The Relationship Between Competitive Strategy and Product Quality

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The relationship betweencompetitive strategies and

product qualityDaniel I. Prajogo

Department of Management, Monash University, Australia

Abstract

Purpose The purpose of this paper is to examine the underlying strategic intent of qualityperformance. Specifically, the study aimed to examine the individual impact of differentiation and costleadership as well as their interaction effect on quality performance.

Design/methodology/approach This study employed a data set drawn from 102 managers ofAustralian manufacturing firms. Multiple regression analysis with moderating effect was used for

analysing the relationship between the competitive strategies and quality performance.Findings The findings indicated that product quality was predicted by differentiation strategy,but not cost leadership strategy. However, the effect of differentiation on quality was moderated bycost leadership whereby the higher the cost leadership, the stronger the effect.

Research limitations/implications The small sample size which was dominated bysmall-to-medium sized firms (SMEs) was the major limitation of the study. The sample size anddistribution also inhibited the comparison of the results between industry sectors.

Practical implications The results contribute to a better understanding on how quality can beeffectively employed as a base for realising competitive strategy. In particular, the positive interactionbetween differentiation and cost leadership in predicting quality performance suggests the synergybetween the two as well as supporting the cumulative view of competitive strategies.

Originality/value By testing the interaction effect of differentiation and cost leadership inpredicting quality performance, this study advances the previous works on the area which looked at

the relationship between quality performance and each of the two competitive strategies separately.

KeywordsCompetitive strategy, Product quality, Manufacturing industries, Australia

Paper typeResearch paper

IntroductionMuch has been written about quality as a source of competitive advantage in the lastdecade; however, little attention has been given to examine how quality performancecan be effectively employed as a base for realising firms competitive strategy (Galeand Klavans, 1985). More importantly, literature has shown conflicting argumentsconcerning the strategic orientation that drives quality performance, particularlybetween differentiation and cost leadership. One group of scholars suggest that quality

fits differentiation strategy, whilst the others hold that quality is positively related tocost reduction which would fit the objective of cost leadership strategy (Morgan andPiercy, 1996). Further to this, linking quality with both differentiation and costleadership strategies leads to the issue of compatibility between both strategicorientations (Hill, 1988).

In light of the above, it is important to examine the link between qualityperformance and the two competitive strategies cost leadership and differentiation to provide a better understanding of the extent to which quality can serve the

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DOI 10.1108/02635570710719061


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underlying intent of each of the two competitive strategies. In order to resolve thisinconsistency, this paper presents an empirical study that was designed to serve twopurposes. First, it sought to examine the effect of the adoption of different strategiccompetitive strategies differentiation and cost leadership in predicting quality

performance. Second, it considered the co-alignment between differentiation and costleadership which has been a contentious issue in predicting quality performance.

Literature reviewCost leadership and differentiationWhen outlining the idea of generic competitive strategies, Porter (1980) holds that costleadership and differentiation signify two fundamentally different approaches toachieve competitive advantage. Cost leadership strategy seeks to achieve above-averagereturns over competitors through low prices by driving all components of activitiestowards reducing costs. To attain such a relative cost advantage, firms will putconsiderable effort in controlling and production costs, increasing their capacity

utilization, controlling materials supply or product distribution, and minimising othercosts, including R&D and advertising.In contrast, differentiation strategy aims to build up competitive advantage by

offering unique products which are characterized by valuable features, such asquality, innovation, and customer service. Differentiation can be based on the productitself, the delivery system, and a broad range of other factors. With thesedifferentiation features, firms provide additional values to customers which willreward them with a premium price.

