Exploring Strategic Fit : An Empirical Test of the Miles and Snow Model

Transcription

1 Exploring Strategic Fit : An Empirical Test of the Miles and Snow Model Paper prepared for presentation at the Academy of Management Conference, Anaheim, August Rhys Andrews, George A. Boyne, Laurence J. O Toole, Jr. & Richard M. Walker The notion that organizations should seek to align their strategy with their structure, process and environment is at the heart of contingency theories. However, to date, few studies have provided a comprehensive examination of the argument that different strategic choices are associated with distinctive combinations of internal and external characteristics. In this paper we explore the issue of strategic fit by applying Miles and Snow's (1978) seminal model of strategic management with an appropriate set of statistical tests to a panel of over seventy organizations during a three-year period. Using seemingly unrelated regressions to control for the possibility that organizations may adopt a mix of strategies we find that: a prospecting strategy is associated with decentralization and incremental processes; a low cost defending strategy is associated with rational planning, while differentiated defending is associated with an absence of logical incremental processes; both forms of defending are positively related to environmental uncertainty; and a reactor strategy is associated with centralized decisionmaking. 1

2 Exploring Strategic Fit : An Empirical Test of the Miles and Snow Model The argument that organizations should adopt coherent and distinctive strategies, and adapt their internal characteristics to reflect these strategies, has a venerable status in the management literature. Contingency theories suggest that, when correctly aligned with the environment confronted by their organizations, certain strategies, structure and processes are likely to improve organizational performance. However, most quantitative empirical research on strategic fit has examined the relationship between strategic choice and the environment (e.g. Zajac, Kraatz, & Bresser, 2000) or the combined effects of structure and environment on strategy (e.g. Olson, Slater, & Hult, 2005; Russell & Russell, 1992). In particular, as yet almost no studies have explored strategy, structure and process (a rare exception is Stone, Bigelow, & Crittenden, 1999) or strategy, process and environment -- let alone all four contingencies in combination. Evidence on the nature of strategic choices and their relationship with each of the relevant organizational and environmental characteristics identified by contingency theories can therefore make an important contribution to the literature on contingency theory (Donaldson, 2001). It can also give managers empirical foundations for designing better organizations. In this paper we explore these issues by applying Miles and Snow's (1978) model of strategic management to a set of public organizations. Miles and Snow argue that organizational strategies, whether in the public, not-for-profit, or private sectors, fall into a small number of ideal types. Furthermore, each of these strategies is associated with distinctive organizational structures, processes and environments. We develop and apply this framework to assess whether strategies are consistently related to internal structures and processes and environmental circumstances in the ways predicted by Miles and Snow. Miles and Snow s classic (1978) typology of strategy is widely acknowledged to be the most influential of its kind for the past quarter of a century (see Desarbo et al., 2005). Its 2

3 enduring appeal has been attributed to its parsimony, industry-independence and correspondence to real-world situations (Hambrick, 2003). Other models of strategic choice either provide a complementary rather than an alternative perspective to Miles and Snow (e.g. Porter, 1980; Miller, 1990), or are by and large inapplicable to public organizations (e.g. Snow & Hrebiniak, 1980). Although the Miles and Snow model is industry-independent, the public sector may, in fact, represent a more appropriate context for testing its arguments than the private sector, as strategy in public organizations is likely to be more persistent due to the absence of meaningful exit options from difficult markets. Thus the links between strategy, structure, process, and environment may be more stable in the public than in the private sector. If organizational and environmental characteristics are more fixed in public organizations, then empirical investigation is potentially more likely to uncover linkages between them. However, if the relationships hypothesised by Miles and Snow do not hold, then such a finding too may reveal something important about sector differences. In particular, it is quite conceivable that the legal and regulatory constraints faced by public organizations may restrict their ability to achieve fit between their strategies, internal characteristics, and their environments. The Miles and Snow model is therefore used for our analysis because it effectively captures the notion of strategy as a broad approach to maintaining and improving organizational performance. In the first part of the paper we review the Miles and Snow model and derive a series of testable hypotheses from their arguments. In the second part of the paper we outline our data and empirical methods. We then investigate whether the strategies of public organizations are associated with their internal structures and processes, and with perceived environmental uncertainty. Seemingly unrelated regressions suggest that: a prospecting strategy is associated with decentralization and incremental processes; low cost defending with rational planning, and differentiated defending with an absence of logical 3

