Islami et al. Futur Bus J 2020, 6(1):3 https://doi.org/10.1186/s43093-020-0009-1 Future Business Journal RESEARCH Open Access Linking Porter’s generic strategies to frm performance Xhavit Islami1,2, Naim Mustafa2* and Marija Topuzovska Latkovikj3 Abstract In this study, the signifcance of using Porter’s generic strategies in frms that operate in competitive environments is investigated. The aim is to indicate the efects of Porter’s generic strategies (low-cost strategy, diferentiation strategy, and focus strategy) on frm performance. The questionnaires of the study have been prepared, the responses have been obtained, and the econometric model is constructed to measure these relationships. Findings stemmed by data that were taken from 113 frms that operate in the Republic of Kosovo. t test, Pearson’s correlation analysis, and mul- tivariate regression analysis were used to provide testing of hypotheses. Econometric results suggest that pursuing diferentiation strategy provides higher frm performance compared to two other Porter’s generic strategies (low-cost strategy or focus strategy) that have a positive impact as well. Keywords: Porter’s generic strategies, Low-cost strategy, Diferentiation strategy, Focus strategy, Firm performance Introduction [2]. According to Eurostat [2], about 83% of newborn Increasing the global market, internationalize of frms, enterprises in 2011 have survived in 2012, whereas over nowadays, the uncertainty of frms is increased much the years a gradual decrease is marked only 45% of cre- more, consequently the ambiguity of frms on answering ated enterprises in 2007 which were active in 2012. Te the questions, what do we have to do? and how to do it? is death rate of organizations tends to decrease as they age increased. As well as a lot of other questions that enhance [3, 4]. Newly born organizations sufer a “liability of new- the need to have a strategy, so the importance of strategy ness” [5], in which they have to learn how to survive, and is greater today than ever before. In addition to this, it is must create successful patterns of operations despite hav- valuable answering the question, what is the importance ing limited resources [6]. Slightly older organizations can of having a good strategy? sufer a “liability of adolescence” in which they can sur- Te frst challenge faced by frms that enter into the vive for a time on their initial store of resources, but then market is fnding a way to survive in that market. Statis- their failure rate tends to follow an inverted U-shaped tics and studies that are done have shown approximately pattern as they age [7], whereas frms in the phase of one-third of new European frms do not reach the second decrease try to fnd ways in order to have a longer life cir- year of their existence, whereas 50%–60% of them do not cle in the market. Older organizations can sufer a “liabil- manage to survive till the seventh year [1]. ity of obsolescence” if their operations are highly inertial Currently, frms are losing their energy to fnd meth- and unchanging and become increasingly misaligned ods that ofer them to maintain the existing position in with their environment [8]. the market, as well as to increase the market share and So, to survive, to be more proftable, and to increase proft. About 55% of new entrants fail in the frst 5 years the market share, frms should create strategies. Regard- ing organizational strategies, organizations are referred to as “specialists” if they can survive only within a lim- *Correspondence: [email protected] 2 Department of Management, Faculty of Economics, University Kadri ited range of resources. However, frms are referred to Zeka in Gjilan, Gjilan, Republic of Kosovo as “generalists” if they can survive using a wide range Full list of author information is available at the end of the article of resources [9]. Empirical research has shown that © The Author(s) 2020. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creat iveco mmons .org/licen ses/by/4.0/. Islami et al. Futur Bus J 2020, 6(1):3 Page 2 of 15 organizations that are more generalist in nature tend to competitive strategies that should be built by frms to last longer than specialized organizations [10]. General- achieve competitive advantages, it lacks on presenting ist organizations tend to have more resources than they strategies by quantitative results, identifying how much need for routine operations, and only operate at full “separately” each of the three generic strategies impacts capacity when responding to unanticipated environmen- on frm performance. As these data are missing, strate- tal demands [11]. Generalist organizations also tend to gists may pursue the wrong strategy without knowing introduce more new products and reach beyond their that in the long-term periods they are destructing their typical market segments than do specialist organizations industry and their business as well. Terefore, to fll this [11]. However, the strength of generalization versus spe- gap in the literature, the objective of this study is to use cialization can be infuenced by the typical duration of the quantitative method to measure the relationship environmental fuctuations [6]. between each of the three Porter’s generic strategies with Researches of this scope have shown that frms during frm performance, in order to enrich the existing litera- their life cycle can be faced with strong competition that ture and to bring something new and clearer strategy for leads them to failure. Tis was the reason that aroused strategists on pursuing Porter’s generic strategies. our curiosity to research the relationship between Por- Te research aim is to analyze the possible infuence by ter’s generic strategies and frm performance, as a way implementating Porter’s generic strategies: (a) low-cost that can decrease the failure scale of frms. Te fndings strategy; (b) diferentiation strategy; and (c) focus strat- of this paper enrich the strategic literature by empirical egy in the frm performance of the production sector, and evidence and ofer an opportunity for business strategists also to fnd out which of these three strategies is more to choose the path that will provide for their organiza- signifcant with increasing frm performance. tions to survive, to increase the proft, and to increase the market share. On these days, frms are coping with a very competi- Literature review tive, turbulent, and unstable market that stems from Since the early 1980’s, Michael Porter’s strategic prompt technological development. Terefore, the man- typology has been one of the most widely accepted ager’s focus is on creating a competitive advantage by methods of discussing, categorizing, and selecting creating a new way of strategic development, which is company strategies [19]. appropriate for them and enables a successful adaption to that technological and industrial changes. A major We focused on Porter’s generic strategies’ framework stream of strategy research examines the relationship for a couple of reasons. Firstly, Porter’s framework of between strategy type and frm performance, which was generic strategies is inherently tied to frm performance. done by [12–17]. Tese strategy types are sometimes Secondly, Porter’s framework overlaps with other typolo- called generic strategies [18]. gies. Porter’s diferentiation strategy resembles [20] pros- Te rest of this paper is organized as follows: Te sec- pector strategy, and Porter’s strategy of cost leadership is ond section includes literature review regarding Por- similar to Miles and Snow’s defender [21, 22] cost leader- ter’s generic strategies that present the characteristics ship strategies. Porter’s focus strategy is very much like of low-cost strategy, diferentiation strategy, and focus Miller and Friesen’s [23] niche innovator strategy (cited strategy, as well as their way of relation with frm per- by [24]). formance. In the third section, the research hypotheses To make clearer the term “strategy” are presented sev- are presented, whereas the fourth section deals with the eral strategy defnitions. Schendel and Hofer [25], defned methodology used to test the raised hypotheses. In the strategy as: “strategy provides directional cues to the ffth section, the model used is presented and analyzed. organization that permit it to achieve its objectives, while In the sixth section, hypotheses are tested and discus- responding to the opportunities and threats in its envi- sion for results is included, and this study ends with some ronment.” “Strategy is analyzing the present situation contributive conclusions. and changing it if necessary. Incorporated in this is fnd- ing out what one’s resources are or what they should be” Research objective [26]. Cannon [27], “Strategies are the directional action After Porter’s generic strategies are read and ana- decisions which are required competitively to achieve the lyzed, strategists fall into confusion that which strat- company’s purpose.” Strategies are potential actions that egy should be pursued or which strategy to implement require top management decisions and large amounts in their organization to provide better performance of the frm’s resources [28].