The relationship between these two generic strategies has been debated since theirorigin. Porter (1985) originally suggested that they are fundamentally inconsistent toeach other, and therefore, firms must make a choice between them. That said, he didnote that cost leaders can only achieve superior performance if the firm provides an

acceptable level of value to buyers; that is meeting the buyers expectations. Similarly,differentiators can achieve a competitive advantage if the premium price charged tocustomers is not offset by the cost of funding the differentiation features. However,he strongly stressed the incompatibility between the two, for example, by suggestingthat differentiation is usually costly. He also used the phrase stuck in the middle toemphasise that the combination of cost leadership and differentiation will unlikelyto produce a sustainable competitive advantage. This argument has been opposed bya number of scholars who asserted that it is not only possible for firms to combineboth strategies but also that such combination will produce competitive advantage(Hill, 1988; Miller, 1992). Almost a decade later, Porter (1991) revised his earlierargument. His amended view was that:

. . .

competitive advantages can be divided into two basic types: lower cost than rivals, or theability to differentiate and command a premium price that exceeds the extra cost of doing so.Any superior performing firm has achieved one type of advantage, the other, or both (p. 101).

Quality as competitive advantageBy adopting a generic competitive strategy, firms will translate the underlying intentof the strategy into various operational performance measures. These include quality,innovation, service, brand, flexibility, and price. This study focused on quality as

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a strategic performance as a reflection of a competitive strategy of the firms. Over thepast two decades, quality has been heralded as the source of competitive advantage(Forker et al., 1996; Hans and Will, 1993; Raghunathan et al., 1997). Quality has gonethrough an evolution process, from an operational level to a strategic level, and

some scholars have given strong support for the view that quality must be adopted asa strategic goal in organizations (Adam, 1992; Garvin, 1988; Schonberger, 1992).

Despite the arguments concerning the importance of quality and its role indetermining firms competitive position, only few papers have provided conceptualunderstanding and empirical evidence of a link between quality and competitivestrategy (Changet al., 2003; Morgan and Piercy, 1996). This issue will be discussed inmore detail shortly.

The link between quality and competitive strategyAs noted earlier, literature has presented inconsistent arguments concerning the linkbetween differentiation strategy, cost leadership strategy, and product quality

(Belohlav, 1993). The core of these arguments lies in the fit between quality and eitherdifferentiation or cost leadership. Each of these is outlined below. Porter (1980)categorised quality as a primary basis for differentiation strategy as firms adoptingthis strategy will uniquely position their products based on several attributes leadingto a premium price. He specifically suggested that quality creates a differentiationpoint which separates, even insulates, a firm from competitive rivalry by creatingcustomer loyalty as well as lowering price sensitivity. In this way, the firm will beprotected from competitive forces that reduce profitability. Similarly, Philips et al.(1983) noted that among the many sources of differentiation, quality was the approachthat most often characterizes a differentiation strategy. They also noted theconventional wisdom which suggests an incompatibility between high qualityproducts and low cost for the reason that quality usually requires more expensive

materials and processes, which is not supported under a cost leadership regime.This school of thought, however, does not totally negate the link between high qualityand low cost. Rather, it suggests that high quality products will eventually result inlower costs after the firm attaining benefits on economies of scale via higher marketshare (Krollet al., 1999; Philips et al., 1983).

A second line of argument supports the link between quality and low cost. Thestrongest support for this notion comes from total quality management (TQM)proponents. Deming (1982), with his quality improvement chain concept, argued thatorganizations can enhance their competitiveness by improving quality. This will resultin cost reduction through eliminating scrap and rework. The concept of quality costsdeveloped by Crosby (1979) and Juran and Gyrna (1993) provide explanations on thelink between quality performance and cost reduction. The idea of quality cost suggests

that any defective products (i.e. poor quality) will incur costs, commonly labelled asfailure costs, which include the costs of rework and scrap. In the light of the linkbetween quality performance and quality costs, firms need to devote their efforts oncontrolling processes to minimise defects in their outputs, which will also reduce thefailure costs. In turn, this reduction will result in lower production costs and overalloperation costs (Ardalanet al., 1992; Millar, 1999). This is because the improvement ofquality performance will not only impact on one particular functional area(i.e. production) but also inter-functional areas within organisations (Mandal, 2000).