4 incremental processes. Both forms of defending were positively associated with environmental uncertainty, and a reactor strategy with centralized decision-making. THE MILES AND SNOW MODEL Miles and Snow s (1978) typology of organizational strategies contains four ideal types. Prospectors are organizations that almost continually search for market opportunities, and regularly experiment with potential responses to emerging environmental trends (Miles & Snow, 1978, p. 29). These organizations often pioneer the development of new products. Defenders are organizations that take a conservative view of new product development. They typically compete on price and quality rather than on new products or markets and devote primary attention to improving the efficiency of their existing operations (Miles & Snow, 1978, p. 29). Analyzers represent an intermediate category, sharing elements of both prospector and defender. Analyzers are rarely first movers but, instead, watch their competitors closely for new ideas, and rapidly adopt those which appear to be most promising (Miles & Snow, 1978, p. 29). Reactors are organizations in which top managers frequently perceive change and uncertainty in their organizational environments but typically lack any consistent strategy. A reactor seldom makes adjustment of any sort until forced to do so by environmental pressures (Miles & Snow, 1978, p. 29). Reactors typically have a lack of fit between strategy, structure and process, and a lack of fit between strategy and the external environment. Walker and Rueckert (1987) argue that Miles and Snow s concept of a defender strategy is too broadly defined and heterogeneous. In particular, for a defender to successfully realize the twin goals of efficiency and quality they are likely to require very different organizational structures and processes. This leads Walker and Rueckert (1987) to distinguish between those defenders (low cost defenders) that focus on enhancing the efficiency of their 4

5 operations and those that concentrate and delivering superior quality on core products and services (differentiated defenders). To reduce the potential ambiguity surrounding Miles and Snow s defender archetype we therefore investigate the strategic fit of these two types of defender strategy. Conant et al. (1990) criticize research on strategy content that places organizations in mutually exclusive boxes and assumes that each organization has only a single strategic stance which can be easily observed, for example, a prospector or defender. Desarbo et al s (2005) empirical test of the Miles and Snow model found evidence of hybrid strategic stances within organizations suggesting that strategic choice is messy and complex rather than neat and simple. Public organizations, in particular, are likely to pursue a mix of strategies at the same time because they are expected to satisfy a range of conflicting and competing goals, which are judged by an array of diverse constituencies (including citizens, service users, the media, regulators and politicians) (Boyne & Walker, 2004). It is therefore inappropriate to categorize organizations as belonging solely to a single type; strategy variables are continuous, rather than categorical. This logic also implies that the analyzer category is redundant because it is essentially an intermediate type between the prospector strategy at one extreme and the defender strategy at the other (Walker & Rueckert, 1987, p. 17). Organizations are likely to be both prospecting and defending to some extent (although the balance will vary with the priority attached to these stances, and that attached to a reactor strategy). Consequently, while evidence on the degree to which an organization prioritizes a prospector or either type of defender strategy may provide some indication of an analyzerlike stance, analyzing is not treated as a discrete strategy in our test of the Miles and Snow model. 5

6 STRATEGIES AND ORGANIZATIONAL CHARACTERISTICS Miles and Snow (1978) argue that strategy is a way of adjusting the relationship between an organization and its environment, and that internal structures and processes in turn must fit the strategy if this adjustment is to be successful. Organizations face not only an entrepreneurial problem (which strategy to adopt), but also an administrative problem (the selection of structures and processes that are consistent with the strategy). They argue that, over time, strategy, structure and process reinforce each other: organizations choose an administrative system that is consistent with their strategy then find that this system continues to propel them in the same strategic direction. The result is a cycle of mutual cause and effect which tightens the relationship between strategy and a set of organizational characteristics. This logic leads to the view that prospectors and defenders have distinctive structures and processes, whereas reactors, lacking a coherent and stable strategy, have no consistent internal arrangements. The major aspect of organizational structure which Miles and Snow (1978) discuss is the extent of decentralization. They argue that, for defenders, the solution to the administrative problem must provide management with the ability to control all organizational operations centrally (1978, p. 41). This is because defenders attempt to maximize the efficiency of internal procedures. A defender thus resembles a classic bureaucracy in which only top-level executives have the necessary information and the proper vantage point to control operations that span several organizational subunits (Miles & Snow, 1978, p. 44). By contrast, a prospector spreads power much more widely among parts of the organization, because it is encouraging flexible and innovative behavior that will allow it to locate and exploit opportunities for new ventures. The prospector s administrative system must be able to deploy and coordinate resources among many decentralized units and projects rather than to plan and control the 6

