gain
market share. In other words, the innovation strategy will help the firm to better adopt cost-leader-
ship strategy. Two unexpected findings of our study are that although we hypothesised the positive
relationship between cost-leadership strategy and differentiation strategy with firm performance,
they are not supported within the context of Turkish manufacturing companies. In this study, we
also observe the intervening role of innovation, which is a mediator. In other words, the results
support that cost-leadership does not affect the firm performance directly; nevertheless, it affects
the firm performance indirectly through innovation.
The findings of the study provide several critical managerial implications in manufacturing industry.
First, managers who want to take a part in competitive market conditions should put additional impor-
tance on innovations that play a significant role as a bridge between competitive strategies and firm
performance. To increase firm performance, only implementation of competitive strategies does not
help to accomplish the main purpose. Trying to minimise the costs of operations and administration
helps firms to be more innovative than, as same as trying to be different from firms’ rivals. Additionally,
48 C. A. BAYRAKTAR ET AL.

besides the finding that innovation is the mediator between cost-leadership and firm performance, man-
agers should be aware of that they should not count on cost-leadership to increase firm performance.
Despite the aforementioned contributions of this study, it also has several limitations, which offers
several opportunities for future research. First, our study only surveyed a management position in
Turkish manufacturing sector based on a single-country setting. While it is a widespread practice,
we recommend future researchers to collect data from multiple respondents (i.e. various positions)
to improve the validity of our findings. Moreover, any generalisation of our results to other contexts
should be made with caution even though they may be fairly reflective of the industry. Second, our
findings may not be applicable to other contexts since our model is only tested in the context of
Turkish companies. Even though manufacturing firms in Turkey share several similar characteristics
with American and Asian manufacturing firms, the socio-economic environment and the innovation
practice in Turkey may limit the applicability of this study to other manufacturing contexts in other
countries. Further research across different countries and industries may be required in the future.
There could be exploration of how much a difference exists concerning the mediating effects of a
manufacturing firm’s innovation strategy on firm performance between Turkey and other societies.
Third, this study only focuses on manufacturing sectors, namely textile, industrial machine, automo-
tive supply, rubber and plastics, chemical, metal, and computer and electronics. Our findings may be
inapplicable to other industries or manufacturing sectors; therefore, future research should adopt a
broader research scope to investigate further alignment patterns and improve the generalisability of
the results. Forth, our measure for organisational performance is based on subjective opinions of
survey participants. Future studies may use more objective measures to collect that data. Finally,
this study investigates that cost-leadership and differentiation strategies are positively related to
innovation strategy. The other side, in other words, how the innovation strategy is related to competi-
tive strategies is mentioned in few studies (e.g. Frohwein and Hansjürgens 2005; Gunday et al. 2011;
Qin 2007). Further investigation of the inverse relationship is a good direction for future research.

Disclosure statement
No potential conflict of interest was reported by the authors.

Notes on contributors
Cahit Ali Bayraktar is a lecturer of Industrial Engineering at Istanbul Technical University. He graduated with a BS, an MS,
and a PhD from Istanbul Technical University in Industrial Engineering. His main research interests are strategic manage-
ment, competition management, and human resources systems.
Gulsah Hancerliogullari is an assistant professor of Industrial Engineering at Istanbul Bilgi University. She graduated with
BS and MS from Bilkent University in Industrial Engineering, and a PhD from Old Dominion University in Engineering
Management and Systems Engineering. Her current research interests are empirical research in operations management,
application of optimisation methods to transportation and health-care problems.
Basak Cetinguc is a PhD student at Istanbul Technical University in Industrial Engineering Department. She graduated
with a BS from Kocaeli University in Industrial Engineering, an MS from the George Washington University in Engineering
Management. Her research interests are innovation, technology management and data analysis.
Fethi Calisir is a professor of Industrial Engineering at Istanbul Technical University. He graduated with a BS from Istanbul
Technical University, an MS from the University of Miami, and a PhD from Purdue University in Industrial Engineering. His
current research interests include IT Project Management, Software Usability, and Human–Computer Interaction.

