Chapter 2

Literature Review
2.1 Introduction
Following the introduction, the second section will discuss on strategic management,
while the third section will be on business strategy. This is followed by the forth
section on distinctive marketing competencies and the fifth section on organizational
culture. Performance in the study is discussed in section six while the
pharmaceutical industries is discussed in the last section.
2.2.1 Strategic Management evolution.
Strategic management is a new and abruptly reconceptualised in the academic field.
This field has overlapped with other fields such as economics, marketing, finance,
sociology, and psychology. Some of the strategic management is under
organizational behaviour and some is under marketing(Nag, Hambrick, & Chen,
2007)
Mintzberg, Henry, Ahlstrand, B. W., and Lampel (1998) were conducting a study in
strategic management and discovered that strategic management consists of ten
schools of thought according to their views, perspectives and disciplines (Ralph.D.,
2011, Okumus.,2010, Hitt, Duane, & Hoskisson, 2011, and Stuart & Dess., 2014).
Although there are variations in disciplines and perspectives of scholar in strategic
management, but the main objective is to enhance of organizational competitiveness
and performance (Hubbard.,2000,Hashim.,2008, and Jasper & Crossan., 2012).
Strategic management has taken a long time to develop and establish. In the 1960s,
strategic management had become popular among academicians and professionals
1

as guiders for manager in managing the organization. During this period, emphasis
was given more on the leaders roles and responsibilities such as, leadership,
interpersonal relationship skills, and system, process, and structure in an
organization (Okumus et al.,2010 and Jasper & Crossan, 2012). However, by 1970s
to early 1980s, this paradigm was changed to strategic planning and it focussed
more on analysis and planning. This process was assigned under a special team
that was responsible for developing a plan that was related to business and
corporate strategies (Okumus et.al.,2010).
In the 1990s the paradigm of strategic management changed again and at this time it
focused more on corporate philosophies and firms internal resources, competencies
and talent availability for maintain of competitive advantages (Hashim.,2008, C.
David, David, & George., 2011, and Hitt et al., 2011).
Due to the rapid growth of interest in this topic, there are various definitions,
interpretation, adaptation and concepts of strategic management in the literature
according to their discipline and paradigms.
To date, there are not one of the scholars universally accepted the single definition of
strategic management (Furrer, Thomas, & Goussevskaia, 2008,Johnson et al., 2008,
Hashim.,2008 and Zakaria.,2010).
Okumus et al., 2010 defined strategic management as a field of study that involved a
process of firms defination and set about their mission, vision, goals and objective
that they desired and they implemented them at various levels of their firms
hierarchies. This process consisted of two phases, formulation and implementation.

Wheelen and Hunger, (2004) defined strategic management as a set of managerial

decisions and actions that determined the long term of the firms performance. It
consisted of environmental scanning, strategy formulation, strategy implementation
and controlling.
Alamil Luis R. (2010) defined strategic management as a process where a manager
set an organizations objectives and a long term direction by developing a strategy
and executing the chosen action plan to achieve those objectives.
Schendel and Hofer (1979) defined strategic management as a process that deals
with the entrepreneurial work of the organization such as organizational renewal and
growth, developed and utilize the strategy which are to guide the organizations
operations.
Bracker (1980) defined strategic management as the process of analysing the
external and internal environment of the firm to maximize the utilization of their
resources in relation to their objective.
According to Jamison (1981), strategic management is the process by which
managers developed and used strategies to coal their organizations competences
according to the opportunity and constraints of the environment.
In another study, Van Cauwenbergh and Cool (1982) defined strategic management
as the process of formulation and implementation of calculated behaviour in new
situations and a basis of future administration when a repetition of circumstance
occured.

Smircich and Stubbart (1985) defined strategic management as when the

organization were made to create and maintain systems of shared meaning that
facilitate organized action.
According to Shendel and Cool (1988), strategic management was a work that
associated with the term of entrepreneur and its function of starting and (given the
life of the corporation) renewing the organizations.
Teece (1990) defined strategic management as the direction of the organizations. It
included the subject of primary concern to everyone who was seeking a reason for
success and failure among organizations.
C. David, David, and George,(2011) defined strategic management as a set of
theories, frameworks, tools and technique that explained the factor underlying the
performance of organizations by assisting the managers thought and plan and by
acting strategically.
Strategic management can also be defined as a full set of commitments, decisions
and action that are required for the firm to achieve their competitiveness and able to
earn more than average return ( Hitt et al., 2001).
Strategic management involved a short and long term plan that included the process
of environmental analysis, formulation , and implementation of strategy in order to
create successful future (David, 1998 and Amason, 2011).
From the discussion above, one can summarise that Strategic management is
related to a position of the firm within an attractive and manageable environment
(Amason Allen, 2011) by exploiting their core competencies and coordination of
action to gain a competitive advantage( David et al., 2011, and Hitt et al.,2011). It is
4

also used to determine organizations objective, to help them to survive for a long
period of time (Lynch, 2000 and Philip et al., 2010), to achieve companys objective
(Faulkner & Campbell, 2003) and to improve the companies financial gain and in
non-financial aspects in a dynamic and complex environment (Wheelen & Hunger,
2004 and Zakaria.,2010). Many organizations have adopted strategic management
in their daily practice in order to formulate and implement their strategy for achieving
competitiveness (Sulaiman & Hashim, 2003).
Many schools of thought have emerged in this field. As quoted by Ralph (2011),
Okumus et.al.,(2010), Hitt, Duane, and Hoskisson (2011), and Stuart and Dess
(2014), Mintzberg,Ahlstrand,and Lampel (1998), were conducted a study in strategic
management and discovered that a strategic management consist of ten schools of
thought according of their views, perspectives and disciplines.(incomplete-give a full
sentence as the statement here is vague)
The first school of thought is a design that purported to examine the fitting between
an organizations internal capabilities and external opportunities. This emphasised
on the relationship between environment and organizational structure during a
strategy formulation and implementation process.
The second school of thought is called planning that emphasised on conceptualized
of

strategy

and

step-by-step

approach

during

strategy

formulation

and

implementation of process. It stressed more in formulation process and a strategy

appeared as a result from this process.
The third belief is positioning and they emerged in the 1980s. This emphasized more
on the strategy typology and emerged from the work of Porter (1980)
(Okumus.,2010). It focused more on competitive advantage and industry structure.
5

From this school of thought, we are introduced to the Porters generic strategies that
consist of leadership cost, differentiation, and focus. Besides that, we are also
introduced to five force of competitive analysis ( five force model), and a BCG matrix
for portfolio analysis.
The fourth belief is the entrepreneurial notion. This is related to a decision making
and strategy formation process. This school of thought claimed that the decision
making process and leadership style would influence the organizations strategic
posture. The strategy was conceptualised based on leaders thinking, intuition,
experience, and insight (Okumus.,2010).
The next school of thought is cognitive notion that emphasized on decision makers
cognition and mind in driving the strategy making process. They claimed that the
managers cognitive skill and his perspective to the environment would influence the
strategy formation process. This belief still exists and contributes to the strategic
management field (Okumus.,2010).
The learning is the sixth school of thought in the strategic management field. This
belief supports the notion that a strategy making process is based on the foundation
of learning. It focuses more on organizational capabilities and competencies as a
core to maintain sustainable competitive advantage. It is noted that the strategy
formulation process is a result from constantly learning about strategy formation and
its relationship between various elements in the environment (Okumus.,2010).
The seventh belief is viewed as strategy formation from a powerful perspective. This
notion examines the power and political factors in order to put an organization in a
good position in the market. It believes that the power plays, ploys, and tactics are
important components of an organization in vying for a position in market places.
6

The next belief is the cultural notion that emphasized on an organization as a whole
and strategy formation is a result from the interaction process (Okumus.,2010). They
believed that the strategy and the changes in the organization are formed by the
collective actions between members and the organizational culture.
The ninth belief is related with the environment. They believe that the external
environment will influence the strategy formulation and implementation process and
the firm is a part of the environmental elements. The manager will scan the
environmental force that impact the firms position and adapt their firm to this
environment in order to achieve competitive advantage (Okumus.,2010).
The last school of thought is configuration, which views a strategy as
transformational. They believe that the life cycle of an organization is essentially a
pattern that emerged from the various configurations and transformational processes
and the strategy is to ensure that firm is able to recognize the need of change while
transforming from one stage to another stage during its productive life
(Okumus.,2010).
Although these scholars are various in the disciplines and perspectives of strategic
management, the main objective is to enhance an organizational competitiveness
and performance (Hubbard.,2000,Hashim.,2008, and Jasper & Crossan., 2012)..
2.2.2 Elements of strategic management
According to Hitt et al., (2011) the main purpose of the company to have a strategy
to maintain their performance, earn above-average return and achieve a competitive
advantage. To achieve these, they should understand the four main elements of
strategic management that consist of analysis of environment, strategy formulation,

development of business strategy, strategy implementation and lastly the evaluate

and control of outcome ( David et al., 2011, Wheelen & Hunger, 2004, Hashim.,2008,
and Bordean, Borza, Rus, & Mitra, 2010). (more than four elements here)
Many firms are aware of the importance of environmental scanning. As suggested by
Okumus (2010), the manager should frequently scan the environment in order to
keep abreast of the development in the external environment. By scanning of the
environment, the manager is able to assess the trends that help to create an
opportunity or pose treats to the firm.
Environmental analysis is the process of identifying and understanding industrial
environment, and to find an opportunity and threat that created by this force. The
aim of performing environmental scanning is to identify a strategic factor for
managers in determining future direction of the firm (A. Aaker, 2001 and Wheelen &
Hunger, 2004).
The organization should respond effectively to the environment in order to survive
and become effective. Organization used the information that they have gathered
from environmental analysis to formulate, implement, and control their strategies and
most of the successful organizations come from their efficiency in analysing their
environmental and reacting accordingly. There is a positive relationship between the
process of environmental analysis and the organizations gain (Hashim,2008 and
Cheng et al., 2014).
Wheelen and Hunger (2004), Hashim (2008) and Kotler et al ( 2010) illustrated that
there are two aspects of environmental analysis which should be considered during
this process namely internal and external analysis. The simplest way to conduct

environmental scanning is by using a SWOT analysis (Wheelen & Hunger,2004 and

Kotler et al., 2010).
SWOT analysis is a popular tool and can be conducted with a little preparation. It
can be used for examining an organizations market position, a product or a brand,
outsourcing opportunities and other purposes. Additionally, this tool can be used in a
variety of situation and contexts, from a small department meeting to larger
corporate gatherings (Walston, 2014). This framework consists of two elements
comprised of internal and external analysis (Wheelen & Hunger,2004 and Kotler et
al., 2010).
According to Aaker (2001), external analysis is divided by four sections such as
customer analysis, competitor analysis, market analysis, and environmental analysis.
On the other hand internal analysis consists of strength and weakness, performance
analysis, organizational capabilities and constraints.
Meanwhile, Wheelen and Hunger (2004) noted that an external analysis consists of
two sections, namely task environment that directly affect the firm and another
section is industry analysis that refers to an in-depth examination of key factors
within a firms task environment. They contend that both of the societal and task
environments must be monitored in order to detect the strategic factors that can
affect the firms performance.
Scanning of external factor is an effort in identifying the opportunity and threats to
the firm. However, this effort is still not enough for ensuring the firms success.
Beside the external analysis, we are advised to perform an internal analysis by
identifying internal strategic factors in determining the strength and weakness of our
firm. This assignment is often referred to as organizational analysis and it concerned
9

on identifying and developing an organizations resources (Wheelen

& Hunger,

2004).
The internal analysis will help us to identify why there is a difference in firm
performance, although they operate in the same industry. Since both firms are
operating in the same industry and facing the same external environment, the
differences in their performance are due to differences in their internal factors such
as, resources and capabilities. Their competitive advantage can be driven by core
competencies ( Barney, 1991,Sadler, 2003,and C. David et al., 2011).
In their book, Wheelen and Hunger (2004) stated that internal environmental
consists of organizational culture, structure and resources and it is represented by
the strength and weakness of the organization and on the other hand, external
environmental comprised of economic, technology, political-legal, and socio cultural
which representing the opportunity and threat to the organizations.
All the information that was obtained from the environmental analysis would be used
during strategy formulation ( Aaker, 2001).
After analysing internal and external environment and understanding of the firms
capabilities than we would enter a second phase that is called a strategy formulation
(Mintzberg, Ahlstrand, and Lampel, 1998). This is a crucial part of the task and it
needs confident of the manager that the strategic choice would give a positive
impact to their company in the future. It consists of organizations mission, goals and
selection of desired strategy (Sulaiman & Hashim, 2003 and Bordean et al.,2010).

10

According to Carpenter and Sanders (2009), strategy formulation and strategy

implementation are iterative and interdependent. Both processes are unable to
succeed without one another.
Okumus et al., (2010) in their book contend that, a strategy formulation is involved of
understanding the bases, generating a strategic option, evaluating and selecting the
best option. Meanwhile, strategy implementation is about how to put a formulated
strategy into action or practice.
In addition, the development of strategy plan is based on the firms strength and
weakness. This process involves many activities such as, define a firms vision and
mission, determine the specific performance, develope strategies for achieving
objective, and establish policy guidelines (Sulaiman & Hashim, 2003).
Strategy implementation is a process of facilitating the strategies into action and
convert a plan into reality (Amason Allen, 2011) and it involved of utilising firms
resources and its capabilities (Mintzberg & Waters, 1985, and Alexander.,199). At
this stage, it needs a manager and employees to work together to achieve the firms
objective. According to Raps (2005) the implementation is the de facto of the
success rate of intended strategies. At this stage, the firm is required to translate
their strategy into action through a specific programs and procedure. The changes in
organizations structure, culture, and resources are needed in order to achieve the
organizational goal. (Sulaiman & Hashim, 2003).
The last stage or elements of strategic management is strategy evaluation and
control. Hashim (2008) stated that at this stage, the manager would collect and
compare the performance with targeted objective and corrective action would be
taken if needed to make sure a strategy is in line with the previous plan.
11

This was supporting the statement by Wheelen and Hunger (2004) that claimed the
evaluation and control of strategy is the end of strategic management model. The
management will evaluate the performance of their firm in order to know both their
strategy formulation and strategy implementation successful or need further
adjustment.
At this stage the performance are closely monitored and if any problem arises or
unsuccessful, then the corrective action would be taken (Bordean et al.,2010).
Performance is the end result of activities and sometimes is called the outcome of
the strategy management process (Okumus, 1999 and Wheelen & Hunger, 2004).
Performance is taken as the empirical measure of strategy. If the company can
achieve the higher return than its competitor, this means the company has chosen
the right strategy (Kotler et al., 2010).