7 operations of the entire organization centrally (Miles & Snow, 1978, p. 59). Power is devolved to middle managers and front-line staff so that they can apply their expertise in many areas without being unduly constrained by management control. [J]obs are broadly defined in order to permit maximum autonomy (Miles & Snow, 1978, p. 62). Walker and Rueckert (1987) argue that differentiated defenders require higher levels of flexibility than low cost defenders to successfully defend their differentiated market position in response to changing customer preferences. As a result, managers in differentiated defenders are likely to be permitted greater decision-making autonomy in order to carry out environmental scanning (at least within their limited domain) than their counterparts in low cost defending organizations (though probably not as much as managers in prospecting organizations). Reactors, unlike defenders or prospectors, have no predictable organizational structure: some may be centralized while others are decentralized. Reactors do not possess a set of mechanisms which allows them to respond consistently to their environments (Miles & Snow, 1978, p. 93). This set of arguments leads to the following hypotheses on the links between organizational strategies and structures: Hypothesis 1. Decentralization is more positively related to a prospector strategy than a differentiated defender strategy. Hypothesis 2. Decentralization is negatively related to a low cost defender strategy. Hypothesis 3. Decentralization is not related to a reactor strategy. Turning from organizational structures to processes, Miles and Snow (1978) distinguish between the extent of planning associated with different strategies. Defenders plan intensively and in detail, and carefully evaluate any proposed changes in technology and 7

8 procedures in advance of taking action. In a defender, the planning sequence proceeds through a series of steps which allows the organization to exploit current and foreseeable environmental conditions fully. These steps mainly involve the setting of output and cost objectives which are then translated into specific operating goals and budgets (Miles & Snow, 1978, p. 43). Slater, Olson and Hult (2006) argue that this especially so for low cost defenders, as wide-ranging evaluation of alternative strategic choices would be expensive and inefficient. Differentiated defenders, however, seek to combine a focus on formal plans and procedures for consistently delivering high quality, with greater consideration of different approaches to doing so. As a result, they may be less likely to rely as heavily on formal planning processes as low cost defenders. The planning process in a prospector, by contrast, is extremely broad and tentative. Prospectors are poised to expand or contract their activities, depending on the opportunities or threats that they face, so the planning cycle is seldom systematic or complete. Rather, planning is fluid and shifts with new organizational directions. In a prospector, organizational objectives are allowed to coalesce around current areas of prospecting and thus seldom achieve a stable equilibrium. Unlike the low cost defender (in particular), whose planning process is usually finalised before implementation begins, the prospector must often directly engage a new problem or opportunity before detailed planning can be completed (Miles & Snow, 1978, p. 61). Thus, whereas the low cost defender is a thoroughgoing rational planner, the strategy process in a prospector is a mix of planning and logical incrementalism (Quinn, 1980). Both defenders and prospectors plan, but the former do so more formally and precisely, whereas the latter are expected to follow a more informal and iterative process. Finally, reactors again are predicted to exhibit a range of approaches to planning. In a reactor management does not fully shape the organization s structures and processes to fit a chosen 8

9 strategy (Miles & Snow, 1978, p. 93). Nevertheless, the absence of a clear vision about where the organization is headed, and the reliance on external pressures to shape strategy, makes it difficult if not impossible for reactors to plan. Any planning process would quickly become redundant as the organization shifts in unpredictable ways. These arguments lead to the following hypotheses on strategy: Hypothesis 4. Rational planning is more positively related to a low cost defender than a differentiated defender strategy. Hypothesis 5. Logical incrementalism is positively related to a prospector strategy. Hypothesis 6. A reactor strategy is not consistently related to either rational planning or logical incrementalism. STRATEGIES AND ENVIRONMENTAL UNCERTAINTY Although strategy-environment fit is an important element in the Miles and Snow model, it receives less attention than the alignment of strategy with internal structures and processes. Despite the central role played by perceptions of the environment, there has been little systematic research examining their impact on the strategy, structure and process of organizations. Nevertheless, it is clear that Miles and Snow have an adaptationist view of the link between strategy and environment, and believe that organizations have the discretion to adopt the strategy that is best suited to the circumstances that they face. They follow Burns and Stalker (1961) in arguing that an organic structure is required in an uncertain environment, whereas a mechanistic structure is appropriate in a predictable and stable environment. By extension, environmental uncertainty should be most strongly associated with prospecting, but also associated to a lesser extent with differentiated defending. Low 9

10 cost defending, on the other hand, should be associated with a high degree of certainty about the environment. Miles and Snow provide little discussion of the impact of environmental uncertainty on a reactor strategy. They argue that reactors are unstable organizations because they do not possess a set of mechanisms which allows them to respond consistently to their environments over time (Miles & Snow, 1978, 93). This suggests that reacting will not be consistently linked to any set of external circumstances, including uncertainty. However, a dynamic and unpredictable environment may lead organizations to seek cues from other agencies about the best way to respond to these circumstances. A lack of certainty about means-ends relationships in a dynamic environment may cause managers to lose confidence in their own ability to judge whether prospecting or defending is appropriate, and to rely instead on the prescriptions of powerful and supposedly more knowledgeable actors in their institutional setting. These arguments lead to the following hypotheses on strategies and perceived environmental uncertainty: Hypothesis 7. Perceived environmental uncertainty is more positively related to a prospector strategy than a differentiated defender strategy. Hypothesis 8. Perceived environmental uncertainty is negatively related to a low cost defender strategy. Hypothesis 9. Perceived environmental uncertainty is positively related to a reactor strategy. 10