References
Acquaah, M., and M. Yasai-Ardekani. 2008. “Does the Implementation of a Combination Competitive Strategy Yield
Incremental Performance Benefits? A New Perspective from a Transition Economy in Sub-Saharan Africa.” Journal
of Business Research 61 (4): 346–354.
Allen, R. S., and M. M. Helms. 2006. “Linking Strategic Practices and Organizational Performance to Porter’s Generic
Strategies.” Business Process Management Journal 12 (4): 433–454.
 TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT 49

Aragón-Correa, J. A., V. J. García-Morales, and E. Cordón-Pozo. 2007. “Leadership and Organizational Learning’s Role on
Innovation and Performance: Lessons from Spain.” Industrial Marketing Management 36 (3): 349–359.
Banker, R. D., R. Mashruwala, and A. Tripathy. 2014. “Does a Differentiation Strategy Lead to More Sustainable Financial
Performance than a Cost Leadership Strategy?” Management Decision 52 (5): 872–96.
Baron, R. M., and D. A. Kenny. 1986. “The Moderator–Mediator Variable Distinction in Social Psychological Research:
Conceptual, Strategic, and Statistical Considerations.” Journal of Personality and Social Psychology 51 (6): 1173–1182.
Bergek, A., C. Berggren, and F. Tell. 2009. “Do Technology Strategies Matter? A Comparison of Two Electrical Engineering
Corporations, 1988–1998.” Technology Analysis and Strategic Management 21 (4): 445–470.
Bergeron, F., and L. Raymond. 1995. “The Contribution of Information Technology to the Bottom Line: A Contingency
Perspective of Strategic Dimensions.” Proceedings of the 16th International Conference on Information Systems, 167–
181, Amsterdam, December 10–13.
Brown, T. A. 2015. Confirmatory Factor Analysis for Applied Research. New York: Guilford Publications.
Calantone, R. J., S. T. Cavusgil, and Y. Zhao. 2002. “Learning Orientation, Firm Innovation Capability, and Firm
Performance.” Industrial Marketing Management 31 (6): 515–524.
Choi, S. B., and C. Williams. 2013. “Innovation and Firm Performance in Korea and China: A Cross-context Test of
Mainstream Theories.” Technology Analysis and Strategic Management 25 (4): 423–444.
Clark, J., and K. Guy. 1998. “Innovation and Competitiveness: A Review.” Technology Analysis and Strategic Management
10 (3): 363–395.
Croteau, A. M., and F. Bergeron. 2001. “An Information Technology Trilogy: Business Strategy, Technological Deployment
and Organizational Performance.” The Journal of Strategic Information Systems 10 (2): 77–99.
Damanpour, F. 1991. “Organizational Innovation: A Meta-Analysis of Effects of Determinants and Moderators.” Academy
of Management Journal 34 (3): 555–590.
Day, G. S., and R. Wensley. 1988. “Assessing Advantage: A Framework for Diagnosing Competitive Superiority.” The
Journal of Marketing 52 (2): 1–20.
Dess, G. G., and R. B. Robinson. 1984. “Measuring Organizational Performance in the Absence of Objective Measures: The
Case of the Privately-Held Firm and Conglomerate Business Unit.” Strategic Management Journal 5 (3): 265–273.
Dincer, O., E. Tatoğlu, and K. W. Glaister. 2006. “The Strategic Planning Process: Evidence from Turkish Firms.”
Management Research News 29 (4): 206–219.
