Generic strategies and firm performance in SMEs: a longitudinal study of Austrian SMEs

This paper studies the impact of generic strategies on firm performance using a longitudinal study of small and medium-sized enterprises (SMEs) in Austria. In two surveys, data on the strategic behavior and performance of the same group of firms were gathered for the period from 1992 to 2002. The study expands existing literature, which provides little evidence whether the persistent commitment to a generic strategy over a longer period pays off or whether strategic change is the rule in SMEs, reflecting their flexibility as a potential competitive advantage. We consider the traditional generic strategies of cost-efficiency and differentiation, but also examine the group of firms that have no clear strategy or are “stuck in the middle.” Within this group, we distinguish between those companies that deliberately combine traditional low cost production and differentiation, i.e., follow a combination strategy, firms that change their strategy and those that have no strategy. We argue that a combination strategy is a viable strategic choice for SMEs in the long run. We found that the majority of firms pursued a persistent strategy over a 10-year period, but that companies that changed their generic strategy did not produce inferior results to those that adhered to a single strategy over the entire period. Our results reveal that firms that follow a combination strategy outperform companies with no generic strategy in terms of profitability and growth and achieve higher profitability than companies that follow a differentiation strategy.