11 DATA AND METHODS UNIT OF ANALYSIS Recent public management reforms have emphasised the importance of a comprehensive approach to strategy, and governments in various nations have exhorted public agencies to align their internal arrangements with their service objectives (Pollitt & Bouckaert, 2004). Very little research has been conducted, however, on patterns of organizational strategy in the public sector, or on the links between strategies, other organizational characteristics and environments (Boyne & Walker, 2004). The need for systematic investigation of these issues is, however, increasingly urgent. The National Performance Review and the Program Assessment Rating Tool in the United States (Thompson, 2000) and the Modernization Agenda in the United Kingdom (Boyne, Kitchener & Kirkpatrick, 2001) have required public managers to design and adopt strategies to improve service quality and effectiveness. The achievements of public organizations in meeting the requirements of these programs is monitored and measured ever more closely, with a host of regulatory and advisory agencies providing feedback on their performance and prospects for further improvement. The panel data set for this analysis consists of a maximum of 73 English single and upper tier local governments (county councils, London boroughs, metropolitan districts and unitary authorities), and includes measures taken from a five-year period (2001 to 2005). These governments are multipurpose organizations providing education, social care, regulatory services (such as land use planning and waste management), housing, welfare benefits, leisure and cultural services. They represent an especially suitable context for testing the Miles and Snow model, because in recent times English local governments have been exhorted by regulatory agencies to align their internal arrangements with their service objectives (Walker & Boyne, 2006). 11

12 METHODS AND MEASURES Data on perceptions of strategy, structure, process, and environment were derived from electronic surveys of English local government managers carried out in every summer from 2001 to addresses for the survey were collected from participating governments and questionnaires were delivered as an Excel file attached to an . The electronic questionnaires were self-coding and converted to SPSS format for analysis. Informants had eight weeks to answer the questionnaire, save it and return by (Enticott, 2003). Multiple informant data were collected from senior and middle managers in each organization. The responses of these two echelons were used to overcome sample bias problems associated with surveying a higher proportion of informants from one organizational level (Payne & Mansfield, 1973; Walker & Enticott, 2004). In each participating government, questionnaires were sent to up to three corporate informants and four managers in each major service area. In 2001, the total sample consisted of 121 single and upper tier governments, with a 56 per cent (1259) informant response rate. In 2002 and 2003, the total sample was 77, with response rates of 65 per cent (922) and 56 per cent (790) respectively. In 2004, the total sample was 136, with a response rate of 54 per cent (1052). These cases are representative of the diverse operating environments faced by English councils, including urban, rural and socio-economically deprived areas. Time-trend extrapolation tests for nonrespondent bias in each year (Armstrong & Overton, 1977) revealed no significant differences between the views of early and late respondents. Some cases could not be matched when the survey variables and performance measures were mapped due to missing data within the respective datasets. Data were also lost by measuring the structure, process and environment variables a year prior to the strategy variables (i.e. structure, process and environment are taken in the years , while 1 A copy of the full questionnaire is available on request from the authors. 12

13 strategy is taken in the years ). As a result, the statistical analysis of the determinants of strategy was conducted on an unbalanced panel of 70 local governments in 2002, 72 in 2003 and 73 in Nonetheless, these cases are representative of the diverse operating environments faced by English local governments, including urban, rural, and socioeconomically deprived areas. Dependent variables Strategy Indices for each of Miles and Snow s strategies were created by taking the mean score for each organization on selected survey items (see Table 1). This ensured that each item was weighted equally and that each strategy variable was measured on a similar scale. A prospector strategy was operationalised through five measures of innovation and market exploration, as these are central to Miles and Snow s (1978) definition of this orientation. Respondents placed their government or their functional area, depending upon their managerial level, on a seven-point scale ranging from 1 (strongly disagree with the proposed statement) to 7 (strongly agree with the proposed statement). The specific measures are derived from Snow and Hrebiniak (1980) and Stevens and McGowan (1983). To explore the extent to which organizations displayed defender characteristics, informants were asked two questions assessing whether their approach to service delivery was focused on core activities and achieving efficiency (Miller, 1986; Snow & Hrebiniak, 1980; Stevens & McGowan, 1983). Reactors are expected to lack a consistent strategy and to await guidance on how to respond to environmental change. We therefore asked informants three questions about the existence of definite priorities in their service and the extent to which their behaviour was 13