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The inclusion of activity based costing as part of TQM techniques (Beheshti, 2004;Hunt, 1993; Montes et al., 2003; Ross, 1995) further indicates the link between costcontrol (which characterises cost leadership strategy) and quality. Several empiricalstudies have exemplified the link between quality performance and cost reduction.

For example, Maani et al. (1994) showed that quality performance (in terms of scrap,rework, and customer complaints) not only has a favorable impact on the operationalvariables (i.e. production cost, on-time delivery, WIP levels, worker idle time, lead time,productivity), but that its impact will also be apparent at the business performancelevel (i.e. ROS, ROA, sales volume, market share). The arguments for quality costshave been extended to the point where firms can achieve better financial performanceby reducing failure costs rather than by improving sales (Harrington, 1987). This wasevidenced in the 1980s when the lower price and higher quality of the Japaneseproducts flooded global markets which had previously been dominated by Westerncompanies (Raisinghaniet al., 2005)

This causal link between quality and cost, therefore, is different from that held in a

classical economics theory, as was noted earlier. Here, quality is considered as directlyinverse to cost. This seems to be compatible with a cost leadership strategy that seeksthe lowest possible unit cost in production. The chain of reactions starts with qualityimprovement which results in cost reduction, which results in firms having theopportunity to offer high quality with low prices. In this way, firms will be rewardedwith higher market share and a better competitive position in the market (Deming,1982). In essence, this school of thought holds that there is no conflict between qualityand cost as opposed the traditional view which suggests that higher quality meanshigher costs (Fawcett et al., 2000; Luchs, 1986).

Aside from the opposing arguments outlined above, several scholars have suggestedthe unification of differentiation and cost leadership brought by quality. Belohlav(1993), for example, argued that attaining high quality performance allow firms topursue not only a differentiation strategy, but also a cost leadership strategy. He furthersuggested that quality bridges the two different perspectives of strategy into onedimension called the value dimension. From a theoretical point of view, this argumentallows the compatibility between cost leadership and differentiation strategies whichhas been extensively debated in strategic management literature (Hill, 1988). Moreover,it is consistent with the demand for pursuing cumulative dimensions of performance(Corbett and van Wassenhove, 1993; Flynn and Flynn, 2004; Flynn et al., 1999; Noble,1995). Specifically, Reed et al. (1996) show how quality simultaneously encompassesboth differentiation and cost leadership. They argue that by focusing on customer needs,quality is concerned with providing better products that satisfy customers needs. Thisis associated with differentiation strategy. At the same time, by focusing on internal

processes, quality also leads organizations to reduce cost as a result of the elimination ofdefects and waste. This makes it compatible to cost leadership strategy. The implicationof this notion is that competing on quality will provide firms with double advantages byproviding customers with both differentiated products and lower costs (Gale andKlavans, 1985; Hoet al., 2005; Reitspergeret al., 1993).

Given these three key arguments, it is hypothesised in the current study that quality

performance is predicted by differentiation strategy, cost leadership strategy and acombination of both strategies. As such, the following three hypotheses are postulated:

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H1. There is a positive relationship between differentiation strategy and qualityperformance.

H2. There is a positive relationship between cost leadership strategy and quality

performance.H3. There is a positive interaction between cost leadership and differentiation

strategy in predicting quality performance.

Research methodSample and proceduresEmpirical data was obtained via a survey of 1,000 managers. The majority of thesemanagers held senior position within their companies and had knowledge of past andpresent organizational practices relating to quality and innovation. Participants wereselected randomly from Australian companies in both manufacturing andnon-manufacturing sectors. Only one site (or plant) per organization was included in

the sample.Of the 1,000 questionnaires originally sent out, 150 were returned to senderunmarked, which reduced the population size to 850. Of this 850, 194 surveys werereturned with answers. This constituted an overall response rate of 22 per cent. As thefocus of this study was on manufacturing sectors, all surveys returned fromnon-manufacturing organizations were discounted. This reduced the sample size by afurther 48 per cent, leaving a total sample size of 102.