2.2.3 Strategy implementation.

Strategy and its result can also be described using a metaphor of a potter and clay.
The designer will plan the shape of the product and adjust the clay accordingly. If
any accident that will lead to the surprising discovery, the potter will consider another
plan and take something different than what he intended originally (Amason.,2011
and Mintzberg.,1987). From this concept, this shows that the implementation phase
is another important part in strategic management (Lane, 2005 and Raps, 2005).
At this stage, the responsibility has shifted from the planning stages by top
management level to the implementation stage by divisional and functional
managers (Raps.,2005 and David et al., 2011) and they must ensure that a strategy

12

is put into action by subordinates and at the same time identify the need for
implementation to be carried out smoothly (Lane, 2005).
In addition, Aaltonen and Ikvalko (2002) contend that the implementation of strategy
is vital for any organization because without this process, the most superior strategy
is useless. However, to transfer a strategy into action is a complex and difficult task
due to few reasons, including lack of conceptual models of strategy implementation.

2.2.3.1 Definition of strategy implementation.

Wheelen and Hunger (2004) defined strategy implementation as activities required
for executing the strategic plan. This process involved of budgeting, development,
and procedure and these parts are important part in strategic management.
Gottschalk & Gudmundsen, (2010) in their study were defining strategy
implementation as directed procedure of the installed plan changed by management.
Strategy implementation can be defined as the process of putting strategic written
formula into action and making a realization of these strategic plan (Akhbar Ahmadi,
Salamzadeh, Daraei, & Akhbari, 2012).
Hossein, (2012) defined strategy implementation as a dynamic, iterative, and
complex processes which comprise of a series of decisions and activities by
managers and employees that are affected by a number of interrelated internal and
external factors to turn strategic plan into reality in order to achieve strategic
objective.(pp. 283).

13

2.2.3.2 Strategy formulation, strategy implementation, model, and problem.

In the strategic management literature, it is indicated that the only person who can
make a decision is the chief executive officer and this is followed by the
implementation of decisions by his management team. Strategy is formulated and
then implemented (Rothaermel, 2013).
Fariborz et al., (2009), Hanson et al.,(2002),and

Carpenter and Sanders

(2009)stated that Strategy formulation is regarded as the understanding of the

underlying bases and selecting the best option and strategy implementation is to
address the line on how to put a formulated strategy into action. Strategy formulation
is about what we are going to do, whereas implementation is the process of
executing what we have planned to do.
Zakaria and Dahlan, (2014) noted that strategy implementation is a vital component
in strategic management field and a framework for implementation of strategy is
needed. By having framework, it will help managers in performing their task easily as
by having a roadmap in an alien territory. This will help a manager to assess
necessary steps during the implementation phase (Kazmi, 2010) .
Although the implementation is seen like a straight forward task but when it started to
transform a plan into action, many managers face difficulty ( Aaltonen & Ikvalko,
2002). Ali and Hadi,( 2012), Kazmi, (2010), and Alexander, (1991) found that the
strategy mostly failed to produce an expected result not due to a poor strategy but
because of a failure during the implementation stage.
Okumus et al.,( 2010) and Kazmi,( 2010) reported that there are many
implementation frameworks available in strategy literature. Those frameworks have

14

emerged since 1980s. One of the earliest framework is that introduced by Waterman,
Peter, and Philips (1980) followed by the popular McKinseys 7-S framework, later
the framework by Stonich (1982), Hrebiniak and Joyce (1984), Galbraith and
Kazanjian (1986), Alexander (1991), and Thompson and Strickland (1999). Those
frameworks are commonly cited in strategic management and those frameworks
consist of different numbers of types, factors and titles according to their views.
Starting from there, several conceptual studies were also done in order to enrich the
strategy implementation model to help managers in the implementation process.
A review from strategy implementation literature shows that a study regarding this
area is on the raise. Many researchers try to prepare a conceptual paper regarding
strategy implementation.
According to Faulkner and Campbell (2003), in order to implement the desired
strategy, managers will face with varieties of complexity, such as, people in
organizations that have varies of views and thought. So, it is a need for a tool or
framework to help executive staffs to structure the strategy and help in their decision
making process.
Based on the previous strategy implementation framework, Okumus (2001) has
introduced his framework of strategy implementation and its key variables for helping
managers to understand about the strategy implementation process. He identified
ten key variables that influence the strategy implementation process. These are
strategy formulation, environmental uncertainty, organizational structure, culture,
operational planning, communication, resource allocation, people, control, and
outcome.

15

Those variables, then divided into four categories, namely content, context,
process and outcome. In his framework, strategic content is viewed as a strategic
direction of the company, why and how the strategy is initiated. The desired strategy
then would be implemented in a strategic context either internal or external. The
operating process is a process that utilized the formulation and implementation of the
strategy, resource allocation, control and feedback. Finally the outcome variables are
the expected result of the intended strategy.
Allio, (2005) contended that implementation of strategy is more difficult than come
out with a new strategy. To overcome this problem, he came out with a simple
methodology that could help manager to implement desired strategy. The process of
strategy implementation suggested by him consisted of the six steps of
implementation process, namely refine, craft, integrate, present, implement and
revise. To complement his framework on the process of strategy implementation, he
proposed ten practical guidelines such as simple, use of common language to avoid
misinterpretation, clear definition of roles and responsibilities, straightforward
quantitative devices and qualitative metrics, balance short term with long term
objective, precise in using of verbs or action term, use of common format to enhance
clarity, regular meet for an update of progress, anchor the implementation activities
to the firms resources, and consistently manage the implementation process.
In another development, Claudiu et al.,( 2008) noted that a strategy implementation
skill are not easy to master by managers and most of them are failing at this stage.
Based on Michael Allios (2005) strategy implementation process, he outlined the
guidelines for implementing strategy that consists of eight practical guidelines such
as simplicity; establish of common language; assessment of the responsibility of
entire staff; balancing of short term and long term objective; accuracy; usage of a
16

common format to enhance clarity in communication; regularly, structured and timelimited reunions, and link implementation activities with the firms resources.
In their frameworks, they were stressing on communications process among
managers and subordinate for a successful implementation of desired strategy. They
also emphasized on comparison between planned strategies and a realizing strategy
with the interaction of each other through communication, interpretation, adoption
and action. The Firm would achieve their vision if these interactions are successful.
Based on Okumuss (2003) framework of strategy implementation, Kazmi, (2010)
came out with his proposed of the strategy implementation framework. Similar with
Okumus (2003), his framework consisted of three major themes that involved during
implementation phase, namely activating strategies, managing changes, and
achieving effectiveness.
In activating strategies theme, He identified three sets, namely project
implementation, procedural implementation and resource allocation. There are
another three sets of activities under managing change theme called structural
implementation, leadership implementation, and behavioural implementation. Those
sets function as a core of strategy implementation and deal with the changing
process. Finally is the achieving effectiveness theme that consists of two types of
fit our outcome from the implementation process. They are two types of fit namely
vertical and horizontal fit.
A bit different from Okumus (2003), this framework has two linkage namely forward
and backward linkage. The first linkage is the process of implementation of strategy
and the backward linkage is the feedback. From the first linkage, the strategy is
formulated than it entered managing changes phase and produced a result. The
17

feedback flows in reverse from the strategy evaluation to the control phase through
the strategy implementation phase and finally goes back to strategy formulation
phase which is the completion of backward linkage.
Atkinson,( 2006), and Kordnaeij, Salmasi, and Fruzande, (2011) noted recently
several approaches for planning, implementing and controlling of strategy using a
balance scorecard framework is noticeable. Balance scorecard will help the
organization to clarify its vision and objective for developing strategy into action. By
using financial perspective, customers perspective, business process perspective,
and learning the growth perspective that are provided from balance scorecard
dimensions, the managers would have sufficient information for them to use as a
management system during implementation of strategy at all levels of the
organization. Furthermore, Balance scorecard offers an additional approach for
support of the strategy implementation process as it encourages the establishment
of co-ordination at every level of the organization.
Although there are many frameworks available to help managers identify with, the
reason why it should be taken and their sequences are given, an organization still
faced with various problems during the implementation of the strategy desired
(Carpenter & Sander.,2009).
In a recent study, Speculand, (2014) noted that one of the reasons for failure during
implementation of strategy is because leader do not have the right skill to implement
a craft strategy. Most managers who attended university were taught about strategy,
but not how to implement a strategy. As a result nine out of ten implementations
failed.

18

According to Claudiu, Flaviu and Madalina, (2008), less than 10% of the strategy
were effectively executed because of imbalance portions between two processes.
Although managers realise that the implementation process is core strategies and
need much attention, many researchers are focused on strategy formulation rather
than strategy implementation. Another reason for the failure in strategy
implementation is the ability of manager to perform. They found that many managers
agreed that the implementation of the strategy is a difficult task in their jobs.
Allio, (2005) further stated that the implementation of strategy is more important than
coming up with the strategy itself. Without a proper implementation method, firms are
unable to achieve their objective. According to him, 57 percent of firms were
unsuccessful during execution of their strategy because they were unable to
translate an idea into action.
Raps (2005) in his study has founded ten obstacles to the strategy implementation,
namely commitment of top management, involvement of middle managers,
communication, integration, assignment and responsibility of staff, reluctant to
changes of process by subordinates, differential of staff characters, integration of
control system and time. From those obstacles, an implementation of strategy has a
low success rate, only between 10- 30 percents.
Rahimnia Fariborz et al.,(2009) also reported that a structure of organization and
managers characteristic namely tall of hierarchy, a bureaucratic system, inadequate
of managers abilities and lack of coordination become a problem during
implementation of strategy in a public education sectors.
There are few studies on strategy implementation seem to suggest a possible link
between strategy implementation and performance (Okumus.,2001, Penchlaner &
19

Sauerwein, 2002 , Kazmi, 2010, Kordnaeij et al., 2011, and Dias Jordo & Casas
Novas, 2013).
Okumus (2001) has analysed strategy implementation process based on his
framework on two major hotels namely BritCo Hotels and Global Hotel and resorts.
Using his framework, strategy implementation factors are grouped into four
categories, namely content, context, operational process, and outcome, he found
that both hotels achieved their financial objectives as desired. With the coherence
between strategy and its relationship to implementation factors helped both
companies to achieve their financial objective.
In another study, Kazmi (2006) noted that almost all of the strategy failed during the
implementation stage due to lack of attention given by managers. This happened
not due to misunderstanding of strategy or business environment, but because of
difficulty on how to achieve the necessary change. The model for strategy
implementation is needed to guide manager during implementation process.
By using his proposed framework, he conducted a case study in one of the biggest
textile company that achieved the status of a Fortune 500. He discovered the role of
executive management in shouldering the responsibilities during the implementation
process. He also added two activities or variables in his framework in the activating
strategy phase namely procedural and project implementation and found that both
activities were important and should be included in the strategy implementation
framework. He concluded that a continual interaction of implementation process at
the functional and operational level contributed to the effectiveness of the
implementation process.

20

Srivastava and Sushil,( 2013) contend that a strategy was formulated to attain a
long-term objective and on the other hand, the strategy execution process is a
process to convert their strategy objective to the results. Besides, the adoption of
new strategic performance would also lead a firm to achieve a sustained competitive
advantage.
They were arguing that one of the reason a failure in execution of strategy occurred
in

many companies due to missing in measuring and managing the strategic

performance factors (SPFs) such as situation, actor, process, performance, offering,

and their relationship with a strategy execution process.
They asserted that the Performance measurement was one of a key role in
developing and executing a strategic plan. By identify the key SPFs and developed
the linkage with strategy, would help managers to monitor the direction of companys
movement in the right way for ensuring the formulated strategy could be
implemented and would produce a competitive advantage to companies.
They found that the ability to identify and balance of those SPFs, developed the right
set for SPFs and its framework, converted and linked them to the right execution
process would lead a firm to achieve competitive advantages. They were developing
a performance measurement framework to spell out the action that should be taken
for effective translation of firms vision into action and these provided a feedback for
future strategic plans. Their proposed framework helped in measuring the right thing
in the right way for ensuring strategy implementation could be carried out effectively
and assessing their organizational effectiveness.
In line with this argument, Dias Jordo and Casas Novas, (2013) used balanced
scorecard

approach

in

their observation

on

strategy implementation

and
21

performance of one of the energy group companies in Brazil called Omega Company
(OC) that involved in generation of energy and electric sector and natural gas
exploration.
As it is well known, the balanced scorecard is one of management control system
(MCS) that helped managers to translate a strategy into operational terms, identified
the cause and effects of the transaction and decision, and aligned it to a value
creating strategy to achieve the desired results. Balanced scorecard also provided
an effective improvement of strategy implementation process across the different
level of organization.
Balanced scorecard was collaborating with strategy implementation for continued
improvement of process and enabled organizations to establish action and aligned
them with their strategy for creating value and meet shareholders, employees, and
customers expectation. From their finding, it was noted that a balance scorecard
contributed to the accomplishment of Omega Companys strategic objective to
become one of the biggest energy companies in Brazil.
In another study, Atkinson, (2006) was stated that a successful of strategy
implementation needed a sound mechanism for directing of activity and behaviour.
She noted that the balanced scorecard was used by many firms for linking of their
strategy and operation. The four perspectives that covered in balanced scorecard
was able to create a clear direction to a development of the strategy map for
coordination of strategy implementation process at every level of an organization.
Her study has given a conceptual understanding of the role of balance scorecard to
effective strategy implementation and control.

