In their 1978 book Organization Strategy, Structure, and Process, Raymond E. Miles and Charles C. Snow argued that different company strategies arise from the way companies decide to address three fundamental problems: entrepreneurial, engineering (or operational), and administrative problems. The entrepreneurial problem is how a company should manage its market share. The engineering problem involves how a company should implement its solution to the entrepreneurial problem. The administrative problem considers how a company should structure itself to manage the implementation of the solutions to the first two problems. Although businesses choose different solutions to these problems, Miles and Snow suggested that many companies develop similar solutions. As a result, they postulated that there are four general strategic types of organizations: prospector, defender, analyzer, and reactor organizations.
Prospector organizations face the entrepreneurial problem of locating and exploiting new product and market opportunities. These organizations thrive in changing business environments that have an element of unpredictability, and succeed by constantly examining the market in a quest for new opportunities. Moreover, prospector organizations have broad product or service lines and often promote creativity over efficiency. Prospector organizations face the operational problem of not being dependent on any one technology. Consequently, prospector companies prioritize new product and service development and innovation to meet new and changing customer needs and demands and to create new demands. The administrative problem of these companies is how to coordinate diverse business activities and promote innovation. Prospector organizations solve this problem by being decentralized, employing generalists (not specialists), having few levels of management, and encouraging collaboration among different departments and units.
Defender organizations face the entrepreneurial problem of how to maintain a stable share of the market, and hence they function best in stable environments. A common solution to this problem is cost leadership, and so these organizations achieve success by specializing in particular areas and using established and standardized technical processes to maintain low costs. In addition, defender organizations tend to be vertically integrated in order to achieve cost efficiency. Defender organizations face the administrative problem of having to ensure efficiency, and thus they require centralization, formal procedures, and discrete functions. Because their environments change slowly, defender organizations can rely on long-term planning.
Analyzer organizations share characteristics with prospector and defender organizations; thus, they face the entrepreneurial problem of how to maintain their shares in existing markets and how to find and exploit new markets and product opportunities. These organizations have the operational problem of maintaining the efficiency of established products or services, while remaining flexible enough to pursue new business activities. Consequently, they seek technical efficiency to maintain low costs, but they also emphasize new product and service development to remain competitive when the market changes. The administrative problem is how to manage both of these aspects. Like prospector organizations, analyzer organizations cultivate collaboration among different departments and units. Analyzer organizations are characterized by balance balance between defender and prospector organizations.
Reactor organizations, as the name suggests, do not have a systematic strategy, design, or structure. They are not prepared for changes they face in their business environments. If a reactor organization has a defined strategy and structure, it is no longer appropriate for the organization's environment. Their new product or service development fluctuates in response to the way their managers perceive their environment. Reactor organizations do not make long-term plans, because they see the environment as changing too quickly for them to be of any use, and they possess unclear chains of command.
Miles and Snow argued that companies develop their adaptive strategies based on their perception of their environments. Hence, as seen above, the different organization types view their environments in different ways, causing them to adopt different strategies. These adaptive strategies allow some organizations to be more adaptive or more sensitive to their environments than others, and the different organization types represent a range of adaptive companies. Because of their adaptive strategies, prospector organizations are the most adaptive type of company. In contrast, reactor organizations are the least adaptive type. The other two types fall in between these extremes: analyzers are the second most adaptive organizations, followed by defenders.
Since business environments vary from organization to organization, having a less adaptive strategy may be beneficial in some environments, such as highly regulated industries. For example, a study of the airline industry in the 1960s and 1970s indicated that the defender airlines were more successful than the prospector airlines in that the business environment changed slowly during this period because of the heavy regulation. Hence, the emphasis on efficiency by the defender airlines worked to their advantage.
On the other hand, prospector organizations clearly have an advantage over the other types of organizations in business environments with a fair amount of flux. Companies operating in mature markets in particular benefit from introducing new products or services and innovations to continue expanding. As Miles and Snow note, no single strategic orientation is the best. Each oneith the exception of the reactor organizationan position a company so that it can respond and adapt to its environment. What Miles and Snow argue determines the success of a company ultimately is not a particular strategic orientation, but simply establishing and maintaining a systematic strategy that takes into account a company's environment, technology, and structure.
Scholars have attempted to verify the reliability and validity of the Miles and Snow typology. Such a study by Shortell and Zajac indicated that this typology of strategic orientations and its predictions generally were accurate. They found that prospectors are likely to be the first organizations to adopt new products and services, analyzers are likely to be the first organizations to adopt new managerial procedures and systems, and defenders are usually the first organizations to adopt new production-related technology. Moore carried Miles and Snow's framework to the retail environment, and concluded that the typology is generally applicable to retail contexts.
Other researchers further broadened the scope and applicability of Miles and Snow's typology, relating the strategic approaches strategic decision processes, international strategies, and functional areas within organizations. Subramanian, Fernandes, and Harper found that strategic types differed in terms of how managers perform environmental scanning. Prospectors tended to be more proactive in their scanning, followed by analyzers; defenders tended to be less proactive or "ad hoc."
As an example of the effects of functional expertise in an international context, Naranjo-Gil explored the impact of sophisticated accounting information systems on strategic performance among hospitals in Spain. Findings indicated that performance was enhanced primarily through sophisticated accounting information systems' role in implementing the prospector strategy.
Clearly, the Miles and Snow typology has contributed to our understanding of organizational behavior in a variety of settings. As demonstration for its further applicability, Peng, Tan, and Tong studied firms in the emerging Chinese economy. These authors concluded that the type of firm ownership can help predict strategic group membership. Specifically, state-owned enterprises tended to adopt defender strategies, and privately-owned enterprises tended to adopt prospector strategies. The analyzer orientation was also represented, most commonly under collective and foreign ownership. Future research efforts aimed at the extension of Miles and Snow's typology to international settings appears warranted.
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Miles, Raymond E., and Charles C. Snow. Organizational Strategy, Structure, and Process. New York: McGraw-Hill, 1978.
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Naranjo-Gil, D. "The Role of Sophisticated Accounting Systems in Strategy Management." International Journal of Digital Accounting Research 4, no. 8 (2004): 12544.
Peng, M. W., J. Tan, and T.W. Tong. "Ownership Types and Strategic Groups in Emerging Economies." The Journal of Management Studies 41 (2004): 1105129.
Ramaswamy, Kannan, Anisya S. Thomas, and Robert J. Litschert. "Organizational Performance in a Regulated Environment: the Role of Strategic Orientation." Strategic Management Journal, January 1994, 63.
Shortell, Stephen M., and Edward J. Zajac. "Perceptual and Archival Measures of Miles and Snow's Strategic Types: A Comprehensive Assessment of Reliability and Validity." Academy of Management Journal (1990): 817.
Subramanian, R., N. Fernandes, and E. Harper. "An Empirical Examination of the Relationship Between Strategy and Scanning." Mid-Atlantic Journal of Business 29 (1993): 31530.
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