Of the 102 companies included in the final sample, 93 per cent weresmall-to-medium sized enterprises, employing 500 employees or less. Approximately,60 per cent of the sample were companies with less than 100 employees. In termsof the positions of the respondents who represented these organizations, morethan 65 per cent were either quality managers or production/operations managers and

25 per cent were senior managers (either general managers or managing directors).The remaining respondents held positions in either finance, marketing, humanresources, and administration.

The research instrument comprises three measures that were derived from previousstudies on business strategy and TQM. Perceptual measures were used to gauge thelevel of strategy adopted in the firm and the firms performance using five-point Likertscale as outlined below.

Competitive strategy measuresThe competitive strategy measure comprised of selected items from the scaledeveloped by Miller (1988). The reason for this choice was that the scale included bothattitudinal and behavioural aspects of differentiation and cost leadership strategies.

The original competitive strategy scale by Miller was altered slightly for the purpose ofthis study, by excluding any items that were not measured via a Likert-scale.Additionally, items that were purely quantitative (e.g. R&D expenditure and sales)were excluded post-hoc due to difficulties in obtaining responses.

The three-item differentiation strategy measure assessed the use of major andfrequent product innovations, product novelty, speed of innovation, and the innovativeorientation of the firm. Items relating to more radical innovations, such as undocompetitors and high-risk R&D projects, were excluded as they were not relevant to


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the quality focus of this study. Whilst quality is related to innovation, it is more relatedtowards incremental than radical innovation (Prajogo and Sohal, 2001).

The cost leadership scale comprises of two items measuring the extent ofprice-cutting, expenditure minimization and cost control within the firm. This is

similar to the content of the scale used by Fuentes et al. (2006). Most importantly,it is consistent with Porters (1980, p. 35) description of this strategy, as the:

. . .aggressive construction of efficient scale facilities, vigorous pursuit of cost reduction fromexperience, tight cost and overhead control, avoidance of marginal customers accounts andcost minimisation in areas like R&D, service, sales force, advertising and so on.

The other items in Millers scale of cost leadership were not considered as trulyreflective of cost leadership. For example, timid and incremental behaviours indecision-making do not necessarily constitute cost leadership strategy.

Quality performance measureIn this study, quality performance is also considered to be a multidimensional measure.The scale used by Ahire et al. (1996) was adopted for its content validity, constructvalidity, and reliability. The scale comprised of four items reflecting dimensions ofquality performance: reliability, performance, durability, and conformance tospecification. These items were derived from Garvins (1984) quality dimensions.As Garvin has been acknowledged as one of the authorities in the area of qualitymanagement, this establishes the content validity of these items. Ahire et al. (1996)reports strong validity for the scale, with several goodness of fit indices and aCronbachs a of 0.92. Compared to other constructs mentioned above, this scale hassuperiority in terms of validity and reliability compared to other studies (Dow et al.,1999; Grandzol and Gershon, 1998).

In terms of the data collection approach, the construct used perceptual data where

the respondents were asked to assess their organizational performance relative tocompetitors in their industry (Ahire et al., 1996). Whilst this approach may appearsomewhat inferior because of the potential self-perceptual bias, it can overcome theproblem of inter-industry differences as respondents are asked to assess these qualityindicators in comparison to the major competitors in the industry (Dow et al., 1999).