22

She found that to implement a strategy, it needed a clear communication, adoption of

suitable process, commitment of middle managers at every level of the organization,
and a control system. With the presence of these factors, organizations could deliver
its strategic objective as desired by stakeholders. It argued that the balanced
scorecard is able to address those issues.
As discussed before, the study regarding strategy implementation is limited in
numbers, although this topic is a vital component of the strategic management field.
Many studies discussed on aspect of framework, obstacles and implementation
process. However studies that examine the strategy implementation process and it
relationship with other important variables of strategic management remain limited.
Despite the previous studies that focus on strategy implementation, the research
about strategy formulation are more than strategy implementation (Srivastava &
Sushil, 2013). More researches should be conducted to ensure a strategy was well
executed and one of the main reasons for the emergence of strategic management
in the last quarter of the 20h century was to pay proper attention to the
implementation of strategy in companies (ater & Puko, 2010)
Okumus et al.,(2003) and Claudiu et al.( 2008) also suggested academicians to
conduct more studies regarding this issue and come out with a guideline for
implementation of strategies.

2.3 Business Strategies

The strategy is derived from a Greek military term, strategia or strategos which
means as a plan for action (Gerry, Kevan, & Richard, 2008, Kotler, Roland, & Nils,
23

2010, and Amason 2011).It proposes is to decide a decision based on enemys

strength and weakness (Hashim.,2008).
Mintzberg & Waters(1985), Mason and Gerard (2009) and Okumus, Cathoth, and
Levent (2010) in another study were defining strategy as a process of analysis,
formulation, evaluation and implementation process to achieve what organization
needed to do in the future.
Strategy can be defined as the determination of the basic long term objective of
firms and the adaptation of the course of action and the allocation of resource to
achieve the goals ( David et al., 2011).
Johnson and Scholes, (2002) defined strategy as a direction and scope of the
organization in a long term by the configuration of their resources within a changing
environment to achieve organizational advantage and fulfil stakeholder expectation.
Strategy can be defined as the direction in which an organization intends to move
and established the framework for action taken to where it intends to go. (Alamil.,
2010)
Raghavan (2006) in his study defined Strategy as a set of decision and action that
managers make and take for them to obtain a superior performance for their
company compared to their rivals.
However, according to Kotler et al.,(2010) there are vigorous researches and
approaches to define the strategy, the more they attempted to define, the more they
confused of what strategy is really about. They noted that, nobody really knows
what strategy is. Although a lot of studies were conducted for defining the term of

24

strategy and its concept, but the results were increasingly blurred our view about
what strategy was really about.
According to Hitt and Ireland (1985) and Hashim (2008), there are two levels of
strategies in most of the firms, namely corporate level strategy and business level
strategy. However those levels of strategies are the same in smaller organizations or
organizations with single business concentration.
Corporate strategy deals on issues such as the nature of business, the direction in
which they should develop their business activities, which market firms want to
compete, and focus more for a long term growth (Wheelen & Hunger, 2004). On the
other hands, business level or competitive strategies are dealing with a specific
business activity, industry, and market and usually develop at the strategic business
units (SBUs) (Hashim.,2008). It focused on coordination of commitments and actions
by exploiting their core competencies in specific and individual product markets and
providing a value to customers for gaining a competitive advantage (Dallas, Dowling,
Hitt, & Irelend, 2001).

2.3.1 Business strategy concept and typology

Due to rapid changes in technology, political, economic, social, and the drastic
shortening of product life cycle led to competitive advantage is often contestable.
This phenomenon has triggered a firm to search for strategies that capable to
produce a sustain competitive advantage by the creation of new business
knowledge (C. David et al., 2011).

25

The overall objective for a firm to have a strategy is to ensure a long-term survival
and the strategy is developed through the strategic management process. The
organization needs a strategy because they need a well-defined scope and direction
for helping them to accomplish their organizational objective (Hashim, 2008).
According to Wheelen and Hunger (2004) and Hashim (2008) the purpose of
business strategy is to improve the competitive position of a company in their
marketplace. Unlike a corporate strategy, business strategy is more focus on specific
activities and determines the competitive approach with their group of competitors.
Competition will improve the firms efficiency in the production of the product, but a
negative effect can erode their profit. Hence, the management team should
recognize the competitive force for defending themselves against competition
(Fifield,2007).
Of the many different kinds of competitive strategies, the most known and
commonly used are Porter (1980) generic competitive strategies. The generic
strategies

consist of low cost/ cost leadership strategy, differentiation strategy,

focus/niche strategy or combination of these three strategies (Hashim,2008).

According to Sehgal (2011) and Rothaermel (2013),Porter generic strategies have
two fundamentally different generic business strategy namely, differentiation and
cost leadership. A differentiation strategy is about a firms creating a higher value
and unique features of the product for their customer to compare with what firms
competitors offered. On the other hand, a cost leadership is a firm trying to offer their
product to customers at a lower price compare to their competitors.

26

A firm will achieve a competitive advantage by implementing either one of these

strengths and these strategies are named a generic strategies because they are
equally applicable across industry and business ( Rothaermel, 2013).
A study by Dess & Davis,(1984) supported of Porters generic strategies and found
that the organization that practice one of his suggestion strategies can achieve a
good performance.
In another study, Mudambi (1994) noted that strategy are varied depending on their
degree of risk, profitability, compatibility of the firms resources and strength.
Furthermore, political changes, demographic, socioeconomic and lifestyle of
consumers have also become another factor in the choice of strategy by firms. It
depends to the managers to decide which strategy is most suitable for them in order
to generate a competitive advantage for their firm.
There are few typologies that frequently adopt and practice in current business,
namely Porters generic strategies (Spillan & Parnell, 2011), Ansoffs product/Market
matrix, Knee and Walters retailing matrix, Robinson and Clarke-Hills matrix, Dukes
retail saturation matrix (Mudambi, 1994), Miles and Snow typology (Conant, Jeffrey,
Smart, Denise, & Solano-Mendez, 1993) and Resources Base view perspective
(Barney.,1991). However Porters generic strategies are widely acknowledged and
dominant in the literature of marketing and strategic management (Jermias, J. &
Ghani, 2004, GarrigsSimn, Marqus, & Narangajavana, 2005 , Gurau, 2007, and
Salavou & Sergaki, 2013).
Michael Porter (1980) asserted that there are three types of strategies commonly
used in a business entity during competing with their rivals and help them to attain a
competitive advantage. Those strategies are focus strategy (segmentation strategy),
27

differentiation strategy and cost leadership strategy (Hill, 1988, Pretorius, 2006, Allen
& Helms., 2006, Sehgal, 2011,and Rothaermel, 2013)
i)

Cost leadership: By applying this strategy a firm strives to become the

lowest cost producer to compare with their rivals in the entire industry.
Their aim is to control the cost of production and become the only one
in their market. This strategy needs a firm to understand their cost
driver and cost behaviour. To achieve a cost leadership, it needs a firm
to analyse their associated costs in their value chain process and
continues to improve it until they achieve a greater margin compare
with their cost of creating a product. The perk for a firm to apply this
strategy is they still can make a profit during economic slows down or

ii)

unfortunate price war.

Differentiation: This strategy can only be achieved with a specific skill
and competence of the firms resources. A Company can become a
superior in quality and service by offering a unique product that is not
provided by competitors and is able to create a brand loyalty and price
inelasticity among customers. As a result, they can increase their profit
margin by creating entry barrier and avoiding a price competition with
their rivals. To maintain their competitiveness, firms must produce a
product or service that is sustainable and believable over a long period
and they also need to monitor their market situation over time and

iii)

adjust their position accordingly

Focus: The firms that apply a focus strategy are concentrated only in a
specific segment of the marketplace by satisfying a clearly define
groups of customers and not across the entire market like the cost

28

leadership or differentiation strategy have done. They just sell their

product or service to a well-define and well-understood customer base.
This strategy needs a firm to develop a credible position in the
marketplace

for

customers to

evaluate

their uniqueness and

specialization in their market segments. This strategy will yield a

positive effect if they are able to build a barrier among competitors from
entering their market segments.

According to Shinkle, Aldas, and Hundley ( 2013) the functions of Porters generic
strategies are divided by two sets of choice namely cost leadership and
differentiation. They also claimed that under cost leadership strategy, firm will
compete with their rivals based on efficiency and cost and on the other hand a
differentiation strategy emphasizes the innovation and flexibility.
Porters also contended that a firm that implemented both of those strategies would
become stuck in the middle and they will experience a low profitability (Hill.,1988,
Rubach & McGee, 1998, and Thornhill & White, 2007).
However, according to Lietner and Guildenberg (2010), recently some authors
criticized the practice of single use of strategy suggested by Porter (1985) and
claimed that the combination of cost leadership strategy and differentiation strategy
could also be a valid option and refer as hybrid, mixed or combination strategy
and able to achieve equal or greater financial performance than firms that pursue a
cost-efficiency or differentiation strategy.
Even though Porters generic strategies attract a formidable discussions and
arguments among academician, but his strategy matrix that consists of cost
leadership, differentiation, and focus are dominated in corporate competitive strategy
29

for more than 30 years (Pretorius, 2006). This typology has also become a classic
strategy literature (Hill.,1988 and Rubach & McGee.,1998).
Pertusa-Ortega et al.,(2009) and Yasmina, Avanti, and Zakaria (2013), stated that
the practice of single strategy and single source of advantage are no longer sufficient
in this current environmental uncertainty. Firms need to implement a new mechanism
to attain of competitive advantage. Another prominent theory in strategic
management is a typology that introduced by Miles and Snow (1978). This typology
is useful for examining the interaction between organization and their environment.
Those arguments were supported by McDaniel and Kolari (1987) that contended that
the organization and their environment are interrelated and firms should adapt the
right strategy to the changes of environment for achieving a better performance. If
they are able to fit their organizational structure and environment, this will produce a
better performance.
This view was in line with Garrigs and Marqus (2004) and Song, Nason, and Di
Benedetto (2008) that claimed that Miles and Snow (1978) typology that contains of
four types of strategy were based on the pattern of strategic action taken by firms
strategic business unit (SBU) to the changes in the environment. This typology
shows a pattern of firms behaviour in their decision in dealing with environmental
force
The same as Porters generic strategies, Miles and Snow (1978) typology have also
frequently cited and generated large amount of interest among researchers (Conant
et al., 1990 and Garrigs-Simn, Marqus, & Narangajavana, 2005).

30

The strategy types that can be found in Miles and Snow (1978) typology are stated
as below;
i) Prospectors is the strategy that externally orientated and continued searching
for opportunities (Andrews, Boyne, Law, & Walker, 2009 and GarrigsSimn
et al., 2005). The firm that adapts this type of strategy usually has a broad
product-market domain that undergoes of periodic redefinition in order to
respond to the market opportunity and introduces of first in new product and
enters new market area (Garrigs Simn & Marqus, 2004).
ii) Defender strategy required an organization to adopt a conservative view and
internally oriented? (something missing here). They are more expertise in
their organizations area and not in search for new opportunities. This type of
strategy also required a firm to maintain stable product area and secure a
niche market that offer limited range of products. The firm that practices of this
strategy also tends to resist change and it concentrates on doing the best
possible job in its area (Andrews et al., 2009 and GarrigsSimn et al.,
2005).
iii) Analysers adopted both of those strategies discussed ?(what)(prospectors
and defenders). They scan their environments to find new ideas and rapidly
adapt to their organizations. This organization is flexible and able to change to
their environments (Andrews et al., 2009 and GarrigsSimn et al., 2005).
iv) Finally, a reactor. This strategy has not had a consistent pattern of strategy
and they are not consistent in responding to the changes of environment.
They are reluctant to change until they are forced to do so by pressure of the
environment (Andrews et al., 2009 and GarrigsSimn et al., 2005).
According to McDaniel and Kolari (1997), Miles and Snow typology is unique and
useful for examining the relationship between the organization and changes of
31

environment and the key dimension of this typology is how the organizations
response to the environmental changes.
Those arguments were supported by Spillan and Parnell (2011), that indicated the
business environment was determined the strategy types that firms should practice.
They found that a flexible and combination of strategy and their ability to adapt to the
environment are viable in a long run. Any strategy or development of any capability
can positively influence performance. A business that is simply reacting to the event
and the environment will outperform.
In addition, Due to rapid changes in the business environment, short of product life
cycle, improvement on the competitors capabilities, and access to new technology
give an intense pressure, mostly to the SMEs companies. In order to maintain their
competitive advantage, it is advisable for them to make a certain change in their
strategy. One of the methods is by enhancing their knowledge in supply chain
strategy and coordination strategies (Kumar, Singh, & Shankar, 2014)
Finally, there are other few common competitive that are practiced according to their
type of organization and industries. Those strategies are stay-on-the defensive
strategy, hold and maintain strategy, competitive harassment strategy, vacant niche
strategy, specialist strategy, guppy strategy, distinctive image strategy, harvest
strategy, and abandonment strategy (Hashim, 2008).
2.3.2 Business strategy among small retailers.
Retailers are defined as an intermediaries that help suppliers to find a market for
their product and they also help consumer to buy what they need and desire

