Desegregation· Separate but Equal” (Plessy, 1896)· 1st (whi.docx

Desegregation
· Separate but “Equal” (Plessy, 1896)
· 1st (whites) and 2nd (blacks) class railroad cars - same price,
2nd car much worse - ^Plessy challenged this, thrown off train
and sued
· If you outlaw segregation, you’re forcing the two races
together
· You can’t change southern white opinion by a court case
· Schools - not equal in length and teacher salaries, 2% of
southern blacks are voting
· Discrimination - Early to Mid 20th Century
· De Facto - Segregation often happens by where people live
(black families not shown a house) prejudice, Levittown refuse
to sell to black families
· Informal discrimination by owners of hotels and restaurants
· Brown (1954) and Brown II (1955)
· Arguing that separation is inherently unequal regardless of the
facilities, labels them as inferior
· The district will determine who segregates/when
· Resistance to Desegregation in North (Mid to Late 50s)
· College level - 1950 - the judge said Del State is NOT equal to
UD...until it is students should be admitted
· Any teach who integrates can be fired in some states
· Score raised on the national teacher exam-black teachers
would be dismissed or have lower salaries
· Southern Resistance (Little Rock 1957)
· Congress passes southern rights bill - demonstrates some
change
· Admitted nine black students (middle class, well behaved)
· The Pace of Change Accelerates (Green, 1968)
· Advocacy of Lyndon Johnson - pushed hard for congress to
pass meaningful civil rights amendments
· Civil rights leaders growing tired of nonviolent protests, rise

of black power, urban riots sparked by confrontation with
police, growing impatience
· Green Case - rural county in Virginia, half white half black,
students rode school buses to get to their segregated school,
district realized that things are changing, families can choose
which school they want to attend, did it in good faith, formerly
all white school find some black students have applied and been
accepted while all black school has no white students after
several years, did not choose the most effective solution has
burden of choice was put on families, each school had a clear
racial identity which persisted after county adopted freedom of
choice, school system remains a dual system, court expects
school students to eliminate effects of segregation, uproot the
old school system and letting parents choose doesn’t transform
identity of those schools, get rid of vestiges of segregation
· Formation of magnet schools to change identity by adding
different high schools - STANDARD IS HIGHER
· The “Metropolitan Remedy” (Milliken, 1974)
· Milliken - Detroit was overwhelmingly black and segregated,
local judge decided to bus students in suburbs to the city and
back, segregation was in the city and never proven suburbs were
segregated
· Late 1970s, court said Delaware schools need to take steps to
uproot old schools and diminish lingering effects of
segregation, Schools need to have similar black/white ratio, non
discriminatory basis, workshops for faculty and admin, choose
sites for schools non racially, court keeps tracks of statistical
indicators, delaware districts go back to neighborhood schools
(free choice), drawing district lines on the basis of your
neighborhood/convenience and not race
· Busing
· Busing for the sake of integration
· White flight - white families either exited the school system or
moved to a predominantly white neighborhood
· Politicians campaigned in the opposition of busing, southern
governors encouraged to harm black bus tires

· Massive cross town bussing, forced bussing, neighborhoods
destroyed by bussing, Most effective way to change
composition of schools
· Many black families are ambivalent about bussing, wanted
good schools, sit with the whites and you’ll do better
· Busing lead to violent protests in some cities, Boston - blue
collar Irish bussed to ghetto schools
· Sense of resentment when busing fell disproportionate on poor
families
· Enduring Challenges
· Long history of hispanic segregation, Asian segregation, range
of different groups
· Racialism - ascribing a certain trait to a particular groups,
“Black men know how to dance”, what a certain group of people
is good or not good at, lumps individuals together
· You can have resegregation of voluntarily, bright spots were
sports teams as black and white students came together, many
advocates of black pride and black power simply want to be
together
· Race also refers to social class - we’ve seen that difference
between well off and poor have widened
· Learning and education
Affirmative Action (edge or push given to candidates in terms
of minority groups)
· The G.I. Bill (1944)
· Near the end of WW2, the gov’t decided that returning troops
would receive far more benefits than after previous wars
· Educational benefit - law decided you would receive up to
$5000 in monthly allowance and full ride if you went back to
college, designed to avoid another depression
· Suprise how many went back to college and how well they did
· Adopted summer classes to cope with 63% of student
population being troops at Del, Housing and faculty were
granted priority to servicemen
· Servicemen dropout rate was lower and grades were higher
than other students