Data analysisScale validity and reliabilityTo check the validity and reliability of the three measures, the method employed byFlynn et al. (1994), Samson and Terziovski (1999), and Meyer and Collier (2001) wasfollowed. Unidimensionality of the three measures was assessed via principalcomponent analysis with varimax rotation. All items loaded strongly (.0.5) on their

appropriate factors which supported their unidimensionality (Hair et al., 1998).The strong factor loadings also indicate convergent validity for the three scales(Anderson and Gerbing, 1988). The discriminant validity of the three scales was testedby pairing each of the scales and subjecting them to confirmatory factor analysis(CFA). Two models of CFA were run with the first model allowing the correlationbetween the two scales to be estimated (unconstrained), and the second model settingthe correlation between the two constructs to 1 (constrained). The difference of thex2 value of the two models in each pair was compared to 6.64 to test if the two scales

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were statistically different at p , 0.01. With three scales, the number of possiblecombinations between them was also three. Thus, three pairs of discriminant validitytests were run, and the results (not reported here) showed significant differencesbetween all pairs at p , 0.01.

The reliability analysis was conducted by calculating the Cronbachs a, with each ofthe three measures exceeding the 0.6 threshold required of exploratory studies(Nunnally, 1978). No item was deleted during the validation process. The final resultsof construct validity and reliability tests of the 11 constructs are reported in Table I.

Once the factor analysis was completed, factor scores were calculated to provideestimates for each of the three measures.

Bivariate correlationPearson correlations were performed as a preliminary analysis on the relationshipbetween differentiation, cost leadership, and quality. The results are presented inTable II.

Differentiation had no statistically significant relationship with cost leadership with

Pearsonrclose to 0. This suggests that whilst the two strategic intents are different,they are not antagonistic to each other. This supports what Porter suggested that ascost leaders could not ignore the bases of differentiation, so, too differentiators couldnot ignore their cost position so as to not lead them into inferior cost position in themarket. The weak correlation between the two strategies also minimised the potentialproblem of multicolinearity when they were subjected to regression analysis in thenext stage of analysis (Tabachnick and Fidell, 2001). Differentiation strategy was alsoshown to be significantly related to quality performance (p , 0.01, Pearsonr 0.44),whilst cost leadership, however, did not show a statistically significant relationshipwith quality performance (p . 0.05 and Pearson r 0.00).

Factor Items Factor loading Cronbachs a

Differentiation Major and frequent product innovations 0.88 0.84Product novelty or speed of innovation 0.87Growth-, innovation-, and development-oriented 0.86

Cost leadership Price cutting and minimization of expenditures 0.86 0.63Cost centres and fixing standard costs are used 0.86

Product quality Product performance 0.84 0.86Conformance to specifications 0.80Reliability 0.90Durability 0.84

Table I.Scale validity and

reliability

V1 V2 V3

Differentiation (V1) 1.00Cost Leadership (V2) 20.04 1.00Product quality (V3) 0.44 * * 0.00 1.00

Notes:N 102; * *p , 0.01Table II.

Correlation analysis


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Multiple regression analysisHierarchical multiple regression analysis (MRA) was performed to further test therelationships revealed in the correlation analysis as well as examining the interactioneffect between two competitive strategies in predicting quality performance. Both

differentiation and cost leadership were treated as independent variables and qualityas a dependent variable. Organisational size (in terms of number of employees) wasincluded in the equation as a control variable as previous studies have shown it toaffect quality performance (Ahire and Golhar, 1996; Brah et al., 2002). The interactioneffect was represented by the product term between differentiation and cost leadership.In order to generate a standardized regression model when an interaction term ispresent, all variables were converted into z-scores prior to analysis (Tabachnick andFidell, 2001). Three regression models were run in a hierarchical order. The first steponly included control variable (i.e. size) as an independent variable, the second step wasto add control variable and main effects (i.e. differentiation and cost leadership), andthe third step was to further add the interaction (i.e. product term) between