Eraslan, I. H. 2008. “The Effects of Competitive Strategies on Firm Performance: A Study in Turkish Textile and Apparel
Industry Considering the Mediating Role of Value Chain Activities.” PhD diss., Boğaziçi University, İstanbul.
Fornell, C., and D. Larcker. 1981. “Evaluating Structural Equation Models with Unobservable Variables and Measurement
Error.” Journal of Marketing Research 18 (1): 39–50.
Frambach, R. T., J. Prabhu, and T. M. Verhallen. 2003. “The Influence of Business Strategy on New Product Activity: The
Role of Market Orientation.” International Journal of Research in Marketing 20 (4): 377–397.
Frohwein, T., and B. Hansjürgens. 2005. “Chemicals Regulation and the Porter Hypothesis- A Critical Review of the New
European Chemical Regulation.” Journal of Business Chemistry 2 (1): 19–36.
González-Benito, J., and I. Suárez-González. 2010. “A Study of the Role Played by Manufacturing Strategic Objectives and
Capabilities in Understanding the Relationship Between Porter’s Generic Strategies and Business Performance.” British
Journal of Management 21: 1027–1043.
Götz, O., K. Liehr-Gobbers, and M. Krafft. 2010. “Evaluation of Structural Equation Models Using the Partial Least Squares
(PLS) Approach.” In Handbook of Partial Least Squares, 691–711. Berlin: Springer.
Gunday, G., G. Ulusoy, K. Kilic, and L. Alpkan. 2011. “Effects of Innovation Types on Firm Performance.” International
Journal of Production Economics 133 (2): 662–676.
Hair J. F., G. T. M. Hult, C. Ringle, and M. Sarstedt. 2013. A Primer on Partial Least Squares Structural Equation Modeling (PLS-
SEM). Thousand Oaks: Sage.
Hair, J. F., M. Sarstedt, C. M. Ringle, and J. A. Mena. 2012. “An Assessment of the Use of Partial Least Squares Structural
Equation Modeling in Marketing Research.” Journal of the Academy of Marketing Science 40 (3): 414–433.
Heskett, J. L., T. O. Jones, G. W. Loveman, W. Earl Sasser, and L. A. Schlesinger. 1994. “Putting the Service-Profit Chain to
Work.” Harvard Business Review 72 (2): 164–174.
Hilman, H., and N. Kaliappen. 2014. “Do Cost Leadership Strategy and Process Innovation Influence the Performance of
Malaysia Hotel Industry?” Asian Social Science 10 (10): 134–141.
Hoque, Z. 2004. “A Contingency Model of the Association Between Strategy, Environmental Uncertainty and Performance
Measurement: Impact on Organizational Performance.” International Business Review 13 (4): 485–502.
Hulland, J., M. J. Ryan, and R. K. Rayner. 2010. “Modeling Customer Satisfaction: A Comparative Performance Evaluation of
Covariance Structure Analysis versus Partial Least Squares.” In Handbook of Partial Least Squares, edited by Vincenzo
Esposito Vinzi, Wynne W. Chin, Jorg Henseler, and Huiwen Wang, 307–325. Berlin: Springer.
Hurley, R., and T. Hult. 1998. “Innovation, Market Orientation, and Organizational Learning: An Integration and Empirical
Examination.” Journal of Marketing 62 (3): 42–54.
Ju, Y., and S. Y. Sohn. 2014. “Development of a National Competitiveness Index Based on a Structural Equation Model.”
Technology Analysis and Strategic Management 26 (5): 565–579.
50 C. A. BAYRAKTAR ET AL.