32

(Niemeier, Zocchi, & Catena, 2011). Retailers act as intermediaries between supplier
and customers.
According to Doody and Davidson (1964) small retailer is defined as comprised of
any organization of one or more stores that is owed and operate by individual whose
scale of operation allow for close and continuous personal involvement in day-to-day
operations at the retail level.
Retailers are mostly run by family members and they do not work as a full time staff.
Their storage size is and usually located near to the customers residential area in
order to fulfil any emerging and ad-hock buying. They offer the right assortment and
limited selection of the brand product and their price is higher by 20 25 percents
from the supermarket or hypermarket. However, their stocks excels when compare
to hypermarket because they store less stock in their premises (DAndrea & Aleman,
2006).
Retailers have a long history of development and changes. According to Niemeir,
Zocchi, and Catena (2011) the changing in history of retailers is divided by three
eras, namely mercantile era, modern era and digital era. With the help of capital,
advancement of technology and new management technique, retailers have
expanded and served their customers successfully and earn the highest possible
return on the money invested.
This scenario has attracted big investors to joint in this industry and set up in a
supermarket and large chain retailers. This has given a pressure to small and
traditional retailers and their numbers are continuing to decline (Jones, Hillier,
Comfort, & Eastwood, 2005, Niemeir, Zocchi & Catena.,2011 and

DAndrea &

33

Aleman, 2006). As a result, many of the retailers closed off their business and filed
for bankruptcy (Marganosky, 1997, and Student & Mcgee, 1999).
As a report by Ozcan, (2000) and Armstrong, (2012) , In 1990s, there were many
chains of retailers growing in the United States, Southern European countries,
France and Germany. According to them, the emerging of the supermarket,
hypermarket and big box that called a category killers made the situation worse for
small retailers. All those companies were able to offer every conceivable and related
product under one roof.
Moreover, supermarket and warehouse club are willing to offer lower price than
traditional retailers, providing free parking space and offering an exclusive shopping
experience that changes customers to buy products from them. Consequently,
customers are spending less at traditional retailers compared with supermarket and
this situation post a serious challenge to traditional retailing because these
companies are able to give shopping alternative for customers. This is a nightmare
for small retailers in the local market where the big box or hypermarket enter their
business operational area (Morganosky,1997 and Parnel & Lester, 2008).
In addition, Adisa, Abdulraheem, and Mordi (2014),noted that there are many small
businesses failed as early in the second year of business because the owners could
not afford to hire expertise to run the business for them. The decision making,
strategic planning, and management function are depended on skills, ability and
characteristic of owners and

normally, a strategic decision is taken based on

pragmatic intuition, not on academic principles (Mazzarol, Clark, & Reboud, 2014).
Besides that, many owners and managers of small business are less confident to
the value of business strategic plan and believed more on the combination of good
34

idea and concept that bring the success to their business. Although they make their
day-to-day routine plan operation, but they do not believe that a strategic planning
applies to them (Sandberg et al., 2001). As a result, this will invite a misfortune to
their business.
This statement was supported by Connant and White (1999) who wrote that small
retail firms do not seem to engage in marketing planning due to limitation of
supporting staff, inability to bear the cost for formalize planning, and limitation of time
personnel. Those obstacles contribute to the disadvantages of small firms in the
market place.
In order to prosper and cope with those situations, retailers need to adjust to their
operations (Maki & Kokko, 2012). One of the effective manners is by pursuing a
distinctive competency (Conant, Jeffrey , Smart, Denise & Solano-Mendez, 1993,and
Armstrong, 2012). In their study, they found that most of the retailers were pursuing a
focus strategy and devoting to a certain group of customers in order to survive in an
increasingly challenging market situation.
Other researchers in business strategy and marketing field such as, Song et al.,
( 2008),Cronin-Gilmore (2012), and Marek (2014) contended that marketing
capabilities, like a customer and competitive knowledge, effective marketing design,
and skill in market segmentation will lead to better market performance and provide
a sustainable competitive advantage to the firm, especially for a small business
entity.
In another study, Khare (2014) reported that the success of small traditional retailers
were attributed to practice of distinct strategy type such as offering customized
service, credit facilities and personal relationship with their customers to boast sales
35

and loyalty. This is another competitive advantage that frequently practiced by small
traditional retailers to compete with the organized retailing store.
Armstrong (2012) stated that although small retailers lack in their resources and
ability to compare with big box retailers, but they still can survive due to alternative
strategy practise such as providing a superior value products or service, offering a
higher level of quality product, and giving better service to customers by building a
relationship and loyalty. By adopting of those strategies, they are able to provide
value to customers and differentiate themselves from competitors.
This view was in line with Ebben and Johnson (2005), that stated small firms cannot
compete directly with larger firm on economies of scale due to shortness of capital,
bargaining power with suppliers and buyers, and

managerial expertise. They

suggested to small firms for serving narrower market segment that does not reach
by larger competitors, target to the specific customers that demand a customize
product, and a high level of customer service that difficult for larger firms to serve.
Meanwhile, other writers such as, Klemz, Boshoff, and Mazibuko (2007) suggested
to small retailers when they face a challenge by large and strong firms to not directly
compete with them by changing in pricing, but they need to find other alternative
strategies such as micro marketing that focus on small market segments, offers a
narrow breath of product, and improves of their service for maintaining a relationship
with their customers.
Parnell and Lester (2008) in their study recommended an alternative strategy for
small retailers to adopt. They suggested small retailers not to compete directly with
the big box by practicing a focus-low cost strategy, but they should come out with a

36

limited product line, differentiation of product by competing on quality, and by niche

or specialization in certain areas that big box are unable to compete.
In an earlier study, Watkin (1986) was suggesting that in order for a small retailer to
succeed in their business, they need to pursue either by differing of their target
market or offering something different in products or services to customers than their
large counterparts do. In this concept, he suggested for small retailers to adopt one
of Porters generic strategies by serving a specific target market, namely focus
strategy to achieve a narrow competitive scope.
In a recent study, Megicks (2007) used both of functional and six types of business
strategy variables for defining a competitive strategy amongst 305 small independent
retailers in the urban area in the United Kingdom and found that a business level
strategy variables that adopt by them were able to produce a superior performance
of their business entities. He also found that the functional level of strategy did not
give a significant influence to business performance.
In this study, the author will use a retail business strategy that was developed by
Megicks (2007) that consists of six variables, namely, customers service focus,
channel expansion, cost reductions and efficiency saving, specialization, low cost,
and diversification for examining the strategy types that were used by small
pharmaceutical retailers in Peninsula Malaysia for competing with their rivals.
2.3.3 Research on business strategy.
Garrigs Simn and Marqus, (2004) claimed that Miles and Snow (1978) typology
have received the greatest amount of attention among researchers and this typology
reflects the organizations characteristics and strategy to the environment. They were

37

conducting a study in Spanish hospitality firms and found that the firm that
thoroughly developed and applied any strategy type of the competitive strategies
would achieve better performance.
GarrigsSimn et al.,(2005) conducted another research among hotels in Spanish
and found different results depended on the strategy types and how they adapted to
environmental changes. Those hotels that followed strategy type that were
developed by Miles and Snow shown a positive performance to their environment
changes.
Meanwhile, Pertusa-Ortega et al., (2009) discovered that a firm that was practicing a
hybrid strategy performed better compare to the firms that practiced a single
strategy. According to them, a firm that pursued a hybrid strategy was the firm that
combined a low cost strategy and differentiation strategy at the same time in order to
adapt in a dynamic and turbulent environment. They were conducting a study on 164
firms in Spanish and found that the firms that pursued a hybrid strategy tend to be
associated with higher performance regardless which sector they operated.
In another study, Banker, Mashruwala, and Tripathy (2014) were questioning the
practiced of single strategy either differentiation strategy or low cost strategy would
generate a sustainable competitive advantage to the entire firm as a report by Porter
(1980,1985), Hambrick (1983) and other researchers. From their observation on
12,849 firms that was retrieved from the Standard & Poors Compustat database, in
the United States of America shown that the practiced of single strategy was not
contributing to a sustainable competitive advantage and performance guarantee to
the firm due to the advancement in innovation technology and imitable capabilities by
competitors. From their observation, they came out with the interesting issue for
38

researchers to examine either a firm that uses both of strategy simultaneously will
achieve sustainable superior performance or they get stuck in the middle.
Baroto, Abdullah, and Wan (2012) claimed that in order for a firm to earn superior
profits and outperform their competitors, the clear choice of strategy is vital. They
revealed that a hybrid strategy became popular among large firms and were
practiced worldwide. They were conducting a field survey research to the one of the
biggest home appliance producer firm in Malaysia that operates globally and found
that this firm practiced a hybrid strategy in one of their target markets in order to
compete with their rivals and fulfilled customers expectation. This indicated that the
implementation of the hybrid strategy was able to generate superior incremental of
the firms performance.
Rubach and Mcgee (2004) criticized Porters generic strategies and stated that a firm
could pursue a combination of strategy simultaneously and able to generate a profit
the same as firms that pursue a single strategy. They proved that a mix or hybrid
strategy was helping small retailers in rural communities to face a competition by
large merchandise that opened outlets in their business area. They found that a
hybrid strategy was the most effective strategy among retailers and it could be
practiced in the market that experienced a dramatic change.
In another study, Megicks (2007) reported that many small retailers were run
successfully, although they faced a change in demographic, technology, and
consumer behaviour with purchasing patent that practice a distinct business strategy.
He suggested for small retailers not to adopt the low cost and differentiation strategy
as those strategies were successfully pursued by large retailers. In order to survive,
he suggested for them to use the six retail business strategy types that he

39

constructed. His study showed a positive result in performance of small retailers in

the United Kingdom that practiced the strategies types that he proposed.

2.4. Distinctive retailing marketing competencies.

In most strategic management literature, resources, capabilities and distinctive
competencies are central concepts. These concepts are vital in the sense that they
are able to complement the strategy in organization to achieve performance.
Resource-base view in strategic management is intended to examine the resources
and it capability for a firm to enable them to generate a high income and build
competitiveness versus their rivals ( Santema & Rijt, 2005, Moses & Tailan, 2007,
Newbert, 2008, and Barney, 1991).
This theory has been developed by Wernerfelt (1984), in an attempt to build a
consistent foundation for the theory of business policy. Started from that, It has
been explored in the academic literature and as a mean to explain the role of a firms
resources in generating a competitive advantages (Clulow, Gerstman, & Barry,
2003).
While Porter (1980) was more focused on environmental condition that favourably to
the firms performance, Lamb (1984) analysed the threats and opportunities from an
environment that affect a firms performance. The resource- based view (RBV) tend
to examine the link between a firms internal characteristic and performance (J.
Barney, 1991). In other words, this theory is seeking an internal reason for the firm to
achieve a superior performance. It examines how an organization manages,

40

deploys, and aligns of its resources and capabilities in order to produce product or
service to customers (C. David et al., 2011).
According to Wheelen and Hunger (2004) organizational analysis is a process of
looking within the firm itself to identify their internal strategic factors that can help to
determine if they can take an advantage of external opportunities while at the same
time they can avoid external threats. This process is more concerned with identifying
and developing the organizations resources.
Ristovska ( 2013) ,Gamble et al., (2013), and Hanson et al.,( 2001) stated that the
companys strategy must be tailored and aligned with their available resources in
order to gain more power and on the other hands, they can also avoid the external
threats in the area that the firms competitive deficiency to prevent them from
entering into an immediate crisis by analysing the firms resources and capabilities.
During the term of the 1980s and 1990s, strategic analysis emphasis more on the
attractiveness of external environment and the position of a company such as first
mover advantage, market share, and relative cost position, Resource-base view
(RBV) gives an explanation about the relationship between internal resources in
formulating of strategy that contribute to the profitability of companies and
maintaining a sustainable success (Canals, 2000,

Sadler, 2003 , and Moses &

Tailan, 2007).
This theory contends that the firms internal resources can be effectively developed
and deploy for generating a superior performance and sustain of competitive
advantage as long as they have a unique collection of resources and capabilities
that not simultaneously being implemented by any current or potential competitors
(Clulow, Gerstman, & Barry, 2003, Moses & Tailan, 2007, and Newbert, 2008).
41

In order to formulate and implement a strategy, the firm must have a certain types of
resources and capabilities that combine and create core competencies. For
achieving a core competency in a dynamic fashion, firms internal strength should
change with their external environment by leveraging of their resources and
capabilities through their activities (Rothaermel, 2013).
According to Sadler (2003), resource-base view provided an injection of reality into
the firm because from their perspective a strategy was based on firms resources
and capabilities and it was more stable with long term focus. It also gave us an
understanding, that a firms resource was critical to strategy formulation and
sustained success.
2.4.1 Resources
Barney (1991), Santema and Rijt.,(2005) and

Carpenter and Sanders, (2009)

defined a resource is the input that firm used to create goods or services to offer to
customers. It was a stock of assets that owned and controlled by the firms and basic
input to transform them to become capabilities.
Other writers such as Canals (2000), Wheelen and Hunger (2004), Hitt et al.,(2011),
and Gamble, Thompson, and Peteraf (2013) claimed that resources are what the
firms own or firms assets such as capital equipments, skill of individual employees,
finance and patents. Whereas, capabilities is what firms can do exceedingly well. It
is the resulting from the combination of the firms resources. Capabilities can also be
referred as a competence and it varies between firms, according to their tangible and
intangible resources that are owned by the company (Gamble, Thompson, & Peteraf
2013).