differentiation and cost leadership. The results are presented in Table III.As shown in model 1, size did not show a significant effect on quality performance.In model 2, differentiation showed a significant effect on quality (b 0.43, p , 0.01)whilst cost leadership did not (b 0.05, p . 0.05). This confirms the results of thecorrelation analysis (Table II). Therefore, H1 is supported, whilstH2is not supported.The explained variance (R2) of model 2 was 20 per cent, thus showing a 19 per centincrease from model 1 at a significance level of 0.01. This was unique effect over andabove the variance contributed by size. In model 3, the interaction betweendifferentiation and cost leadership showed a significant effect on quality (p , 0.05,b 0.20). The increment explained variance (R2) was 24 per cent, hence increasing4 per cent from model 2 at a significance level of 0.05. This indicates an interactioneffect between differentiation and cost leadership in determining quality performance;

hence, supporting H3. The positive sign of the interaction effect indicates that whencost leadership is high, the positive relationship between differentiation and qualityperformance is stronger. The interaction effect is shown in Figure 1.

The effect of differentiation on product quality was illustrated with the slope of theline. In the case of low score of cost leadership, the line was nearly flat, indicating avery low effect. On the other hand, when cost leadership is high, the slope was steep,indicating strong effect.

Model 1 Model 2 Model 3Predictors b p-value b p-value b p-value

Size 20.12 0.23 20.11 0.24 20.11 0.24Differentiation 0.43 0.00 * * 0.38 0.00 * *

Cost leadership 0.05 0.57 0.06 0.55Differentiation cost leadership 0.20 0.02 *

R2 (explained variance) 0.01 0.20 0.24DR2 0.19 * * 0.04 *

Notes:N 102 firms; *p , 0.05, * * p , 0.01; b: standardised regression coefficientTable III.Hierarchical MRA

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Discussion and implication of the findingsTwo major inferences can be drawn from the results in terms of how quality is linkedto a competitive strategy. First, the finding did not support the link between qualityand cost leadership strategy despite arguments supporting the relationship betweenquality and cost reduction noted earlier. However, a closer look at the nature of the linkbetween quality and cost suggests that this finding is not surprising. For example,while holding the inverse link between quality and cost, Deming (1982) sternly warned

that solely focusing on low cost will undermine firms commitment to produce highquality products. In particular, he was strongly against the policy of creatingcompetition among suppliers and changing suppliers frequently in order to press theprice of supplied material down. This policy, he argued, had been responsible for firmsproducing poor quality products (Deming, 1986). Therefore, what Deming tried toargue was that cost reduction is a by-product of quality, not the opposite. Anotherexplanation for this finding can be derived from the concept of quality cost.As summarized by Hackman and Wageman (1995, p. 310):

. . . the fundamental premise of TQM is that the costs of poor quality (such as inspection,rework, lost customers, and so on) are far greater than the costs of developing processes thatproduce high-quality products and services.

This notion entails that reduction in (failure) costs requires firms to invest inprevention and appraisal costs which will result in the improvement of qualityperformance. Thus, firms cannot simply reduce costs at all costs. Further to this, it isimportant to differentiate low cost and low price although the two often relate to eachother. However, in the context of quality, whilst quality is associated with low cost, it isnot economy product (Gale and Klavans, 1985). High quality products can be soldat a premium price. With low cost of production, profit margins are increased.This allows firms to perform above average.

Figure 1.Interaction effect between

differentiation and costleadership in predictingquality performance

low cost

high cost

3

2

1

0

1

2

3

3 2 1 0 1 2 3

Differentiation

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The second inference relates to the finding that, cost leadership moderates therelationship between differentiation and quality performance. In other words, qualityis a realisation of cost-conscious differentiation strategy. This is because, bypursuing quality, firms not only offer products which are better (i.e. different) from

competitors in their performance, but they also produce products at a relatively lowercost. On the external side, quality in terms of performance, reliability, and durability

serves differentiation strategy. These aspects of quality are important in determiningcustomers perceptions on the product. On the internal side, quality in terms ofconformance to specification or low failure costs attends cost leadership strategy.Several studies support this notion as they distinguished these two aspects of quality(i.e. quality by design and quality by conformance) and showed the double-impact ofquality on organisational performance. Quality by design is positively related tocustomer satisfaction, whilst quality by conformance positively affects low cost (Forzaand Filippini, 1998; Fynes and Voss, 2001).

