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For more information, please contact the WRAP Team at: [email protected] warwick.ac.uk/lib-publications 2 o Strategic Groups, Industry Structure and Firms ’ Strategies: Theory and Evidence from the UK Grocery Retailing Industry Francesco Fortunato Curto Thesis Submitted for the degree of Doctor of Philosophy (PhD) Warwick Business School University of Warwick England May 1998 Table of Contents Chapter 1 Introduction 1.0 The Research P- 1 1.1 Structure of the Research P- 5 Chapter 2 The Theoretical Foundations of Strategic Groups: the Harvard Approach 2.0 Introduction P- 9 2.1 The Research Context: Industrial Organisation and the Structure-Conduct-Performance (SCP) Paradigm p. 10 2.1.1 Firms’ Strategies and the Industry Structure in the SCP Paradigm P- 15 2.2 The Theory of Strategic Groups and Mobility Barriers p. 16 2.2.1 Structural and Endogenous Barriers to Entry P- 18 2.2.2 Barriers to Mobility and Strategic Groups P- 20 2.2.3 The Origins of Strategic Groups and Firms’ Strategic Behaviour P- 21 2.2.4 Intergroup Mobility, New Entry and Mobility Dynamics p. 22 2.3 The Characteristics of Strategic Groups Theory P- 25 2.4 Further Theoretical Development: Porter’s (1979) Theory of a Firm’s Profitability P- 28 2.4.1 Oligopolistic Rivalry and Firms’ Performance p. 30 2.4.2 Strategic Groups’ Factors Influencing Profitability p. 31 2.4.3 Firms’ Specific Factors Influencing Their Profitability p. 31 2.5 The Implications of Porter’s (1979) Paper on the Theory of Strategic Groups P- 34 Chapter 3 The Theoretical Foundations of Strategic Groups: the Purdue Approach 3.0 Introduction P- 38 3.1 Strategic Groups in Strategic Management: the Purdue Approach p. 38 5.3 The Evolutionary Theory of Firms’ Strategies and 3.1.1 Research Findings P- 45 Strategic Groups Research p. 101 p. 102 3.2 The Purdue Approach and the Harvard Approach to Strategic 5.3.1 The Evolutionary Theory of Firms’ Strategies 5.3.2 Firms, Competitive Market and Profitability in Groups Research P- 50 an Evolutionary Perspective p. 104 p. 108 3.3 The Purdue Approach to Strategic Groups Research: 5.3.3 The Organisational Context in Evolutionary Theory Methodological and Theoretical Issues 55 5.3.4 An Evolutionary Perspective of Firms’ Strategies and P- Related Implications for Strategic Groups Research p. 110 3.4 Summary P- 59 5.4 Themes and Questions for the Empirical Research p. 114 Chapter 4 The Development of Strategic Groups Research: a Critical Review Chapter 6 Methodology 6.0 Introduction p. 121 4.0 Introduction p. 60 p. 123 4.1 A Shift Towards the Harvard Approach p. 62 6.1 Methodology 6.1.1 Historiography p. 126 4.1.1 Firms’ Strategies and the Concept of Strategic Groups p. 63 p. 128 4.1.2 Strategic Groups and the View of Firms’ Strategies and 6.1.2 Historical Analysis and Strategy Process Research Industry Structure Emerging from Empirical Research p. 69 6.2 Research Method: Technical Details p. 133 4.1.2.1 The Identification of Variables Representing p. 134 Firms’ Strategies p. 70 6.2.1 Choice of Industry 6.2.2 Choice of Organisations p. 135 4.1.2.2 Clustering of Firms into Strategic Groups p. 72 6.2.3 The Choice of Time Frame p. 137 4.1.2.3 Identification of Stable Time Periods p. 75 p. 137 4.1.3 Summary p. 78 6.2.4 Data Sources 6.2.5 The Role of Documentary and Archive Data p. 138 6.2.6 The Role of Interviews p. 140 4.2 The Epistemological Characteristics of Strategic Groups Research p. 79 p. 142 4.2.1 Simplistic and Deterministic Approaches to Strategy Research p. 81 6.2.7 Timing 4.3 Summary p. 84 Chapter 7 The UK Grocery Retailing Industry p. 143 Chapter 5 Strategic Groups Research and the Development of other 7.0 Introduction Theoretical Approaches 7.1 The UK Grocery Retailing Industry in the 1950s and 1960s p. 145 5.0 Introduction p. 86 7.2 The UK Grocery Retailing Industry in the 1970s p. 147 5.1 Alternative Frameworks for the Analysis of Groups Structures 7.3 The UK Grocery Retailing Industry between 1980 and 1995 p. 151 within an Industry p. 87 7.3.1 Firms’ Strategies and Industry Changes from 1980 5.1.1 Strategic Groups and Population Ecology of Organisations p. 87 to 1995: A Micro Analysis p. 154 5.1.2 