42

Resources are divided into two categories, namely tangible and intangible resources
(Barney, 1991). Tangible resources consist of cash, land, financial assets and capital
equipment. Whereas intangible assets consist of brands, goodwill, and technology
(Sadler.,2003).
Tangible resources can be obtained from the resource market in competition with
businesses from within and outside the industry, meanwhile intangible resources are
created within the organization (J. Barney, 1991, Hitt & Ireland, 1985, and Gamble,
Thompson, & Peteraf, 2013).
In another study, Raza, Majeed, Muhammad, Immad, and Fariha (2010) divided
firms resources into two categories called internal and external resources. Internal
resources are sources that can be influenced by the company. They are consisted of
human capital, financial, technology, plant and equipment and on the other side,
external resources that consist of the production process, external link of
organizations and organization behaviour. Both types of resources are important and
influenced manager during the strategy formulation process.
Barney (1991), Richard and Paul (2004), and Hitt et al.,(2005) suggested that a firm
must have a resource that are unique, difficult to imitate, non-tradable and unsubstitutable in order to maintain their firms competitiveness. If their resources fulfil
those criteria, a company can achieve a sustainable competitive advantage and will
generate superior rents. It is also advisable to the manager to constantly examine
and continual upgrading their resources in order to maintain their competitive
advantage because the resources value will decrease over times and competition
(Ristovska.,2013). In addition, by continuing strengthen, modifying, and deepening of
their resources and capabilities, these give a chance for companies to seize market

43

opportunity and defend themselves against external threats (Gamble, Thompson, &
Peteraf 2013).
2.4.2 Capabilities
Firm can be fit to their environment by deploying their resources in four ways, either
by concentrating resources to give a greater convergence of resources to a clear
goal; accumulating resources through learning by experience and disseminate of
knowledge throughout the organizations; conserving of their resources by dispersing
skill and technology transfer from another area of company; or finally by recovering
resources through shortening the time of return of investment between the resources
expended (Sadler.,2003).
Both tangible and intangible resources are interrelated and the interactions between
those elements would generate the firms capabilities and distinct itself from its rivals
and writers such as Santema and Rijt (2005), Newbert (2008) and Andersn,(2011)
advised managers to fully utilised their resources-capabilities if they are intended to
achieve a competitiveness and improved firms performance.
Organizations capabilities refers as a firms ability to achieve a particular task and
activities (Sadler.,2003). Canals (2000) defined firms capabilities as the capabilities
that an organizations professionally developed over time by combining the firms
resources and designing organizational process. In order for particular resources
and capabilities to contribute to the firms growth, they must have some of the
following qualities namely unique, valuable and difficult to imitate (Canals.,2000,
Gamble, Thompson, & Peteraf 2013).
2.4.3 Competency

44

According to Carpenter and Sanders (2009), because of tangible resources such as

land, debt financing, commodities, and unskilled labour are easy to identify and
imitate, these resources are not a source of competitiveness. At this point, if firms
tend to compete and create a differentiation from their rivals, they should create a
special capability that their rivals could not. This concept was called distinctive
competency and it was the base for achieving sustainable competitive advantage
and superior performance (Snow & Hrebniac.,1980 , Mooney.,2007, Hitt et al.,2005).
Capabilities are the organizational and managerial skills that are necessary in
organizing a variety of resources and place them strategically in order to perform an
internal activity. A capability can be refer as a competence. They are developed
through the deployment of a firms resources. If capability passes the competitively
valuable test and become a central to the firms strategy, it will refer to as a core
competence (Gamble et al., 2013).
Core competency can be defined as a unique strength that is embedded deep within
a firm that allows it to differentiate its products or service from those rivals. By having
a competency, the firm can create higher value of a product or service and able to
offer at a lower price to their customers compare with their rivals (Rothaermel,
2013).
Core competencies arise from the unique and distinctive way that the organization
builds, develops, and deploys its resources and competence. However, core
competencies have never been permanent due to the rapid changes of technology
and society. In order to maintain their core competencies, a firm is advised to
constantly adapt and cultivate (C. David et al., 2011).

45

Capabilities can become distinctive competencies and growth drivers to company.

However, it is relatively easy to learn or imitate another firms core competency or
capability. In order to prevent their competency and capabilities from being imitated
by a rival, it need the firms to ensure their competency achieved a tacit knowledge
level among employees in their organizations (Sadler, 2003 and Wheelen & Hunger,
2004). When their organization poses this feature, their competencies and
capabilities are unable to be imitated by competitors and this become distinctive
competency.
This concept also supported by Gamble et al., (2013) that stated a competitively
valuable capability that performed at a very high level of proficiency is known as
distinctive competence.
Distinctive competency is defined as an aggregate of numerous specific activities
that the organization tends to perform better than other organization within a similar
environment (Snow & Hrebniak.,1980,p.p.317) and according to Mcgee & Peterson,
(2000b) distinctive competency is a certain capabilities that allowed firms to perform
their key activities well. Mooney (2009) defined a distinctive competencies as a
capability that is visible to the customers, superior to other firms competencies to
which it compared to, and difficult to imitate (Mooney.,2007,pp.112).
Distinctive competency was introduced by Philip Selznick as early as 1957 and his
views was accepted among academician (Snow & Hrebiniak, 1980, and
Canals.,2000,). Most academicians described that a distinctive competencies which
make a company unique and different to compare with its rivals.

46

2.4.4 Competency among small retailer

Snow and Hrebiniak (1980) in their study reported that an organization can be
recognized as having distinctive competency if it capabilities are not owned or have
competitors although it is lacking of capital to compare with their rivals. As they have
a distinctive competency, they can still perform well compared with their rivals.
According to them, the entire strategy that managers intended to implement must be
supported by distinctive competency in order to achieve high performance. In their
study, although a strategy type vary among firms, but with distinctive competencies
that are suited with the type of the firms strategy, they were able to achieve a
financial success. They found that the relationship between an organizations
strategy, and distinctive competencies influenced to the firms performance.
This viewpoint was supported by Moore and Fairhust (2003) and

Cruz-Ros,

Gonzlez Cruz, and Prez-Cabaero, (2009) that contended that, in the

competence-based view perspective, firms will perform well over time because they
are able to build distinctive capabilities to outperform competitors. One of the
methods is by developing and implementing marketing capabilities that focuses on
various combinations of retail/marketing mix elements such as, customer service,
store image, external knowledge, and promotional capability for adding value to their
customers.
Other writers such as ODriscoll, Carson, and Gilmore ( 2000), noted that in order for
a firm to succeed, they must proactively manage their fortune rather than adapt
meekly to industry circumstances. They agree to the statement that claimed the firm
that developed marketing competence is most likely associated with superior firm
performance.

47

As quoted by Cruz-Ros, Gonzlez Cruz, and Prez-Cabaero, (2009), Tuominen et

al.(1997) defined marketing capabilities as a set of complex resources and skills in
the marketing field, which are result of a process of the knowledge accumulation and
its integration with values and norms developed through organizational process from
all over the firm.
Conant,

Smart,

and Solano-Mendez (1993), asserted that distinctive marketing

competencies referred to those things that an organization did especially well in

comparison with their competitors. They contended that, the development of
competitive advantages in retailing today become complex and tricky. Moreover, with
the emerging of large and successful retailers, there is a need for small retailers to
distinguish themselves from this competition by competing through the combination
of their functional area and marketing competency.
Song, Nason, and Di Benedetto (2008) then claimed that there are few sources of
sustainable competitive advantages that lies from firm capabilities. They are
marketing capabilities, strategy type, and Information technology capabilities. With
the combination of marketing capabilities and firms strategy types, this will relate to
an organizations performance. However, in order to boost the efficiency, firms
should equipped their marketing capabilities and strategy type with Information
technology (IT) capabilities. This combination will give a firm the ability to
communicate across functional boundaries to identify and exploit markets
opportunities such as new product development, technology monitoring, and market
sensing.
Whereas, from the strategic marketing scholars perspective, Ngo and OCass
(2012) asserted that the firms efficiency and performance was ruled by the

48

combination of marketing resources and marketing capabilities. The combination of

those factors would help firms understand and serve their customers, restrict
competitors from imitation, and increase firm effectiveness.

2.4.5 Research on distinctive marketing competency.

There are few studies done on distinctive marketing competencies associate with
performance. (Student and Mcgee 1999, Conant, Smart, and Solano-Mendez,
1993, and Mcgee & Peterson, 2000b)
In an earlier study, Snow and Hrebiniak (1980) found that an effective
implementation of both corporate and business level strategy supported by
distinctive functional area such as, general management, marketing, and production
produced a positive impact to the performance of the firm.
Conant,

Smart,

and Solano-Mendez (1993) examined the pattern of functional

marketing strategy and strategy types to the performance of 1,500 small businesses
throughout the United States. They found that the firms that adopted the seven
factors of competitive methods, namely, presentation and preparation, product
variety and depth, low price, high-price convenience, inventory control and
advertising, targeted incentives, and traditional fashions and service and a
combination with five strategy types produced a different result and performance.
Their study indicated that the importance of strategy types and distinctive marketing
competencies to small retailers in competing with a successful large retailers or big
box.

49

Conant and White (1998) claimed that most of small retailers are lack emphasize on
marketing plan due to limiting time engaged to the changes in market environment
and lack of capital to hire an expert for doing marketing plan. From their study on
small and independent computer store retailers in the United States found that the
marketing plan was important for them to distinguish their organization in the
marketplace. Furthermore, the planning process benefits resulted in better financial
performance.
Student and Mcgee (1999), Mcgee and Peterson, (2000b) found that small and
independent retailers were able to survive in a market that was dominated by big
supermarket because they had a distinctive competencies that support their strategy
in doing business. With the support of distinctive competencies, they could
implement their marketing strategy well and are able to survive although they faced
challenges by big shopping malls, changes in demographic and in customers
purchasing patents.
In another study by McDaniel and Kolari, (1987), they asserted that the marketing
strategy, business strategy type, and the environmental factor are interrelated. They
tested seven elements of marketing strategy to 1,000 banks that operated in the
United States. They found that a different marketing strategy was adopted by banks
are depending on the type of business strategy they pursued and which environment
they operated. They infer that the marketing strategy type is important to the firm but
the type of strategy depends on organizational structure and environment factors.
Based on those discussions, we could say that for most of the firms either small or
big retailers with a specific strategy, supported by distinctive competencies will help
managers to implement their desirable strategy and as a result, their firms can

50

perform better than rivals. Sustainable competitive advantages can also be achieved
when a firms resources becomes distinctive (Wheelen & Hunger, 2004, Hitt et al.,
2001, and Parnel & Lester, 2008).

2.5 Organizational culture

Organizational culture had been a central concept in strategic management since
1980s and it was vital in the study of organizations. Author such as Gamgee (2006)
and Shein (2010) observed that the word organizational culture and organization
tend to be synonyms and unable to be separated. It affected all aspects of
organizational activity. Every organization has its own type of culture and it is the
second key factor when designing an organization for a competitive advantage.
According to Ali et al., (2012) an organization must have a strong culture if they
intend to maintain competitive advantage. If a culture and organization are not match
than a strategy is unable to deliver a desired objective. The manager should develop
a corporate culture simultaneously and alignment with the firms organization for
them to create value and generate revenue (Andrew .,2011).
The culture is defined as any group of people that has a set of beliefs, customs,
practice and the way of thinking that they come to share with others by working
together or being together. It is a set of assumption that people will accept during
interaction with each other without any enquiry (Campbell et al.,2011).
According to Barney (1986), organizational culture can be defined as a complex set
of values, beliefs, assumptions and symbols that defined the way firms conduct their
business.
51

The organizational culture refers as the character of an organizations deep value,

beliefs, and traditions that have been formed over the course of development.
Beneath the conscious awareness of everyday life, stream of thoughts, sentiments
and activities that affects the organizational life (Gamage, 2006).
Ali et al., (2012) defined a culture as beliefs, assumption and values that members
of the group share about rules of conduct, leadership styles, administrative
procedure, rituals and customs.
Organizational culture refers as a symbolic, rituals, shared understanding, and social
patterns that govern behavior in the organizations (Chow & Liu, 2009).
Monzavi, Mirabi, and Jamshidi (2013) defined a culture as a set of values followed
by all staffs and general rules which convince every one of them.
Organizational culture can also be defined as the set of values, beliefs, behaviours,
customs, and attitudes that help the members in the organization to understand
what it stand for, what it considers important, and how to do things (Sokro, 2012).
Hit et al.,(2006,p.p.377), defined a culture as the way in people behave that
influenced by ideologies, symbols and core values shared throughout the company.
According to Speculand, (2009), culture is the way we do everything in an
organization and it is a main differentiation element between our organization and
competitors because it will determine how our staffs attitudes and behaviours.
2.5.2 Different level of organizational culture
Schein (2010) devided organizational culture into three levels for us to analyze
namely artifact, espouse values and basic underlying assumptions. Those levels

52

explicit that reflect of environment of organizations such as office layout to a deeply

embedded and abstract basic assumptions that defines the very essence of culture.
According to Schein (2010), the first level or surface level of organizational culture is
the visible artifacts. This includes all phenomena that we can see,hear and feel, such
as visible product, language and firms technology. This level is easy for us to
observe but very difficult to decipher.
When a group is first created and face a new task or problem, some of their group
members propose to reflect his own assumptions on how to perform that task or
settle that problem. If his approach has succeed, than his assumptions become an
espoused beliefs and values among their group. In future if the same task or problem
happens, group members will use his assumption as a guide.This is the second level
of organizational culture that is introduced by Schein (2010) called espoused beliefs
and values.
The third level is called basic underlying assumptions. This happens because when
that solution repeatedly works to solve the same problem.Group members start to
believe that the entire solution is not a hypothesis at all but they treat it as a reality
and tend to be nonconfrontable and nondebatable. This level is difficult to change
once it generally accepted and adopted in their unconscious level (Schein ,.2010).
From a discussion above, we can say that there are three different levels of
organizational culture that we can study. Shein (2010) also introduced his framework
for analysing organizational culture and it was frequently used by academicians
while examine the organizational culture.