The synergy between external differentiation and internal cost leadership providesfirms with flexibility to select the scheme of competition they want to pursue bycharging premium price with higher quality or offering lower price with relativelyequal quality level to competitors. This issue is particularly important whenconsidering the industry life cycle. Meirovich (2006) argued that as an industry growsinto maturity, customer needs and products attributes are better tied and customersbecome more familiar with industry products. As a result, the role of design qualitydiminishes. At the same time, as more customers enter the market, the volume ofproducts usage increases. At this point, firms have to deal with large productionvolume and the focus then shifts into maintaining a high degree of conformance.Specifically, he stressed that in the maturity and decline stages it is not possible todefine cut-and-dried priority between the two quality components (p. 211).

By and large, the findings support the argument that quality allows the pursuit of

differentiation and cost leadership strategies simultaneously. In particular, thefindings support the notion that quality unifies these two different strategies. This isin line with the assertion that quality allows firms to accumulate multifacetedcompetitive advantage which is increasingly demanded by the severe competition oftoday (Belohlav, 1993).

Conclusion, limitations, and future researchThis study has shown that quality was primarily predicted by differentiation strategy.This relationship, however, is moderated by cost leadership strategy. This resultreconciles various arguments concerning the link between the three variables. Theauthor acknowledges the limitations of using perceptual measures of companyperformance. That said, this method has been found to moderately correlate with more

objective measures of performance (Curkovic et al., 2000). Still, as Ketokivi andSchroeder (2004) suggested, a careful interpretation and generalization of the resultsneeds to be taken when using perceptual data to measure firms performance.

This study could be furthered in several ways. First, future studies can segregatedifferent dimensions of quality (Changet al., 2003; Forkeret al., 1996) and examine therelationship between these dimensions to different strategies (Sousa and Voss, 2002).Second, future studies can examine the contingency factors which drive the choice ofthe strategic intent and performance, particularly in different business environments.

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Specifically, analysis can be done to examine the impact of the fit betweenenvironment, competitive strategies, and quality performance in determining businessperformance. Addressing this issue can be done by comparing the relationshipsbetween strategy and quality in various industry or product sectors (Jabnoun et al.,

2003; Sousa and Voss, 2001; Vokurka and Davis, 2004). The issue of maturity can alsobe applied at firms level by examining the effect of firms age on its strategy andquality performance (Madu and Kuei, 1995; Sureshchandaret al., 2003). Finally, futurestudies can improve the balance of the proportion of organisational size which in thisstudy was dominated by SMEs. This is because not only size can affect performance,but it also influences the strategic choice of the firm (Davis and Vokurka, 2005), and,perhaps, moderates the relationship between strategy and performance.

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Appendix. Differentiation strategyIndicate the degree of emphasis which the firm places on the following activities (1 stronglydisagree, 3 neutral, 5 strongly agree):

. Development and introduction of major and frequent product innovations is our primarystrategy.

. Our company always attempts to be ahead of competitors in product novelty or

speed of innovation instead of following competitors in introducing new products orservices.

. We are growth-, innovation-, and development-oriented rather than favouring the triedand true market.

Cost leadershipIndicate the degree of emphasis which the firm places on the following activities (1 stronglydisagree, 3 neutral, 5 strongly agree):

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. Price cutting and minimization of expenditures is our very important strategy.

. Cost centres and fixing standard costs by analysing variances for cost control is usedfrequently throughout the firm instead of only rarely or for a small part of operations.

Product qualityRelative to the major competitors in our industry (1 worst in industry, 3 average,5 best in industry):

. The performance of our product is . . .

. The reliability of our products is . . .

. The durability of our products is . . .

. The conformance to specification of our products is . . .

Corresponding author

Daniel I. Prajogo can be contacted at: [email protected]


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The Relationship Between Competitive Strategy and Product Quality

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