Kaplan, R. S. 2001. “Strategic Performance Measurement and Management in Non-Profit Organizations.” Non-profit
Management and Leadership 11 (3): 353–370.
Li, T., and R. J. Calantone. 1998. “The Impact of Market Knowledge Competence on New Product Advantage: Conceptualization
and Empirical Examination.” Journal of Marketing 62 (4): 13–29.
Lin, C., and C. C. Chang. 2015. “A Patent-based Study of the Relationships among Technological Portfolio, Ambidextrous
Innovation, and Firm Performance.” Technology Analysis and Strategic Management 27 (10): 1193–1211.
Madueño, J. H., M. L. Jorge, I. M. Conesa, and D. Martínez-Martínez. 2016. “Relationship Between Corporate Social
Responsibility and Competitive Performance in Spanish SMEs: Empirical Evidence from a Stakeholders’ Perspective.”
BRQ Business Research Quarterly 19: 55–72.
Malgharni, A. M., N. R. Soomasundaram, and S. Multaiyah. 2010. “Non-Financial Performance for Firm’s Evaluation.”
European Journal of Economics, Finance and Administrative Sciences 23 (1): 123–138.
Malhotra, K. N., and S. Dash. 2011. Marketing Research: An Applied Orientation. New Delhi: Pearson-Dorling Kindersley.
Miles, R., and C. Snow. 1978. Organizational Strategy, Structure and Process. New York: McGraw-Hill.
Nandakumar, M. K., A. Ghobadian, and N. O’Regan. 2010. “Business-level Strategy and Performance: The Moderating
Effects of Environment and Structure.” Management Decision 48: 907–939.
Nayyar, P. R. 1993. “On the Measurement of Competitive Strategy: Evidence from a Large Multiproduct US Firm.” Academy
of Management Journal 36 (6): 1652–1669.
Oh, C., Y. Cho, and W. Kim. 2015. “The Effect of a Firm’s Strategic Innovation Decisions on It’s Market Performance.”
Technology Analysis and Strategic Management 27 (1): 39–53.
Panayides, P. M. 2003. “Competitive Strategies and Organizational Performance in Ship Management.” Maritime Policy &
Management 30 (2): 123–140.
Parnell, J. A. 2011. “Strategic Capabilities, Competitive Strategy, and Performance Among Retailers in Argentina, Peru and
the United States.” Management Decision 49 (1): 139–155.
Porter, M. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press.
Porter, M. 1985. Competitive Advantage. New York: Free Press.
Porter, M. 2001. “Strategy and the Internet.” Harvard Business Review 79 (3): 62–78.
Qin, Z. 2007. “Process Innovation, Cost Leadership and Market Power Analysis Based on Electronic Information Industry.”
Research Project of Zhejiang Philosophy and Social Science 1 (1): 358–363.
Rigdon, E. E. 2012. “Rethinking Partial Least Squares Path Modeling: In Praise of Simple Methods.” Long Range Planning 45:
341–358.
Ruiz-Ortega, M. J., and P. M. García-Villaverde. 2008. “Capabilities and Competitive Tactics Influences on Performance:
Implications of the Moment of Entry.” Journal of Business Research 61 (4): 332–345.
Russell, R. D., and C. J. Russell. 1992. “An Examination of the Effects of Organisational Norms, Organisational Structure, and
Environmental Uncertainty on Entrpreneurial Strategy.” Journal of Management 18 (4): 639–656.
Ryu, H. S., J. N. Lee, and B. Choi. 2015. “Alignment Between Service Innovation Strategy and Business Strategy and Its
Effect on Firm Performance: An Empirical Investigation.” IEEE Transactions on Engineering Management 62 (1): 100–113.
Spanos, Y. E., G. Zaralis, and S. Lioukas. 2004. “Strategy and Industry Effects on Profitability: Evidence from Greece.”
Strategic Management Journal 25 (2): 139–165.
Tajeddini, K. 2010. “Effect of Customer Orientation and Entrepreneurial Orientation on Innnovativeness: Evidence from
the Hotel Industry in Switzerland.” Tourism Management 31 (2): 221–231.
Tajeddini, K., and M. Trueman. 2012. “Managing Swiss Hospitality: How Cultural Antecedents of Innovation and Customer-
oriented Value Systems can Influence Performance in the Hotel Industry.” International Journal of Hospitality
Management 31 (4): 1119–1123.
Úbeda-García, M., E. C. Cortés, B. Marco-Lajara, and P. Zaragoza-Sáez. 2014. “Strategy, Training and Performance Fit.”
International Journal of Hospitality Management 42: 100–116.
Voola, R., and A. O’Cass. 2010. “Implementing Competitive Strategies: The Role of Responsive and Proactive Market
Orientations.” European Journal of Marketing 44 (1/2): 245–266.
Wang, J., and D. Cao. 2008. “Relationships Between Two Approaches for Planning Manufacturing Strategy: A Strategic
Approach and a Paradigmatic Approach.” International Journal of Production Economics 115: 349–361.
Ward, P. T., and R. Duray. 2000. “Manufacturing Strategy in Context: Environment, Competitive Strategy and
Manufacturing Strategy.” Journal of Operations Management 18 (2): 123–138.
Wolf, C., and S. W. Floyd. 2013. “Strategic Planning Research: Toward a Theory-Driven Agenda.” Journal of Management.
doi:10.1177/0149206313478185.
Yamin, S., A. Gunasekaran, and F. T. Mavondo. 1999. “Relationship Between Generic Strategies, Competitive Advantage
and Organizational Performance: An Empirical Analysis.” Technovation 19 (8): 507–518.
Yang, T., J. Xun, and X. He. 2015. “British SME’s e-Commerce Technological Investments and Firm Performance: An RBV
Perspective.” Technology Analysis and Strategic Management 27 (5): 586–603.
Zahra, S. A., and J. G. Covin. 1993. “Business Strategy, Technology Policy and Firm Performance.” Strategic Management
Journal 14 (6): 451–478.
Ziegler, A., and J. S. Nogareda. 2009. “Environmental Management Systems and Technological Environmental
Innovations: Exploring the Causal Relationship.” Research Policy 38 (5): 885–893.
Appendix

