The Measurement of Strategic Orientation and Its Efficacy in Predicting Financial Performance

Abstract For decades, the strategic management literature has recognized strategic orientation as an important cultural attribute in the investigation of the link between organizational culture and firm performance. Using three studies, we develop a survey measure of strategic orientation that is unidimensional, reliable, and predictive of financial performance. Our final study uses a sample of 779 respondents from 20 companies and empirically demonstrates a positive relationship between strategic orientation and firm performance. Our results support the notion that managers should both encourage and support behaviors and execute actions that are consistent with our measure of strategic orientation to create a coherent strategic approach, resulting in improved financial performance. Introduction Over the past several decades, organizational researchers have yielded a description of organizational culture that is consistent across both macro- and micro-level domains (cf. Denison & Mishra, 1995; Lee & Yu, 2004; Schein, 1985; Siehl & Martin, 1988; Wallach, 1983). At times, likened to the firm's very identity, culture is a complex set of shared values, beliefs, philosophies, and symbols that define the way in which a firm conducts its business (Barney, 1986; Denison, 1984; Goll & Sambharya, 1995; Jones, Jimmieson, & Griffith, 2005; Michalisin, Kline, & Smith, 2000; Sorensen, 2002). Ultimately this shared set of values and beliefs is transmitted through behaviors and actions of employees within an organization (Wilkins & Ouchi, 1983; Schein, 1985), thus leading to different organizational outcomes (Lee & Yu, 2004). Despite the potential effects and significance of organizational culture, the link between corporate culture and firm-level performance is underdeveloped both theoretically and empirically (Reichers & Schneider, 1990; Sackman, 2010). In the strategy literature, researchers have used multiple variables to study the culture-performance relationship, including strategic orientation. Strategic orientation has been defined as the inclination of a firm to focus on strategic direction and proper strategic fit to ensure superior firm performance (Barney, 1986; Gatignon & Xuereb, 1997; Pleshko & Nickerson 2008). It has also been conceptualized as a continuous and iterative process that must focus on the different effects of rational, economic, political, and subjective aspects of strategic change on competitive performance (Porter, 1980; Whipp, Rosenfeld, & Pettigrew, 1989; Zhou, Gao, & Zhou, 2005). A firm's strategic orientation is important in the examination of its culture's impact on performance, as this cultural attribute (and cultural phenomena in general) indicates where its employees focus their time, energy, and resources in decision-making (Cahlik, Howard, & Godkin, 1999; Jones, Jimmieson, & Griffiths, 2005; Schein, 1983; Trevino, 1986). Thus, with regard to strategic orientation, employees share values and execute actions toward maintaining a coherent strategic approach given broad environmental factors; this cognitive and behavioral attention influences aspects of organizational performance. Strategic Orientation Research A review of the research attempting to operationalize strategic orientation can be seen in Table 1. These studies have identified almost 20 attributes to measure strategic orientation. While the Miles and Snow (1978) typology is the most common approach, it only makes up a small percentage of studies. As mentioned above, strategic orientation has been defined as the inclination of a firm to focus upon strategic direction and proper strategic fit to ensure superior firm performance (Barney, 1986; Gatignon & Xuereb, 1997; Porter, 1985). Studies have conceptualized strategic orientation utilizing various approaches including classifying firms into typologies such as the Miles and Snow (1978) archetype (Pleshko & Nickerson, 2008) or identifying cultural attributes (Venkatraman, 1989). …