53

In order to fully understand the culture in an organization, it is essential for us to

understand the subculture that operate in small groups such as functional units.
According to Arvinen-Muando and Stephen (2013) subculture emerged because the
organization is divided into a subset of small group such as a functional group,
friendship groups, geographical groups, and hierarchical level. They will identify their
group as a distinct group in the organization , share a set of problems and routinely
take action on the basis of collective understanding unique to the groups.
Schein (2010) claimed that there are three generic subcultures emerge in
organization, namely operator subculture, design or engineering subculture and
executive subculture. These subgroups are shaped due to share experiences of
success on a given level in their organizational hierarchy. Each group has their own
goals and distinctive methods in interpreting and reacting to the environment and
problems that often occur between them.
The first level or frequently called the line is referring to employee that produced
and sold organizations products or services (Shein.,2010). Their subculture is based
on human interaction, high level of communication, trust and teamwork. The
combination of those elements are required for this group to carry out their task
successfully. They also believed that the action of any organization is dependent to
the action of people as a resource for run the place. However, they also believed that
because of the success of organizations are depending on their knowledge, skill,
learning ability and commitment, they are dependable to the management to give
proper resources, training and support for the job to be done.
The second level of subculture is engineering or design subculture (Shein.,
2010).This group has a knowledge on how technology to be used. Their basic

54

assumptions come from their educational back ground, work experience, job
requirements and occupational community. They are shainge a general perception
that a problem has an abstract solution and can be applied on real world product or
service. They also prefer a technical routine rather than human team to ensure
safety during managing of contingency situation. They also believe that human will
make a mistake and to minimise the impact, they prefer to make things as automatic
as possible. This beliefs arouse conflicts between operator groups and engineering
subculture.
The highest level of subculture that is described by Shein (2010) is called executive
subculture. This group represents the CEO or executive team and they are often a
source of misalignment among other subgroups. Their concerns are about the
necessity to maintain the financial health, profits and return on investments. Their
beliefs are based on the assumption that without a financial survival and growth,
shareholders and society will not receive any return and financial survival is the
same as perpetual war with competitors.
According to Shein (2010) these three subcultures are often working at cross
purposes with each other and we are unable to understand a certain organization if
we cannot understand how these conflicts are dealt with in their organization. It is
important for us to understand their subculture and their alignment with each other
before we focus on the corporate culture of entire firms.
Finally, in addition to those subcultures, Shein (2010) also discussed on
microcultures that evolved in a small groups that shared common tasks or history.
This happened because some of the tasks required this group to cooperate

55

extensively in order to accomplish them. This group will accept outsiders as long as
they can adapt to the rules of this group.
As discussed above, culture is a result of group learning experiences in which of
people solving a problem together. The variation of cultures reflected of leaders
personalities, members and their circumstance of early problem solving.
2.5.3 Organizational culture change in organization
There are few factors that can change a culture such as changes through the
introduce of new technology, turnarounds, mergers and acquisitions and through
destruction and rebirth that trigger managers to reexamine and determine whether
the new culture would be integrated (Miner.,2007 and Schein.,2010).
In another study, Cameron and Quinn (2011) contended that the rapid changes in
technology and environment intolerant also trigger managers to change their
organizations strategy. This action needs managers to change their organizational
culture because the redesign or engineering of strategy alone is not enough in
response to environmental changes without an approach to change of organizational
culture.
However, It is a great challenge for managers when they want to make a change in
the organization (Shein.,2010). Nature of the organization culture is one of the
factors that influenced changing the process. A strong culture is difficult to change
according to enviromental changes than weak culture and if managers are unable to
manage, it will become a liability to the organization because it will oppose within the
organization (Gamage.,2006).

56

One of the model frequently used in changing of organizational culture is derived

from Kurt Lewin (1947) and it was used In many studies ( Shein .,2010 and CristianLiviu, 2013). The changing process involved consist of three steps namely
unfreezing, cognitive restructuring and refreezing.
For the first stage, the pressure from external source trigger a manager to change in
ensuring the companys survival. The need for change is obvious and members in
the organization should accept it (Cristian-Liviu, 2013). According to Shein (2004,
2010) this stage is called disconfirmation condition. This phenomenon happened
when manager feels that some organizations goals are not being achieved because
of unaccomplished process. It automatically produced a motivation to manager to
call for a change. At this stage, manager need to engage in a communication
campaign to foster new values and behaviours to encounter resistance from
subordinates.
Second stage of changes is called cognitive restructuring when a change process
proceeds and it requires behavioural and cognitive changes among employees.
Leader as a change manager is needed to be clear on his goal and ensure his
subordinates achieve it in many different ways (Shein.,2010).
The Last step for changes process is called refreezing. At this stage leaders need to
make sure the new behaviour will take place and produce a better result. If the result
is not achieved as expected, then this will trigger a disconfirming of information and
leaders need to launch a new change process (Shein.,2010).
In addition, Shein (2010) stresses that another important point before manager plan
to make any changes, he should define the goals concretely in term of knowing the
specific problem he is trying to fix because sometimes culture cannot be changed
57

directly unless the new way of doing things will provide members with a new set of
shared experience. Besides, changes of organizational culture need time

for

learning of new ways and unlearning of previous method.

2.5.4 Organizational culture, strategy implementation and performance

The interest to study about the culture and performance in organizations emerged
among academician and researchers after they realised that Japan was able to put
their country as an international business superpower and left behind the United
States in the early 1980s. Starting from that, they realised the importance of human
relations to business and there were exhortation for the firms to create organizations
culture ( Arvinen-Muando & Stephen.,2013).
Moreover, according to Gamage (2006), culture has a major impact on the
performance of the organization. It acts as an effective instrument for employees
motivation and as a social glue that hold an organization together. Any leaders that
intend to improve their organizations effectiveness, should be able to diagnose the
organizational culture and climate before taking any necessary steps to change any
strategy or create a positive working environment.
In addition, the performance differences across firms are contributed

by their

capabilities, resources and corporate culture (Andrew, 2011). He noted that a

corporate culture was included in a firms valuable, rare and inimitable resources.
Organization was advised to manage their culture as strategic resources.
To remain competitive it is a need for managers to formulate their policies and
procedures that are aligned with the characteristics of their organizational culture
58

(Wei et al., 2013). Many academicians claimed that an organizational culture was a
fundamental to organizational success and they linked the organizational culture with
employees productivity and performance (Fakhar, Zahid, & Muhammad., 2013).
Campbell et al. (2011) claimed that the culture can influence an organization in many
ways, such as employees motivation, employees morale and goodwill, productivity
and efficiency, quality of work, the relationship between employee and employer, the
employees attitude about their workplace, and employees innovation and creativity.
In an earlier study on organizational culture and strategy, Vale-Cristisan,(1985) found
that organizational culture was able to set the behaviour of employees and motivate
them on achieving organizational objectives. To achieve the organizations objective,
it must be supportive to all members in the organization by creating and sustaining a
suitable culture throughout the organization. All components such as structure,
system and leadership style must be matched with their organizational culture than
the strategy or changes will happen smoothly. There is also a need for managers to
pay a higher level of attention to ensure the changes by new strategy will materialize.
Arvinen-Muando and Stephen (2013) further contended that to achieve an
organizational objective, a company should create a shared value that would help
employees to focus of their efforts. They agreed to the previous statement that
suggested a manager to create a strong culture in their organization in order to help
firms create excellence. This view was in line with Muhlbacher, Vyslozil, and Ritter
(1984) that stated, as long as organizational culture allowed a company to react to
the changes of external environment and fulfilled the needs of internal integration,
the entire firm was able to compete in their current market.

59

From the resource-based view perspective, Barney (1986) also emphasized on the
importance of organizational culture as another source of competitiveness. He stated
that an organization which achieved a superior performance had a set of core
managerial values that defined how they conducted their business. The firm should
understand the function of culture that contributed to competitive advantages. He
also contended that in order for culture to play an important role in generating
competitive advantage, they must be valuable, rare and hard to imitate. A company
that has valuable, rare and inability for rivals to imitate their culture will enjoy a
sustainable competitiveness and on the other hand, a company that do not have a
valuable, rare and inimitable culture cannot expect their culture as the source of
competitiveness.
According to Chow and Liu (2009) and Monzavi, Mirabi, and Jamshidi (2013) the
attention on organizational culture plays an important aspect for managers. They
must clarify and emphasis on it in order to avoid any trouble during the
implementation process. They suggest the human resources manager to create the
necessary alignment between the management team and the culture of their
subordinates for support of this process. As an organizational culture can facilitate
the firm performance and strengthen of the firms human resources (HR) system, so
it help to facilitate the process.
However, during strategy implementation process, only few studies have been done
to seek the influence of culture (Van Der Maas,2008) and according to Ali et al.,
(2012), it is necessary to find the type of culture that support the activity of
implementation of strategy in organizations. Vale-Cristisan (2013) further stated that
there was the biggest challenges for managers to fit their cultures and strategy in
their firm, and according to Raisa Arvinen-Muando and Stephen ( 2013) there was a
60

linking between culture and the organizations performance but it is quite difficult to
prove.
There are four main types of culture that frequently examined by the researcher for
their relationship to performance of the organization. They are consisted of clan
culture, adhocracy culture, market culture and hierarchy culture ( Ali et al., 2012 and
Zafir & Acar, 2014 ). In another study, Wei et al., (2013) divided an organizational
culture into two dimensions called organic culture and mechanistic culture. Organic
culture consists of clan and adhocracy culture and on the other hand, mechanistic
culture consists of market and hierarchy culture. Both cultural dimensions serve as
strategic resource to the firm and antecedents to strategic action.
Clan culture or cooperative culture is internally focused and it shaped between the
dimensions of organizational focus and flexibility ( Zafir & Acar, 2014). This type of
culture is more flexibility and concern of people. Clan culture is more focused on
building a friendly workplace and facilitated employee commitment. Others criteria
for this culture is it emphasized on cohesiveness, participation, corporation, trust,
sense of unity, and teamwork (Wei et al., 2013).
The second type of culture is Adhocracy culture. This types of culture tends to build
an innovative and dynamic at workplaces (Wei et al., 2013). It promotes risk taking
and changes and this type of culture is more convenient to the entrepreneur.
Employees in this organization are encouraged to take the initiative and freedom. As
a result, they feel happy, satisfied, and successful (Wei et al., 2013).
Hierarchy culture is located between organizational focus and stability control. This
type of organizations culture emphasized in order and rules. Leadership in this

61

organization is more effective, but their workers are more alienated and decreased
the sense of autonomous ( Zafir & Acar, 2014).
Finally is a market culture and this culture occurs at the time of stability and control.
The organization that practices this culture has effective relationship between
suppliers, customers and stakeholders. Employees in this organization are successorientated and given importance to personal interest rather than organizational goals
( Zafir & Acar, 2014).

2.5.5 Research on organizational culture.

Many studies have tried to examine and test the effect of organizational culture to
strategy implementation( Ali et al., 2012, Ahmad, 2012, and Cristian-Liviu, 2013) and
most of management scholars believe the organizational culture have major impact
to the performance of organization (Gamage, 2006).
Speculand (2009) noted that an organizational culture is another factor to the
success of strategy implementation. If the implementation process is too slow for the
culture, it will demotivate their subordinate. As a result, they will lose momentum of
changing process. Conversely, if the implementation process is too fast than our
organizational culture, this will make an objective are under delivered. It is a
managers responsibility to examine the routine activities in their organization for
making sure it derives and fits with the strategy to assure the implementation
process occurs smoothly.
Many studies have proven that management of human resource is another important
factor in helping a firm to improve on their performance and organizational culture to
62

become one of the supporting elements. Ahmad (2012) conducted a study among
60 employees in the institutes of Information technology in Pakistan using four types
of traits or dimension of organizational culture that was introduced by Denison
(2000), such as involvement culture, consistency culture, adaptability culture, and
mission culture to the performance management practice in entire collage. His study
indicated that a different dimension of organizational culture practiced would give a
different result to the performance of management practice that determine the
improvement of capabilities among employees. In spite of that, all dimensions of
organizational culture that he tested were given a positive relationship to the
employees capabilities and firm performance. This is shown that an organizational
culture is another supporting factor in the management of human resource.
Bushardt, Glascoff, College, and Doty (2011) examined two dimensions of
organizational culture, namely weak and strong culture and their interaction with the
organizations formal reward system and their interaction in determining the success
of the implementation of the firms strategy. They provided a model that showed this
interaction and their impact to the effectiveness of the strategy implementation
process. They concluded that the organizational culture and reward system such as
merit pay, promotions, and bonuses must be congruent during managing and
coordinating of employees behaviour towards new organizational goal or objective.
Additionally, Sokro (2012) stated that the organizational culture was gaining a wide
acceptance as a way to understand human systems in the entire organization. He
found that an organizational culture as a tool for employees to identify the action that
lead to reward and punishment. Besides, organizational culture could prompt a level
of employees motivation that contributed to a decreasing of attrition rate and boost
of organizational efficiency. Furthermore, he found a positive correlation between
63

employee motivation and overall efficiency of organization as a strong culture would

bring out the positive energy of people to perform with loyalty on a deeper level.
In another study, Cristian-Liviu (2013) stated that a company can perform better
compare to another in implementing business strategy depending on certain
elements. One of the elements is organizational culture. This element will determine
either a firm can pursue a right action and efficiently implementing their competitive
strategy. He investigated the correlation between organizational culture and strategy
on eight companies in the Romanian construction industry. His finding showed that
organizational culture was a crucial determinant in the strategy process. He
concluded that, there was a need for organizations to have a supportive
organizational culture for helping with the implementation of business strategy.
Abdul Rashid, Sambasivam, and Abdul Rahman (2004) study examined the
influence of organizational culture on employees attitudes towards organizational
changes in 258 manufacturing firms in Malaysia. They were using two dimensions of
organizational culture and relate them with three types of employees attitudes in
order to find which type of organizational culture can influence employees attitudes
toward organizational changes in Malaysian context. Their study found that a
different type of employees attitude has a different level of acceptance towards
organizational changes and this attitude emerged as a result from a different type of
organizational culture that was practiced in the entire firm. Their study also indicated
that a certain type of organizational culture would support the acceptability of
changes among employees, while another type of culture could not accept them.
Wei et al., (2013), stated a firm that have an adaptable, nurturing, and innovative trait
is likely to be relevant and competitive in unpredictable and rapidly changing market.

