Miles and Snow's Organizational Strategies
In their 1978 book Organization Strategy, Structure, and Process, Raymond E. Miles and Charles C. Snow argued that different company strategies arise from the way companies decide to address three fundamental problems: entrepreneurial, engineering (or operational), and administrative problems. The entrepreneurial problem is how a company should manage its market share. The engineering problem involves how a company should implement its solution to the entrepreneurial problem. The administrative problem considers how a company should structure itself to manage the implementation of the solutions to the first two problems. Although businesses choose different solutions to these problems, Miles and Snow suggested that many companies develop similar solutions. As a result, they postulated that there are four general strategic types of organizations: prospector, defender, analyzer, and reactor organizations.
Miles & Snow have also proposed that the four different types of strategy would differ in three basic dimensions of what they have called the adaptive cycle. Strategy differentiation is based on distinct approaches to
a) entrepreneurial problems: definition of a market-product domain;
b) engineering problems: choice of technical systems;
c) administrative problems: related to organizational structure and processes.
Central to Miles and Snow's model is the specific relationship between the four strategic types and environment. Coherent with the environment enactment process, defenders will carve a niche in the market where stability can be found even in more dynamic industries, whereas prospectors will be the source of instability in an industry by constantly producing innovations.
Miles and Snow argue that three of these strategic types are stable forms of organization, namely, defender, analyzer, and prospector firms. If there is an alignment between chosen strategy and organizational structure and processes, then any of these strategies may lead the organization to be an effective competitor in a particular industry. However, a non-alignment between strategy and structure will result in the firm being an ineffective competitor in the industry, characterizing unstable forms of organization that Miles and Snow have termed Reactors. The inconsistency of reactor strategies may stem from at least three sources:
(1) "management fails to articulate a viable organizational strategy;
(2) a strategy is articulated but technology, structure, and process are not linked to it in an appropriate manner; or
(3) management adheres to a particular strategy-structure relationship even though it is no longer relevant to environmental conditions" (Miles & Snow, 1978: pp. 82).
Finally, Miles and Snow have proposed the analyzer strategy as a unique combination of the prospector and defender types. They have put these two types of organization at opposite ends of a continuum of adjustment strategies, with the analyzer being somewhere in the middle of this continuum as a viable alternative strategy
Implementing the Four Organizational Strategies
Miles and Snow identify four unique strategies that are used by organizations. Below we will quickly look at each of these four, and what they say about the underlying business.
Prospector Strategy: Organizations implementing a prospector strategy are innovative, seek out new opportunities, take risks and grow. To implement this strategy, organizations need to encourage creativity and flexibility. They regularly experiment with potential responses to emerging environmental trends. Thus, these organizations often are the creators of change and uncertainty to which their competitors must respond. In such an environment, creativity is more important than efficiency. When an organization falls into the category of Prospector, they are expected to consistently be at the forefront of innovation and development. Rather than sitting still with products that have been previously developed and taken to market, prospecting organizations are always seeking to create the ‘next big thing’.
By definition, this type of organization is going to have some huge successes, and they are also likely to have some big misses as well. The goal, of course, is to have the hits outweigh the misses so that the company can continue to afford to innovate well into the future.
Technology companies often fall into the category of Prospector, but not always. Some tech companies continue to push the envelope, trying to lead the way in new product development – which can force the competition to constantly play catch up. However, other tech companies will simply rest on what they have done and ride it out for maximum profits until the market moves on to something else.
Defender Strategy: Organizations implementing a defender strategy attempt to protect their market from new competitors. As a result of this narrow focus, these organizations seldom need to make major adjustments in their technology, structure, or methods of operation. Instead, they devote primary attention to improving the efficiency of their existing operations. Defenders can be successful especially when they exist in a declining industry or a stable environment. As the name would indicate, this is an organization that is satisfied with its current place in the market – and they are going to work hard to defend it as the years go by. Instead of investing time and money into trying to develop new products to take to the market, this kind of organization is going to sit back and reap the rewards of what they have already created.
Of course, no one can stay in business by sitting still, so it will be necessary to make at least modest improvements along the way to remain relevant and competitive. Often, these developments come ‘behind the scenes’ in the form of manufacturing improvements, cost savings, etc.
It should be noted that a firm does not have to remain in just one of these strategy categories for its entire existence. It is quite common for firms to shift from one to the other as markets develop. Commonly, companies that were once considered innovative in their space will slide gradually into defender territory as less and less innovation is possible in their given market. Understanding when and how to shift from one strategy to another is crucial if profits and market share are to be maintained.
Analyzer Strategy: Organizations implementing analyzer strategies attempt to maintain their current businesses and to be somewhat innovative in new businesses. Some products are targeted toward stable environments, in which an efficiency strategy designed to retain current customers is employed. Others are targeted toward new, more dynamic environments.
They attempt to balance efficient production for current lines along with the creative development of new product lines. Analyzers have tight accounting and financial controls and high flexibility, efficient production, customized products, creativity, and low costs. However, it is difficult for organizations to maintain these multiple and contradictory processes. In many ways, organizations that land in the analyzer category are a blend of the first two options on the list. These tend to be some of the biggest companies around, as they have the capacity to both develop new technologies and products as well as defend the market for those they have already created.
When you think of the biggest brand names in the world, many of them are going to fit nicely under the analyzer definition.