14 determined by external pressures. We again based these measures on prior work (Snow & Hrebiniak, 1980). 2 Independent variables Seven items from our survey were used to measure organizational structures, processes, and environments (see Table 1). By using lagged independent variables we ensure that strategy post-dates its hypothesized organizational and environmental correlates, thereby reducing the potential for reverse causation. A range of items from the survey were used to measure organizational structures and processes. The extent of decentralization in organizational structures was measured using an item focusing on the distribution of decision-making. Centralization has been defined as the extent to which the locus of authority to make decisions affecting the organization is confined to the higher levels of the hierarchy (Child, 1972, p. 164). Our measure of decentralization was therefore based on a question evaluating the degree to which control was devolved to middle managers within the sample organizations (Hart & Banbury, 1994). To explore processes of strategy formulation, informants were asked two questions on rational planning and two questions on logical incrementalism, all of which are drawn from prior studies (Bailey, Johnson & Daniels, 2000; Hart & Banbury, 1994; Miller, 1986; 1987; Snow & Hrebiniak, 1980; Stevens & McGowan, 1983). Our measures of rational planning sought to capture the use of intensive formal organizational processes to assess service needs and evaluate strategy options. The key characteristics of logical incrementalism are the production of broad goals and ongoing negotiations with key stakeholders. These concepts were separately captured in the questions we posed on logical incrementalism. 3 2 The prospecting index has an excellent Cronbach s Alpha internal reliability score of.84, while the reacting index has a good score of.70 (Nunnally, 1978). 3 The combination of our two rational planning items in an index achieved a high internal reliability score of.80. The incremental process index has an acceptable Cronbach s Alpha score of.61 (Nunnally, 1978). 14

15 Our survey item measuring environmental uncertainty focused on managerial perceptions of the uncertainty of the socio-economic and external political circumstances faced by their organizations. These aspects of the environment are especially likely to be important to the strategic stance of English local governments, as they are increasingly expected to be responsible for community well-being and are subject to considerable political pressures to improve their performance and management from a host of external stakeholders. 4 [Position of TABLE 1] Control variables Measures of past performance, service expenditure, and organizational size were included as controls in our model of the determinants of strategy. Prior work suggests that the strategy of organizations is influenced by their recent performance (Ketchen & Palmer, 1999; Bolton, 1993). English local governments are subject to a competitive benchmarking scheme that ranks their achievements on service delivery (Andrews, Boyne, Law, & Walker, 2005). For the three-year period covered by this analysis ( ), this system classified the service performance of single and upper tier local governments by making judgements about their achievements in six key service areas (education, social care, environment, housing, libraries and leisure and benefits) together with their broader management of resources (Audit Commission, 2002; 2003; 2004). 5 The services are given a score from 1 (lowest) to 4 4 Our perceived environmental uncertainty index has a Cronbach s Alpha score of.54, which may be acceptable for exploratory analysis using new scales (Loewenthal, 1996). To explore the validity of our uncertainty measure further, separate items measuring socio-economic and external political uncertainty were individually entered in the model, revealing similar results to those presented. 5 CPA was first carried out in 2002 hence it was not possible to enter a score for core service performance in 2001 in our model. To create a proxy for core service performance in that year based on the available BVPIs in 2001, we first ran a stepwise regression for the core service performance (excluding use of resources) measure in 2002 based on a sample of 24 key BVPIs that were available for each type of government in the same year. We found that seven performance indicators accounted for half the variance in the core service performance 15

16 (highest), based on a mixture of performance indicators, inspection results and service plans and standards. Each service score is then weighted to reflect its relative importance and budget (children and young people and adult social care = 4; environment and housing = 2; libraries and leisure, benefits and management of resources = 1) and summed to provide an overall service performance judgement. These range from 15 (12 for county councils which do not provide housing or benefits) to 60 (48 for county councils). Because these scores are not directly comparable across all types of authority, each government s score is taken as a percentage of the maximum possible score. Strategy may vary not only because of internal and external characteristics and past achievements, but also because of the financial resources expended on services. Spending variations across local governments may arise for a number of reasons (the level of central government support or the size of the local tax base, for example). A comparatively prosperous government may be able to fund service development activities while a comparatively poor one in another area can afford to subsidize only core services that they are under a statutory obligation to provide. In other words, high-spending organizations might be more likely to prospect, while low-spending organizations may be more likely to engage in defending behaviour. We controlled for potential expenditure effects by using revenue expenditure per capita figures drawn from government sources. These data show the total amount spent by local governments on the core services that they provide, such as education, social services and waste management. scores awarded by central government inspectors: (consumer satisfaction (in 2000); the percentage of pupils aged 16 achieving 5 or more General Certificates in Secondary Education graded A*-C; the number of persons over 65 helped to live at home per 1000 population; social services user satisfaction; the number of visits to libraries per 1000 population; the score on the trading standards checklist of best practice; and the educational qualifications of looked after children). We then multiplied the score each local government achieved on these performance indicators in 2001 by their respective coefficients in the stepwise regression model, summing the resulting scores together to give an overall measure of local government performance (Audit Commission 2003a; 2004). 16