64

However, this competitiveness can be maintained if they have a support from the
organizational culture as a medium and serves as a strategic resource that can
influence a range of activities within the firms that can affect the performance. In their
study on industry in China, they tested two types of organizational culture that called
adhocracy and clan culture to the influencing of marketing practice and found that a
positive interaction of both types of culture to improve the effectiveness of the firm
marketing programme and helping in creating a superior performance.
Prajogo and McDermott (2011), used four dimension of organizational culture,
namely group, developmental, hierarchy, and rational as independent variable to
examine the relationship on four performance by measuring such as, product quality,
process quality, product innovation, and process innovation at the operational level
of Australian firms in 2001. Their finding indicated that an organizational culture and
a strategic direction of the firm must fit each others in order for the firm to achieve
their goals. Managers must develop a specific organizational culture to support their
competitive goals or they can choose the right position on their organization to
compete with their particular cultural characteristic.
Zafir and Acar (2014) in their study on 99 hospitals in large cities of Turkey found
that there are four types of organizational culture commonly practiced, namely
Hierarchy culture, Adhocracy culture, clan culture, and market culture. This study
indicates that a corporate culture is one of substantial intangible force that contribute
to the firms performance, but its results and level of performance depends on the
type of organizational culture they practiced. Their study revealed that in order
advance in their competition between rival, a firm must have a good plan of strategy
and maintain a sustainable competitive advantage and prevent them from being
imitated by competitors, they must have a unique set of activities and a high
65

commitment and support of their employees especially in a service industry such as

in the health care industry
While, in the study of the relationship between organizational culture and strategy
practice, Gupta ( 2011) asserted that in an uncertainty of business environment, only
organizations that their strategy is aligned with industry environment will survive. In
his study on Miles and Snow (1978) typology and their relationship with
organizational culture in the performance of 32 organizations from seven types of
industries in India, the performance of industry is influenced by the type of strategy
they pursued and the type of organizational culture they practiced. His study
indicated that type of strategy and organizational culture practices in Indian
organizations depends on which industry segment they operated. In addition, in
order for a firm to be successful in the implementation of strategy choice, it must
align with the right organizational culture as a supportive element.
According to Tripathi and Tripathi (2009), organizations culture can be assessed
through observation on how managers deal with subordinates, peers, and bosses
and the ability to influence their target in developing their commitments. The
successful in influencing and developing of their commitments is a measuring scale
to the managerial effectiveness. In their study on 200 lower and middle managers in
organizations in Northern India, they used an organizational culture as a moderator
to the strategy in order to assess the role of organizational culture in the firms
performance. Their study revealed that an organizational culture worked as a
moderator and the commitment of employees were depending on the ability of the
manager in using an appropriate strategy when approaching them.

66

In this study, the organizational culture will be used as a moderator in examining a

relationship between implementation of business strategy types among small
independent pharmaceutical retailers to their performance. The organizational
cultural instrument will be based on questionnaires that are developed by Cameron
and Quinn (2000). The author will examine the moderating effect of organizational
culture to the business strategy implementation and performance of small and
independent pharmaceutical retailers in Peninsular Malaysia.

2.6 Performance
Performance is another concept in Strategic Management and the goal of strategic
management process is to obtain a sustainable competitive advantage and achieve
a firms performance. We can evaluate our objective through assessment of the
firms performance. We can also control and evaluate our strategy with what actually
happen by looking at performance in order to compare with what actually happen to
our plan formula (Kroeger, 2007 and Wheelen & Hunger, 2004).
According to Carlton and Hofer (2006), most theories and researches in strategic
management are focused on opportunity and exploitation area, but there has been
no consensus regarding the best and sufficient measures of a firms performance
although the purpose of the research has been done. They contend that less
attention has been focused on the issue of what constitutes of success and how to
measure success.
Organizations are encouraged to consistently measure their performance in order to
ensure a desired action is indeed carried out as intended and it is interrelated with

67

the evaluation and control of strategy process (Varcoe, 1996 , Wheelen & Hunger,
2004 and Kumru, 2012).
According to Zakaria (2010) many studies in organization are involved in the
examination of organizational performance because the aim of the study of strategic
management is intended to improve organizational performance.

2.6.1 Definition of performance

There are no agreement with the definition of performance because definations and
measurement are depend on the specific objective of the organization (Hashim,
2008). However, according to Wheelen and Hunger (2004), performance as the end
result of activity that included the actual outcome of the strategic management
process and it is measured in term of profit and return of investment.
Lenz, (1980) defined an organizational performance as the accomplishment of an
enterprise with respect to some creterion or createria.
In another study, Carlton and Hofer, (2006)defined performance as a contextual
concept that associated with the phenomenon that was being studied. It is a
measure of the change in the financial state of an organization that result from a
management decision and execution of strategy by members of the organization.
According to them, the essence of performance is the creation of value. As long as
the assets of an entire organization contributes an equal or greater value than their
contributed assets, the organization will continue to exist.
G. Chow, Heaver, & Henriksson, (1994) further stated that the definition of
performance varies and it challengeing for researcher because organizations have
68

multiple and frequently conflicting goals definition. The definition of performance is

depend on their perspectives.
On the other hands, performance measurement can be defined as a set of metrics
used to quantify the efficency and effectiveness of actions, identify competitive
position, and locate a problem areas for assisting a company to make tactical
decisions for achieving their objective (Gimzauskiene & Kloviene, 2010).
As reported by Sousa, Aspinwall, Sampaio, & Rodrigues, (2005) Neely et al (1995)
performance measurement is the process of quantifying the efficiency and
effectiveness of action.

2.6.2 Performance measurer

By applying the discipline of performance measurement, this can help a manager to
determine an important and critical issue to the organization. From this process,
manager can focus on the activity that is able to generate performance. In addition,
performance measurement can help a firm to implement their strategy and achieve a
state of continuous improvement. Performance measurement is like a compass that
guide a way for companies towards their goals because it can help companies to
focus and move to the right direction (Kumru, 2012).
According to Nopadol and Boon-Itt ( 2012) and OMara, Hyland, and Champman,
(1998), performance measurement is vital in the management of an organization.
Although it does not tell whether an organization is a success, this will help
managers during implementation of strategy and allow them to access actions
design to generate sustainable and long term improvement to the firm.
69

Moreover, in order to succeed in the business environment, managers need to

monitor and control cost efficiency, quality of products, productivity, and quality of
their employees. By using a performance measurement system, this enables
managers to

control hose aspects through measurement,evaluation, and

comparison with their targets and take any action if requires (Perera & Baker, 2007).
Finally, Sousa, Aspinwall, Sampaio, and Rodrigues (2005) in their study contended
that a performance measurement system can become a tool to influence employees
behaviour that can help in implementation of the firms strategy.

2.6.2.1 Perspective and elements of performance measurement

Rompo and Boon-Itt (2012) mentioned that a performance can be measured
according to various perspectives and this will deliver various of result. They listed
three perspectives of performance measurement such as customers perspective,
shareholders perspective and supplier perspective. In earliest study, Chow, Heaver,
and Henriksson (1994) contended that performance can also be measured in two
types of measurement namely hard and soft measures.
In addition, there are also another approach in measuring performance based on a
human resource approach such as HRScorcard.com and IC approach (Roos,
Fernstrom, & Pike, 2004).
Several empirical studies were done and summarized that there were four primary
categories of performance measures such as accounting measures, operational
measures, market-based measures, and survival measures (Carton & Hofer.,2006).

70

In addition, there is another measure emerging of late called an economic value

measures (EVM).
i)

Accounting measures
These measures are based on three basic financial statements, namely
balance sheets, income statement and statement of cash flow and they
are expressed as values, ratios or percentage (Carton & Hofer.,2006).
These accounting measures can be subcategorized into three categorized
namely profitability measures, growth measures and leverage, liquidity and
cash flow measures.
a) Profitability measures is measure of values and ratios that incorporate net
income or a component of net income including operating income or
earnings before taxes. Under profitability measures, few variables such as
return on assets (ROA), return on equity (ROE), return on sales (ROS),
net income,and return on investment (ROI) are examined.
b) Growth measures is a measure of values and ratio that present some
indication

of

organizational

growth.

Under

growth

measurer,

subcategorized, sales growth rate and employee growth are examined.

c) Finally is a measure of leverage,liquidity and cash flow elements such as
growth rate of operating cash flow, cash flow return on equity and cash
flow return on assets.
This measures are dealing with the financial structure of the organization
and the ability of the firm to pay its liabilities in a timely fashion.
The issue rises when using of traditional accounting measurement
whether a companys financial statement really measured the economic
value of the firm or past value. Due to some of the inadequacy in this
method, numerous new financial metrics measures namely economic
value added(EVA) and Cash flow return on investment(CFROI) is being
used ( Carton & Hofer.,2006). Variables that are included in these

71

measures are residual income (RI), economic value added (EVA), and
cash flow return on investment (CFROI).
ii)

Operational mesures
According to Carton and Hofer (2006), operational measures consist of
non financial performance, such as share market coverage, change in
intangible assstes, customers satisfaction, productivity, and product
innovation.

iii)

Market based measures

This measure is dealing with the market value of organization in ratios or
rates of change. This measure is not popular in entrepreneurship research
as this measure is problematic ( Carton & Hofer.,2006).
Variables that is included in these measures are return to shareholders,
holding period returns, Jensens alpha and Tobins Q, and market value
added (MVA).

iv)

Survival measures
Survival measures of performance is an indication of whether the
organization remain in business over the time and they still have an
interest to continue this business in the future.
This measure is rarely in use ( carton & Hofer.,2006) because the time
frame for this measure is long.

v)

Economic Value Measures

According to Carton and Hofer (2006), this measures is almost never been
used

in

academic

research

either

in

strategic

management

or

entrepreneurship. This measure is a result form disatisfaction with

traditional accounting measures that is seen not adequate in guiding of
strategic decision (Hashim.,2008).
In another study, Larrabee and Voss (2013) reported that there are two
distinctions between traditional accounting profit versus economic profit
such as in term of cost of capital and a principle of the recognition of
72

revenues and costs. In addition, the use of economic profit measures is

safer from any manipulation by management .
According to Hashim (2008), Zakaria (2010), Carton and Hofer (2006), and
Larrabee and Voss, (2013), there are another mesures frequently used in a study of
strategic management and entrepreneurship such as activity based costing (ABC),
benchmarking, and balance scorecard.

Balanced scorecard
The using of the balanced scorecard approach was introduced in the 1990s
as a result from disssatisfaction in traditional measures (Hashim.,2008). This
method has increased in used. In 2003, 53 percent of firms in the United
States used this method in their business measures technique (Mowen &
Hansen, 2011).
According to them, the balanced scorecard is a strategic-based performance
management system that typically identifies objectives and measures in four
dimensions or perspectives, namely financial perspective, customers
perspective, process perspective, and learning and growth perspective.

Activity Based Costing (ABC)

Activity based costing system has evolved in response to significant changes
in a competitive business environment. The main objective of this system is to
manage activities and reduce cost of production and at the same time to
improve customer value ( Mowen & Hansen.,2011).

Benchmarking
According to Aaker (2001), benchmarking is a comparison of a firms
performance with another firm in order to generate idea for improvement.
Benchmarking involves of systematic and continue process of measurement

73

and compare the products, services and

practice in organizations

(Hashim.,2008 and Zakaria.,2010).

According to Carton and Hofer (2006), Perera and Baker (2007), and Hashim (2008),
there is a difference in performance measures systems in management and
entrepreneurship studies. One of the reasons is due to the problem in making a
definition of performance with various differences, and lack of clear and concise on
the firms objective. As a result, over the years there is still a lack of agreement
among scholars and practitioners regarding the definition and measurement of the
organizations performance.There are also still no consensus regarding the best and
sufficient measures of the firms performance.
As discussed earlier, due to a rapid changes in the business environment, there is a
need for managers to take extra measures by formulating and implementing an
appropriate strategy and look for an effective control procedure. One of the control
methods proposed by academician is by measuring a firms performance
(Hashim.,2008). The selection and identification of performance system is an
important aspect for managers in order for them to assess their firms performance
and enable them to make improvement. An appropriate measures will enable firms to
direct their action in achieving their objective (OMara et al., 1998).
According to Rompo and Boon-Itt (2012), a good designation and implementation of
performance measurement system (PMS) will help the organization to implement
their strategy and on the other hand, if performance measurement is not well
designed, it will harm the organization because it could lead to dysfunctional
behaviour among employees. Thus, they proposed a model for measuring of the
performance according to the perspective of managers in various firms in Thailand.

