This study aims to examine the moderating effects of external environment and organisational structure in the relationship between business‐level strategy and organisational performance.
The focus of the study is on manufacturing firms in the UK belonging to the electrical and mechanical engineering sectors, and respondents were CEOs. Both objective and subjective measures were used to assess performance. Non‐response bias was assessed statistically and appropriate measures taken to minimise the impact of common method variance (CMV).
The results indicate that environmental dynamism and hostility act as moderators in the relationship between business‐level strategy and relative competitive performance. In low‐hostility environments a cost‐leadership strategy and in high‐hostility environments a differentiation strategy lead to better performance compared with competitors. In highly dynamic environments a cost‐leadership strategy and in low dynamism environments a differentiation strategy are more helpful in improving financial performance. Organisational structure moderates the relationship of both the strategic types with ROS. However, in the case of ROA, the moderating effect of structure was found only in its relationship with cost‐leadership strategy. A mechanistic structure is helpful in improving the financial performance of organisations adopting either a cost‐leadership or a differentiation strategy.
Unlike many other empirical studies, the study makes an important contribution to the literature by examining the moderating effects of both environment and structure on the relationship between business‐level strategy and performance in a detailed manner, using moderated regression analysis.