Usually, the companies that are true analyzers will not actually be the first to create something, but they may instead improve upon the creation of another firm. Therefore, they are innovators to a degree, but not in the truest sense of the word. This type of firm will generally sit back, observe the market and its demands, and then seek to fill those demands as successfully as possible. Thanks to their typically large size, this type of company can be late to the market with a specific product and still be successful in the end.
Reactor Strategy: Organizations that follow a reactor strategy have no consistent strategy-structure relationship. Rather than defining a strategy to suit a specific environment, reactors respond to environmental threats and opportunities in an ad hoc fashion.
Sometimes these organizations are innovative, sometimes they attempt to reduce costs, and sometimes they do both. Reactors are organizations in which top management frequently perceives change and uncertainty occurring in their organizational environments but are unable to respond effectively. Therefore, failed organizations often are the result of reactor strategies. Those firms that land in the reactor category really have no one specific approach to their business. It should go without saying that organizations generally do not want to fall into the reactor class, as this means that they are simply trying to catch up with the market as things change over time.
Taking a reactive approach to business is how many large companies wind up losing market share over time. Even businesses with great ideas, products, and employees can wind up lagging behind if their management team takes a reactive approach to their decision-making. It is nearly inevitable that companies that react to the market are going to be passed up by the organizations that innovate, defend, or analyze successfully.
Advantages of Miles and Snow’s Organizational Strategies
- Provides a framework to talk about direction and market position.
- It ensures everyone has the same understanding
- It can help compare your org to competitors in the market
- It is easy to understand
- It applies to most markets
The most useful framework to use when looking at Miles and Snow’s Organizational Strategies is Porter’s Five Forces. It provides a great overview of the forces on your profitability and your market opportunity. It may also be helpful to run some competitor analysis, perhaps with a model like Four Corners, in order to establish what the strategy is for each of your competitors.
Empirical Applications of Miles & Snow's Generic Strategies
A great deal of attention to Miles and Snow's taxonomy has been paid to by strategy scholars. These works include Zahra and Pearce (1990), Hambrick (1983), Smith, Guthrie, and Chen (1986), Conant, Mokwa, and Varadarajan (1990), Parnell and Wright (1993), Beekun and Gin (1993), and Schenk (1994). A few of them are discussed here.
Zahra and Pearce (1990) carried out a comprehensive study aiming to evaluate the research evidence for the Miles Snow typology based on an analysis of 17 empirical studies. According to Zahra and Pearce (1990), results from a high number of studies have strongly supported Miles & Snow's propositions that four types of different strategies exist in different environments.
The hypothesis that reactors will be outperformed by the other three types seems to have been strongly supported albeit the moderate coverage it has received in the studies analyzed. Other dimensions such as differences in domain definition, production technology choice, environmental analysis, functional importance, and top management team characteristics among the four strategic types have received low to moderate attention and, thus, have resulted in weak or mixed support (Zahra & Pearce, 1990).
Most of the studies analyzed by Zahra and Pearce (1990) have concentrated heavily on classifying the firms under analysis into different groups based solely on the entrepreneurial problem, paying little attention to the other two dimensions, i.e., the administrative and engineering problems. However, Miles & Snow (1978) have posited that the performance of the firms will be dependent on the alignment among the solutions adopted for each type of problem. Although the entrepreneurial dimension is believed to be the key dimension underlying the typology (Hambrick, 1983), this reliance on a partial measure may be leading to an incorrect classification of firms' strategies by researchers who consider only this dimension of Miles & Snow's model. Miles and Snow's model proposes that when the solutions to the three problems are not aligned, the firm's strategy is characterized as a Reactor one. Bearing, this in mind, researchers who have adopted only the entrepreneurial dimension to classify their respondents' strategies, maybe getting at best an incomplete picture, and thus, their research results are open to question. Hambrick (1983) studied how the industry environment affected the effectiveness of different strategies based on Miles and Snow's taxonomy.
Hambrick studied 1452 different businesses from the PRIMS database. Concentrating on defenders and prospectors, Hambrick designed a measure of strategy based on the percent of sales derived from new products for the business minus the percent of sales derived from new products for the three largest competitors. Defenders were considered those firms whose score in this measure was less than or equal to -5, and prospectors were firms whose score was more than or equal to +5. Businesses were matched against their competitors along 4-digit SIC codes. Contrary to what Miles & Snow proposed the results indicated that defenders so defined outperformed prospectors in stable, mature, and non-innovative industries, while prospectors performed better in innovative and dynamic environments. Prospectors presented higher product R&D expenses and marketing expenses as would be expected, while defenders produced high capital intensity, high employee productivity, and low direct costs. Hambrick's study, in spite of bringing new light to Miles & Snow's typology, failed to address the behavior of two strategic types: analyzers and reactors.
Smith, Guthrie, and Chen (1986) applied a multidimensional (cluster analysis) approach, gathering data on a number of dimensions to verify the extent to which four clusters resembling Miles & Snow's typology would emerge. Secondly, they tested the relationship between organizational performance and strategic type, as well as the relationship of these two variables with organizational size. A sample of 47 electronic manufacturing firms provided data for this study collected through structured interviews with CEOs and other top-level managers. The results indicated support for the typology. Thus, firms identified as having prospector strategies presented the following characteristics: "an unstable customer base, a changing product mix, a competitive edge in innovation, a "creating change" approach to their customer base, and an aggressive attitude toward growth. Furthermore, this group is managed primarily by research and development personnel who are relatively young, less tenured, and who have been recruited from outside of the organization. On most measures, this cluster of firms appears to be following a prospector strategy" ( Smith, Guthrie & Chen, 1986: pp. 46)
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