17 Local government population figures were used as a measure of organizational size. Large organizations may have greater capacity for consistently developing new ways of working than their smaller counterparts. Economies of scale may arise from spreading fixed costs over more units of output and from the need to provide services across large client groups (Boyne, 1996). This could, in turn, generate the resources necessary for the development of innovative solutions to service problems or swift responses to environmental change (Nohria and Gulati, 1996) associated with prospecting organizations. Indeed, Smith, Guthrie and Chen (1989) have shown how firm size influences the relationship between strategy and performance. Descriptive statistics for the variables used in our model of strategic fit are shown in Table 2. 6 [Position of TABLE 2] The figures in Table 2 show that local governments were more likely to be low cost defending (mean agreement = 5.00) and prospecting (4.88) than differentiated defending (4.84), and least likely to identify themselves with a reactor strategy (4.01). However, positive correlations between prospecting and low cost defending (.26), low cost defending and differentiated defending (.12), and differentiated defending and reacting (.19) suggest that English local governments may adopt certain strategies simultaneously. The means in Table 2 show that, on average, respondents agreed strongly with the survey statement on decentralization ( control is devolved to service managers ). The figures also show that respondents strongly identified their formulation process with both rational planning and logical incremental procedures. By contrast, the perceived environmental uncertainty scale is a little below the midpoint of the item scale. Additional analysis revealed 6 Before running the statistical models, skewness tests were carried out to establish whether each independent 17

18 that only 17 per cent of governments were above the midpoint (results available on request). Thus, managers in English local government appear to believe that their organizations have decentralized structures, an array of strategy processes and comparatively low levels of environmental uncertainty, but nevertheless are most likely to be prospectors. We used a number of techniques to control for the potential influence of common method bias on our statistical results. First, psychological and temporal procedural remedies were used in the design of our questionnaire (Podsakoff & Organ, 1986). The items measuring each strategic stance were placed in a different section of the questionnaire. The order of individual items measuring structure, rational planning and logical incrementalism was also mixed to control for priming effects. Second, our piloting process led to the subsequent improvement of many survey questions and increased emphasis on respondent anonymity in potential outputs, reducing the potential for item ambiguity and evaluation apprehension to increase common source biases (Tourangeau, Ripps, & Rasinski, 2000). We use seemingly unrelated regression (SUR) to control for the possibility that the error terms are correlated across OLS regression models for different strategic stances. In such circumstances, OLS is inefficient as separate estimations are unable to utilize relevant information present in the cross-regression error correlations (Zellner, 1962). SUR remedies this by determining the parameters for all relevant equations in a single procedure (Greene, 2000). It transforms the standard errors such that they all have the same variance and are no longer correlated, before applying this transformation to all the variables in each equation and then applying OLS to these transformed variables. This permits the inclusion of the information provided by the correlation between individual equation errors, and means that SUR is especially suitable for modelling the effects of unobserved variables. For example, in our analysis, seemingly unrelated regressions give us coefficients for the independent variable was distributed normally. A high skew test result was found for population (1.76. To correct for 18

19 variables in each separate equation that are purged of any association with the predilection of an organization for adopting multiple strategic stances. We have, in effect, a pure model of strategic fit for prospecting, defending and reacting. STATISTICAL RESULTS The seemingly unrelated regression results for our three models of strategic fit are shown in Table 3. 7 The inclusion of dummy variables for each year reduced the possibility of within panel autocorrelation. The average Variance Inflation Factor (VIF) score is about 1.4 for all the independent variables in each model. The results are therefore not influenced by multicollinearity (Bowerman & O Connell, 1990). Each model provides a statistically significant explanation of variations in the adoption of strategic stances in English local governments. The chi 2 statistic for prospecting is highest, suggesting that this strategy is more tightly linked with the contingencies and control variables that we test than either of the other two strategic stances. In other words, Miles and Snow s arguments that strategies are likely to be tightly linked to internal characteristics and external constraints appears to be more valid for prospecting than either type of defending or reacting. The majority of the control variables have the expected signs, with all three statistically significant in the differentiated defending model. Strategies appear to be influenced by past performance, service expenditure, and organizational size. Local governments are more likely to follow a strategy of prospecting or, contrary to expectations, low cost defending when they are high spenders. A negative relationship is found between differentiated defending and performance, expenditure, and size. Similarly, reacting is associated with weaker performance and lower spending. positive skew, a logged version of this variable was created. 7 Similar results to those presented here were obtained using separate OLS regressions. 19