Not at all important

Slightly important

Moderately
Low importance

Very important
important

important
Extremely
Neutral
Using the seven-point Likert Scale, please indicate the level
of importance of each of the following variables for your
company Source from the literature
1 2 3 4 5 6 7
Cost-leadership
Price competition Wang and Cao (2008), Ward and Duray (2000), González-Benito and Suárez-González
(2010), Nandakumar, Ghobadian, and O’Regan (2010), Panayides (2003), Parnell (2011),
and Acquaah and Yasai-Ardekani (2008)
Economy of scale Panayides (2003)
Strict cost control policy Allen and Helms (2006), Nandakumar, Ghobadian, and O’Regan (2010), Acquaah and
Yasai-Ardekani (2008)
Cost element in selecting raw material and distribution Wang and Cao (2008), Ward and Duray (2000), Allen and Helms (2006), Nandakumar,
systems Ghobadian, and O’Regan (2010), Parnell (2011)
Differentiation

TECHNOLOGY ANALYSIS & STRATEGIC MANAGEMENT

Taking great efforts in building a strong brand name Wang and Cao (2008), Ward and Duray (2000), Allen and Helms (2006), González-Benito
and Suárez-González (2010), Nandakumar, Ghobadian, and O’Regan (2010), Panayides
(2003), Parnell (2011), and Acquaah and Yasai-Ardekani (2008)
New product development in order to be different than our Panayides (2003) and Acquaah and Yasai-Ardekani (2008)
competitors
integrating latest technology and features in our products González-Benito and Suárez-González (2010) and Parnell (2011)
Introducing innovations/newness in marketing techniques Wang and Cao (2008), Ward and Duray (2000), Allen and Helms (2006), Acquaah and
Yasai-Ardekani (2008), Nandakumar, Ghobadian, and O’Regan (2010), and Parnell (2011)
Seeking new business/market opportunities and benefit Allen and Helms (2006)
from growth opportunities
Advertising and marketing of the products Wang and Cao (2008), Ward and Duray (2000), Allen and Helms (2006), Nandakumar,
Ghobadian, and O’Regan (2010), Parnell (2011), and Acquaah and Yasai-Ardekani (2008)

(Continued )

51
Appendix Continued.

52
Not at all important

Slightly important

Moderately
Low importance

Very important
important

important
Extremely
Neutral

C. A. BAYRAKTAR ET AL.
Using the seven-point Likert Scale, please indicate the level
of importance of each of the following variables for your
company Source from the literature
1 2 3 4 5 6 7
Developing our existing products Allen and Helms (2006), Nandakumar, Ghobadian, and O’Regan (2010), Acquaah and
Yasai-Ardekani (2008)
Improving sales team Nandakumar, Ghobadian, and O’Regan (2010), and Parnell (2011)
Innovation
My company introduces new or substantially improved Yamin, Gunasekaran, and Mavondo (1999)
products or services to your customers
My company review and improves our manufacturing
process
My company makes significant changes in design of
products
My company introduces new company internal processes
Firm performance
Market share Malgharni, Soomasundaram, and Multaiyah (2010)
Increased customer satisfaction
Increased employee satisfaction
Profitability
Increase in sales
Return on Assets (ROA)
Return on Equity (ROE)
 本文献由“学霸图书馆-文献云下载”收集自网络，仅供学习交流使用。

学霸图书馆（www.xuebalib.com）是一个“整合众多图书馆数据库资源，

提供一站式文献检索和下载服务”的24 小时在线不限IP 图书馆。

图书馆致力于便利、促进学习与科研，提供最强文献下载服务。

图书馆导航：

图书馆首页 文献云下载 图书馆入口 外文数据库大全 疑难文献辅助工具