74

2.6. 3 Performance measurement model

Yurdakul (2003) claimed that profitability is an indicator that frequently used as a
long term performance measurement of the entire firm. He stated that a financial
measurement system is a suitable tools for assesment of firms condition because it
is able to describe the current status of the firm and reflect the consequences of past
decisions. However, this system has a limitation. The accuracy of financial measures
is depend on the accuracy of the financial statement that is provided by the firm, the
current economic situation, and financial condition. He has also come out with a
multicreteria performance measurement model to measure manufacturing firms
performance in term of area of success.
This view in line with OMara et al., (1998) and Kumru (2012) that stated, in the past
study most researchers are focused on financial measures to examine the firms
performance. Among variables that are always examined are profit margin, return on
capital employed, and earnings per share. This traditional financial performance is
periodically measured and summarized the firms performance and provided an
information for managers to take a short term strategy in improving bottom line
results.
However, because of technological advancement and increasing of competition,
there is a need for firms to monitor their performance closely and widely. They state
that the performance measurement system has expanded and started to integrate
and measure other indicators than just financial indicator. They state that many
researchers have started to recommend a firm to adapt a more broad-based set of
performance measurement system to generate a sustainable and long-term
improvement.

75

For a contribution to this research area, Kumru (2012) successfully developed a

scorecard-based composite measure (BSCCM) to help manager to measure of
cause- and- effect relationship between operations strategy to the companys
competitive advantage. This measurement has used financial, customer, business
process and learning and growth measurement as key indicator or perspective.
Whereas, OMara et al.,(1998) proposed that a firm develop a broad range of
performance measures set and changes of performance measurement variables
according to the changes of the firms strategy.
2.6. 4 Performance measurement in SMEs
The way of performance measurement systems that are practiced in organizations
differs and it depends on various factors such as resources availability, different of
control requirements, and nature of agency issue (Perera & Baker, 2007). These
creteria make a difference between a small and medium enterprise (SMEs) versus a
large business in applying of performance measurement system.
According to them, the factors such as severe limitations of manpowers and finance,
reliance on a small number of customers, and operate in a limited market area have
discouraged a small and medium enterprise (SMEs) owners in using a formal control
of performance measurement system. They found that most of SMEs in Australia
used a financial aspect of measurement than non financial measures such as
customer satisfaction, quality, and employee turnover in the managing of their firm
performance.
In another study, Garengo (2009) noted that the concept and used of performance
measurement systems (PMSs) has changed from accounting and static approaches
to multidimensional and dynamic system and this system is practiced either by SMEs
76

or big companies. For SMEs, the researcher examined the dimension that was used
and found that two groups of dimensions was adopted by SMEs namely PMS
characteristic and PMS scope.
In this framework, PMS scope consists of five dimensions such as traditional system
that examine the financial aspect, dual system that examine both financial and key
function of competitiveness to company, partially balance that focus on financial and
some other key function, examine of non-financial perspective and lastly diagnostic
that support casual effect analysis between results and determinants for
improvement of activity.
Besides, a PMS characteristic consist of three dimensions, namely basic system,
advance systems and excellent systems. Those constructs served as a reference to
the quality of the information gathered by the system to use during the decision
making process. The model that introduced by this researcher function as a
descriptive reference for managers in SMEs to evaluate their firms performance.
As reported by Amrina and Yusof (2010), too many critics are given when using of
profits and return on investments as a measurement indicator, nonfinancial
measures such as quality, delivery time, and flexibility are suggested as other items
in performance measures. In their study, a manufacturing performance evaluation
software tool was developed and tested in two Malaysians automotive SMEs and
this model was examined according to 5 factors using Analytical hierarchy Process
(AHP).
Five criteria that they examined are quality, delivery, cost, time, and labour. Those
criteria were divided by sub criteria and become 25 dimensions in total namely,
reliability, durability, scrap and rework, defects, customer complaint, conformance to
77

specification, reject rate, on time delivery, due date adherence, portion of delivery
promise met, schedule attainment, delivery speed, delivery lead time, material cost,
overhead cost, inventory cost, labour cost, unit cost, manufacturing lead time, setup
time, process time, cycle time, safety record, and employee training. This tool would
help managers in Malaysian automotive SMEs continually measure and improve on
their firms performance to become more effective and competitive.
2.6.5 Performance measurer among pharmaceutical retailers
The same issue are faced by companies in the pharmaceutical industry. Due to the
ongoing changes of the worlds markets and more competitive pressure, it has
become increasingly important for firm to modify and evaluate their performance
(Shabaninejad, Mirsalechian, & Mehralian, 2014). In their study on pharmaceutical
companies in Iran, they had designed an integrated performance measurement for
pharmaceutical use in their evaluation purpose.
Indicators that were included in their models consists of two dimensions such as key
result indicators (KPIs) and key performance indicators (KRIs). KRIs was measure of
financial and non financial indicators which consisted of 12 items meanwhile KPIs
was a measure of non financial indicator. It contained about 25 items. Although this
model was focused on measurement of pharmaceutical companys performance but
they also recommend their model for use in other industry.
In this study, author will employ objective measures of financial performance
because financial measures seem to become a primary measure of performance
among SMEs in many industries including pharmaceutical industry. Furthermore,
according to Aaker (2001), profit is one of key indicators of business performance
that provide the basis for the internally generated capital needed to pursue growth.
78

Another profitability measure that frequently uses is return on assets (ROA) and
sales.
In this study, the author will examine the following objective measures such as total
sales, net profit, total assets, total equity, percentage of growth, overall performance,
sales per square feet, and sales per employee . These measures are selected based
on past studies such as, Student and Mcgee (1999) Hashim (2000), Aaker (2001),
and Zakaria (2010).

2.7 Retail pharmacy in Malaysia.

Malaysia is a middle income country and our economic performance ranking has
improved to 7th place out of 59 in 2012 with the 12th position in 2007 and maintain its
rank until 2013 (Malaysia Overview., 2013). Malaysia has transformed itself from a
producer of raw materials, such as tin and rubber, to being a diversified economy
country between 1985 and 1995.
In 2010, Malaysia launched the New Economic Model (NEM) that was aimed to
reach a high income country status by 2020.In this programme our government
targeted Malaysia to stay competitive and increased our Gross National Income
(GNI) to US$523 billion by 2020. Under NKEA programme Malaysia economic is
derived from private sector investments by 60%, 32% of government linked
company, and 8% by the government. Various sectors that have a potential for
development were identified and called as National key Economic Areas (NKEA).
One of the key economic areas that we aim to achieve is a rapid growth in the health
care industry such as pharmaceutical, medical device, clinical research, and agecare service (Economic Transformation Program., 2010).
79

According to Hassali et al., (2009) Malaysian pharmaceutical industry was valued at

approximately USD 1,027 million in 2007 and continued to register a growth of over
USD1.8 billion after 2013 and becomes the fifth in healthcare expenditure compared
with other Asian nations (Malaysian Pharmaceutical Retail Industry Marketing
Essay,.). This industry is another important component of healthcare sector in
Malaysia.
There are around 2,000 of community pharmacies in Malaysia. Community
pharmacy is known as retail pharmacies. They are consisted of traditional
convenience store, drugstore (including Chinese medical halls), hypermarkets,
supermarkets, modern convenience stores, and specialty stores. Their products
consist of prescription drugs, over the counter drugs (OTC), traditional medicines,
and health and food supplements (Ministry of Health Malaysia, Pharmaceutical
Service Division Report, 2009).
The numbers of pharmaceutical retailers and their distribution by states in Malaysia
is shown in Table 2.1 below.

Table 2.1
Number of Community Pharmacies in Malaysia
200
Selangor

2008

2010

346

541

368

2011 2012
423 477

2013
522

80

Kuala Lumpur
Pulau Pinang

199
263

230

217

225 270

271

250

280

290 236

239

Johor

156

162

155

163 186

206

Sarawak

151

153

141

143 167

170

Perak

175

176

174

150 162

167

Sabah

97

129

119

127 143

152

Kedah

113

125

111

121 137

141

Negeri Sembilan

54

57

58

63

70

76

Kelantan

68

69

70

75

74

75

Melaka

49

56

57

55

62

72

Pahang

54

56

57

65

68

68

Terenganu

25

25

24

26

25

26

Perlis

11

13

13

12

13

15

Labuan

Total

1,767

2,04
7

1,849 1,943 2,095 2,205

* Data up to June 2013 only.

(Source: Pharmaceutical Services Division, Ministry of Health)

81

The major participants of retail pharmaceutical in Malaysia are dominated by

multinational corporations such as GCH Retail (M) Sdn Bhd, and Watson Personal
care store. On the other hand, some of the chains belong to local companies,
namely Caring Pharmacy, Cosway Pharmacy. George Town Pharmacy, and Farmasi
Vitacare. The rest are small and independently operated pharmacies. 54 percent of
market share is dominated by this giant retailers pharmaceuticals whereas local
independent pharmaceutical retailers share another 46 percents (Malaysian
Pharmaceutical Retail Industry Marketing Essay, ).
The multinationals (i.e Guardian and Watsons) have taken an aggressive strategy in
order to expand their market share. One of the best strategy approached by this
multinational retails is merger and acquisitions. For example, Watsons Personal
Care Stores (WPCS) have successfully merged with APEX Pharmacy SDN Bhd in
Jun 2005 and as a result, they have 211 outlets throughout of Malaysia and become
the largest community pharmacy retail chain (Malaysian Pharmaceutical Retail
Industry Marketing Essay, ). They also offer a competitive price for their product line
in order to push its in-house brand. They continue their focus on strengthening their
operations, especially in marketing network (Malaysian Pharmaceutical society, ).
Another multinational pharmaceutical retails, GCH Retail (M) Sdn Bhd applied
another strategy, aggressive outlet expansion by launching new Guardian outlets. In
2009 alone, they had successfully opened 20 new outlets and proactively promoted
their outlets to customers. As a result, they were able to achieve around 35 percents
of market share on that year (Malaysian Pharmaceutical Retail Industry Marketing

82

Essay, ). The same strategy is practiced by Watson as this company has also
offered a quality product at an affordable price to allure customers.
In addition, the multinational pharmaceutical retails have also applied a
differentiation strategy by aggressively promoting of their brand to all segments of
customers either from a low to high income earners. They engage in a regular
promotion and extended of sales period to encourage spending and offer a
combination of both pharmaceutical service and beauty care.
Besides that, these multinationals pharmaceutical have also taken a broad spectrum
approach

in

widening

of

their

business.

Besides

aggressively

open

of

pharmaceutical retail outlets throughout Malaysia, they have attempted to promote to

the private and government hospitals and to the private clinics that is owned by
medical practitioners. As report by Hassali et al., (2011), stated that there was an
increase of self medication practice among Malaysian community but 69.4 percent of
the populace seek a healthcare professionals advice before they purchased any
medication at retail pharmacy.
In addition, under drugs control regulation set up by Malaysian government,
pharmaceutical products and other control drug item can only be sold and dispensed
by a medical practitioner. Patients are not allowed to purchase control medication at
retail pharmacy without doctors prescription. Furthermore, doctors in the hospital or
general practitioner still dispense medication to their patients as a part of
professional practice. This policy also accounted as another negative factor to the
pharmacy practitioners, retails pharmacy and drug store in Malaysia particularly
(Malaysian Pharmaceutical Retail Industry Marketing Essay,).

83

These

scenarios

become

another

menace

to

small

and

independent

pharmaceutical retail. Besides competing with multinational pharmaceutical retails,

they need to compete with a private and government hospitals and general
practitioners that owned by a doctor. In order to survive, small and independent
pharmaceutical retailer need to distinguish themselves by adopting their own
strategy (Malaysian Pharmaceutical Retail Industry Marketing Essay.). One of the
strategies is by practicing a distinctive strategy such as maintaining good rapport
with customers, giving an individual customised service to clients and extending
operation hours.
Additionally, some of them practice loyalty marketing in order to expand on the
customers base. They focus on specific customers such as provide special service
to

noncompliance

medicating

patients,

uncontrolled

diabetes

patients and

methadone replacement therapy for drug abused patients.

In general, if new pharmaceutical retails plan to open their outlet in Malaysia, they
must obtain a licence from the National Pharmaceutical Control Bureau (NPCB).
This is to ensure the quality, efficiency, and safety of pharmaceutical products
through the registration and licensing scheme. This department will process and
issue licenses to the owner and then the entire pharmacy outlet can operate to sell
medication to customers (Gross, 2013). Furthermore, only a qualified pharmacist is
allowed to open the outlet. (CARiNG PHARMACY GROUP BERHADS INVESTOR
RELATIONS WEBSITE.,). From this condition

it is difficult for a person or

organization to enter this business. This type of entry barrier will protect the existing
pharmaceutical retailers from a threat of new entrants.

84

On the other hand, with the uncertainties of economic situation recently, Malaysian
economy is also affected by the oil price crisis and this scenario has increased
unemployment rate and changed the spending habits. However, when it comes to
fulfillment of their healthcare needs, some consumers will switch to self-medication
as a bid to go back to work early and to avoid the high cost of a doctors visits. This
factor will contribute to the increase of retail pharmaceutical sales (Malaysian
Pharmaceutical Retail Industry Marketing Essay,).

2.8 Summary
This chapter has shown that business strategy implementation is one of the central
components in enhancing the performance of firm. As discussed, studies that
examine the business strategy implementation in small retails business is limited in
number, especially in the pharmaceutical industry and if any, most of them are focus
on large firms in western business entities.
In the literature on strategic management, it shows that besides business strategy
implementation, organizational culture and distinctive marketing competency, there
are also other influencing factors that can affect the performance of the firm
particulalrly to the SMEs.
Based on those variables discussed, there is a need for a study to be carried out in
this area of strategic management.

85