20 [Position of TABLE 2] ORGANIZATIONAL STRUCTURES The Miles and Snow model suggests that decentralization is associated with prospecting and differentiated defending, centralization with low cost defending, and reacting with neither pattern of power distribution. The regression results, however, provide confirmation for only Hypothesis 1 on the link between strategy and structure: the coefficient for decentralized decision-making is positive and statistically significant for a prospector strategy, while it is positive for differentiated defending. This corroborates most of the available evidence on the link between prospecting and decentralization in public, non-profit, and private organizations. For example, Doty, Glick, and Huber s (1993) analysis of a range of private and public organizations in the US showed that prospectors were more likely than either defenders or reactors to be decentralized. By contrast, the statistical results appear to provide no support for Hypothesis 2. The coefficient for decentralization has the predicted sign for low cost defending, but is not statistically significant. Although the negative sign of the decentralization coefficient for low cost defending hints at some support for the arguments of Miles and Snow and Walker and Rueckert (1987), a low cost defender strategy therefore seems to be unrelated to the withdrawal of decision-making from middle managers. It is conceivable that this is suggestive of an inconsistent relationship between low cost defending and decentralization amongst our sample organizations. For example, Olson, Slater and Hult (2005) uncovered evidence of positive relationships between both types of defending and decentralization. Future studies should explore the links between decentralization and a defender strategy in more detail. 20

21 Hypothesis 3 is directly contradicted: the coefficient for decentralization is negative and statistically significant in the reacting model. Our results therefore undermine Miles and Snow s contention that reactors are unlikely to have a consistent decision-making structure, since our sample of English local governments seems to show that reacting organizations have more centralized control of decision-making. PROCESSES Strategy process is a key issue in public management and is a central element in the Miles and Snow typology. However, few studies have explored the relationship between strategic stance and process, and those that have been undertaken provide contradictory evidence (Segev, 1987; Ketchen, Thomas, & McDaniel, 1996; Gibbons & O Connor, 2005). All of the process coefficients presented in Table 3 are in the hypothesised direction, but they vary in their statistical significance. Rational planning is positively related to low cost defending, with logical incrementalism negatively related to a differentiated defender strategy. Incremental processes are positively related to prospecting, while, reacting, as predicted, is not related to either style of strategy formulation. Rational planning was argued to be most strongly associated with a low cost defender strategy, and our results support Hypothesis 4 the coefficient for rational planning is statistically significant for low cost defenders, but only nearly so for differentiated defenders. Although the planning coefficient is positive for prospectors, it does not achieve statistical significance. This is consistent with the evidence from the limited number of studies that have examined the relationship between strategic stance and strategy formulation (Ketchen, Thomas, & McDaniel, 1996; Segev, 1987; Gibbons & O Connor, 2005). Moreover, the findings for our measure of logical incrementalism follow the predicted pattern the coefficient for incremental process is significant and positive for our model of prospecting, 21

22 but significantly negative for our model of differentiated defending, thereby providing support for Hypothesis 5. Full support is found for Hypothesis 6: neither type of strategy process is associated with reacting. Previous studies (e.g. Segev, 1987) have suggested that reacting is negatively related to rational planning. Although our results do not mirror this finding, the process coefficients in our model of reacting are clearly different from those for both the prospecting and defending models. Indeed, the conclusion to be derived from these findings is that the processes associated with a reactor strategy are likely to be very different from those linked to a prospector or defender strategic stance. ENVIRONMENTS Organizational environments are a key issue in management research (e.g. Boyd & Gove 2006; Dess & Beard, 1984). Table 3 shows that the coefficients for perceived environmental uncertainty do not support our hypotheses on the relationship between the environment and strategic stance: uncertainty is significantly and positively related to both low cost and differentiated defending, but is not significantly related to either prospecting or reacting. In the face of high levels of perceived uncertainty it appears that English local governments are more likely to adopt some form of defender strategy. Rather than seeking to develop innovative approaches to service delivery in order to proactively manage that uncertainty or waiting for external guidance, they are predisposed towards managing inwards in an attempt to entrench existing processes and routines against adverse circumstances. The association of uncertainty with low cost and differentiated defending therefore suggests that English local governments may be particularly prone to dysfunctions of environmental misperception, such as threat-rigidity or group-think (see Janis, 1972; Staw, 1981). 22

23 Although these findings directly contradict one of the central elements of the Miles and Snow model, it may be the case that the defending results reveal something important about sector differences. For instance, there may be considerable political risks for public organizations that respond to uncertainty by implementing untried or innovative approaches to service delivery. To introduce new policies and initiatives public managers may have to secure the support of influential political principals who could be risk-averse or openly hostile to local service innovation (see Wilson, 1989). In addition, local governments must meet a statutory obligation to provide certain socially necessary goods, and correspondingly have fewer meaningful market entry and exit options than private firms, at least in the short term. They also receive large swathes of public funding and, hence, may face limited threat of organizational demise if they do not respond proactively to immediate environmental pressures in comparison with private firms. CONCLUSIONS Miles and Snow (1978) provide a classic model of strategic management, and in so doing argue that organizations adopt coherent and distinctive strategies based on their environmental circumstances and internal characteristics. In this paper we have presented a comprehensive empirical application of this model. Our findings show that internal structures and processes, along with perceived environmental uncertainty, are not consistently related to organizational strategies in the ways predicted by Miles and Snow. While prospecting is positively associated with decentralization, low cost and differentiated defending were unrelated to this important dimension of the model. By contrast, reacting organizations, contrary to expectations, appear to have highly centralized decision-making. There are differences in the use of planning amongst prospecting and low cost and differentiated defending organizations, and some variation in the adoption of logical incremental processes. 23