Strategic Groups and CognitiveCommunities p. 91 7.4 Conclusion p. 172 5.2 Integration of Firms’ Specific Aspects with Strategic Groups p. 94 5.2.1 A Stronger Integration of Porter’s (1979) Theory of Firms’ Profitability p. 95 5.2.2 The Resource Based View (RBV) of the Firm and Strategic Groups p. 96 Chapter 8 Argyll Group PLC Chapter 11 Tesco PLC 8.0 Introduction p. 173 11.0 Introduction p. 248 8.1 1980-1985: Argyll under James Gulliver’s Chairmanship p. 174 11.1 1980 - 1985: The Difficult Years of Strategy Change at Tesco p. 251 8.2 December 1985 - January 1987:The Failed Bid for Distillers 11.2 1985 - 1990/91: The Superstore Development Phase p. 254 and the Departure of James Gulliver p. 176 11.3 1991/92 - 1994/95: The Turbulent Years of Food Retailing p.257 8.3 1987 - 1991: Safeway’s Conversion Phase p. 179 11.4 Tesco and Food Retailing at the end of 1995 p. 265 8.4 1991 - 1995: The Turbulent Years of the GRI p. 182 8.5 Argyll and Grocery Retailing at the end of 1995 p. 189 Chapter 12 Discussion 12.0 Introduction p. 269 Chapter 9 ASDA Group PLC 12.1 Strategic Groups Research on the UK GRI p.269 9.0 Introduction p. 191 12.2 Theme 1: Analysis of the Mechanisms Characterising the 9.1 1981 - 1984: The Erosion of the Competitive Advantage p. 194 Dynamics of Industrial and Business Change p. 273 12.2.1 Question 1: How do changes in firms’ strategies relate to 9.2 1985 - 1987: Strategy Change at the Group and the Business Level p. 198 changes in the industry structure? Are firms responsible for the process of change or do they react to changes in the 9.3 1988 - 1991: From the De-merger from MFI to the Departure external environment? p. 273 of Chairman and Chief Executive p. 202 12.2.1.1 The Dynamics of Industry Structure p.274 12.2.1.1.1 The Role of Firms’ Strategies on Industry Changes p. 276 9.4 1992 - 1995: A New Programme of Change p. 211 12.2.1.1.2 Consumer Market, Firms’ Strategies and Industry Change p. 278 9.5 ASDA at the End of 1995 p. 222 12.2.1.1.3 The Dynamics of Industry Structure and Governmental Policies p. 279 12.2.1.1.4 Technological Change and the Dynamics of the Industry p. 282 Chapter 10 J. Sainsbury PLC 12.2.1.2 The Dynamics of Finns’ Strategies p.282 12.2.1.2.1 The Dynamics of Firms’ Strategies: Strategy Stocks 10.0 Introduction p. 223 and Strategy Flows p. 286 12.2.1.3 The Relationships between Changes in Firms’ Strategies 10.1 1980-1986/87: Continuing the Programme of Change p.226 and Industry Structure p. 290 12.2.1.4 Summary p.294 10.2 1988 - 1991 : Consolidating the Superstore Business p. 229 12.3 Second Theme: Similarities and Differences among the 10.3 1992 - 1993: The Turbulent Years of Grocery Retailing p.233 Four Firms Analysed p. 295 12.3.1 Question 2: What are the similarities and differences in 10.4 1994 - 1995: Consolidation of the Diversification Programme p. 239 the strategies of comparable firms within the industry? p. 306 12.3.2 Question 3: How did firms come to develop their respective 10.5 Sainsbury at the beginning of 1996 p. 246 strategies? Are there important similarities in their origins and strategic investments over time? p. 310 12.3.3 Question 4: Are there reference points in the industry influencing management in its strategic decisions about A2.2 Limitations of the Study p. 370 investment strategies? p. 313 12.3.4 Question 5: Are There Similarities in the Cognitive A2.3 Generality of the Research Technique p. 371 Structures of Firms Operating in the Industry? p. 315 12.3.5 Question 6: Is it possible to identify unequivocal determinants of firms’ performance in a way that they can be quantified and clear relationships between these determinants and firms’ performance Appendix 3List of the Largest Companies Operating in the UK can be drawn? If this is the case, is it possible to use successful Grocery Retailing Industry in 1980 and 1995 p. 372 past strategies as a recipe for strategy formulation? p. 319 12.3.5.1 Performance p. 320 12.3.5.2 The Determinants of Profitability p. 325 12.3.5.3 Strategic Groups as an Ex-Ante Technique for Analysing Appendix 4 Argyll Group: Financial and Retailing Statistics p. 373 the Strategic Options Available to Firms p. 328 12.4 Summary of Research Findings p.