24 Miles and Snow argue that defenders are likely to be more rational and prospectors more incremental. Our evidence indicates that this may be true: low cost defenders are more likely to plan and differentiated defenders less likely to have incremental processes, while prospectors are more likely to have incremental processes. Organizations with a reacting stance are, as predicted, unlikely to have consistent processes. However, our results are not consistent with the argument that organizations seeking to achieve a fit between their strategic stance and perceived environmental uncertainty are more likely to adopt a prospector or reactor strategy. Both types of defending are associated with uncertainty in the external circumstances faced by managers, but neither prospecting nor reacting is significantly associated with this important aspect of strategic fit. Our research adds to existing work on the Miles and Snow model by systematically examining the connections between stance, structure, process, and environment. Nonetheless, there are some important methodological and conceptual limitations of our analysis which raise a number of issues for further research. Our analysis has been conducted on a specific group of public organizations in a particular time period, thus leaving open the possibility that our results are an artefact of where and when we chose to conduct the survey. To what extent are the findings replicated in other settings and time frames? It is conceivable that these results are relevant only to English local governments, especially given the distinctive nature of the regulatory regime they face. Second, prospectors and defenders appear to have similar approaches to planning. Is this unique to public agencies, or also a feature of private and not-for-profit organizations? Reacting governments have a clear distribution of power but lack distinctive processes, and they are not influenced by high levels of perceived environmental uncertainty. The apparent incoherence in the internal processes of reactors may indicate that they continuously alter their characteristics to whatever external signal is most powerful at any 24

25 given time. Indeed, the finding for decentralization suggests that senior managers may have the power to change reacting organizations in this discombobulated manner. However, it is also conceivable that reactors are simply poorly run organizations, which are unable to successfully develop coherent processes for formulating strategic decisions. This possibility implies that reacting may not be a coherent or stable management strategy at all, but simply indicates a total absence of strategic management. Subsequent studies of the nature of reacting should explore the extent to which an active policy of reacting can be distinguished from an inability to strategize altogether. We have shown that aspects of the Miles and Snow model are supported by data on the strategies, structures, processes, and environments of public organizations, but that there are issues of strategic fit which the model cannot fully explain for this sample, most notably those pertaining to perceived environments. Future research needs to build on this work not only by examining the link between strategy, structure, process, and environments in other contexts, but also by evaluating whether organizations that achieve the tightest fit among these are also the highest performers. REFERENCES Andrews, R, Boyne, G. A., Law, J., & Walker, R. M External constraints and local service standards: the case of Comprehensive Performance Assessment in English local government. Public Administration, 83(3): Armstrong, S., & Overton, T. S Estimating non-response bias in mail surveys. Journal of Marketing, 14(3): Audit Commission Comprehensive Performance Assessment. London: Audit Commission. 25

26 Audit Commission. 2003a. Local Authority Performance Indicators in England 2001/2002. London: Audit Commission. Audit Commission. 2003b. Comprehensive Performance Assessment. London: Audit Commission. Audit Commission. 2004a. Local Authority Performance Indicators in England 2002/2003. London: Audit Commission. Audit Commission. 2004b. Comprehensive Performance Assessment. London: Audit Commission. Audit Commission Comprehensive Performance Assessment. London: Audit Commission. Bailey, A., Johnson, G., & Daniels, K Validation of a multi-dimensional measure of strategy development processes. British Journal of Management, 11(1): Bolton, M.K Organizational innovation and substandard performance: When is necessity the mother of invention? Organization Science, 4(1): Bowerman, B. L., & O Connell, R. T Linear statistical models: An applied approach, 2 nd ed. Belmont CA: Duxbury. Boyd, B., & Gove, S Managerial constraint: The intersection between organizational task environment and discretion. Pp in D. Ketchen & D. Bergh, eds., Research Methodology in Strategy and Management, Volume 3. Oxford: JAI Press. Boyne, G. A Scale, performance and the New Public Management: An empirical analysis of local authority services. Journal of Management Studies, 33(6) Boyne, G. A., & Walker, R. M Strategy content and public service organizations. Journal of Public Administration Research and Theory, 14(2): Boyne, G. A., Kitchener, M., & Kirkpatrick, I Introduction to the Symposium on New Labour and the Modernisation of Public Management. Public Administration, 79(1):