· Unrestricted dollars helped pay for buildings like STAR
campus
· 70% of parents hoped their student would go to college ->
70% expected students to go to college (10 years later)
· Ivy League Admissions - 1950s
· 3 applicants for every spot in college, who will get an edge?
· Harvard wanted well-rounded students, large number coming
private schools
· Looking for future leaders in America, leaders defined as not
the very smartest - we want some true scholars, defined citizens
(students who are outgoing, a sort of person would easily get
elected to office)
· Who the future leaders will be influenced smarts, we need
experts in American, inherited wealth, athletic ability, merit and
achievement matters more than personal charm
· Balance shifts towards academics
· Quotas, No; Diversity, Yes (Bakke, 1978)
· Bakke Case said reserved certain number of seats for
minorities
· Allan Bakke’s medical school - 16 seats saved for minorities,
Bakke had better grades than those 16 and was turned down,
reverse discrimination
· Harvard did not set quotas for any type of students
· Each applicant must be treated like an individual, background
to Grutter Case (Michigan gave edge to minority candidates, did
not have hard and fast quotas, used a holistic judgements,
educationally beneficial)
· Court said diversity is promoted as educationally good for
everyone
· Discrimination Against Asian Americans Now?
· Looks at extracurriculars, distinction, athletics, recruited
athletics where Harvard made the move
· Personal traits was most controversial - based on letters of rec,
essays, interviews with admissions officers
· 34% of legacies got in - edge of parents donated, edge if
parent were faculty or staff at Harvard, Dean’s Interest List -

30-40 students on list
· Z List - 50-60 students told per year they had to defer a year
to attend Harvard
· We don’t consider religion, disabilities, financial need
· Claimed number of asian americans have increased over the
years
· Concern now that admission counselors in HS could tailor
applications
· Families with resources could have edge in college application
process
The 1950s
· International Tensions - Half of federal budget is for defense
· By 1960, we had far more atomic weapons than we have today
· Bomb shelters in basement of schools
· Domestic Complacency- Sense of satisfaction, that life is
pretty good
· Blue collar incomes were rising, federal taxes were very high,
Boom in suburbs
· Interstate highways make it easy to drive to work
· Air conditioning, dishwashers, dehumidifiers, electric blankets
· Baby Boom - 1946-1953, more and more couples have 2+
children, can buy nice house, more than one car, mom stays at
home, Divorce is seen as a big failure, Marriage age - young,
women drop out of school since men are the breadwinner, Drugs
are unheard of, liquor was stolen but no talk about binge
drinking, Smoking cigs and driving fast were pushing the limit
· Music, TV, Recreation
· The young have their own taste and preferences in music,
Emergence of black girl groups
· The first TVs - big, bulky, expensive, and unreliable
· Millions of americans are able to afford larger TVs
· 20,000 housewives sold Tupperware
· Americans loved to watch shows about cowboys and frontiers
· Dick Clark’s American Bandstand played music the youth
enjoyed
· “Life Adjustment” Assailed

· Learn foreign languages, advanced placement courses,
recommitment to academic missions of high schools, wanted to
be as diligent as Russian students - Popular, practical courses
designed to give you life skills
· Driver’s education remains popular, typing classes
The 1960s
· Political and Social protests
· Vietnam war becomes more and more unpopular - “Domino
Theory”: if we lose to Vietnam, we lose to all of Southeast Asia
· Over 500,000 deaths per year in the VW, hard to win war in
foreign territory
· More bombs than all of WWII
· Student would have sit-ins on campus and take trips to
washington DC, draft cards were burnt
· Iowa court case - tinker children wore black armbands to
school to display they did not agree with the war
· Least popular war - retreat from war in 1973
· Escalation of troubles over civil rights, wanted to be more
outspoken, “Black Power”, protests by hispanics, native
americans, rise of Gay liberation, groups speak out in wake of
Vietnam
· Polarization - more people go to liberal and conservative
· The “Counter Culture”
· Young and adults who turn their back on social norms and
change the definition of happiness - we want a lot of something
now rather than over the span of 70 years
· A sense that a life of more freedom was very appealing
· Music was changing in the 60s, The Beatles, people defined
themselves by the music they listened to, targeted to the young
· The rise of readily available, inexpensive weed
· Hair and clothes are changing - people wanted to grow their
hair long, bell bottom shirts, tye-dye shirts, beards
· Reliable birth control - less anxiety of shame about pregnancy
outside of marriage, Greater sensitivity to feelings - therapy is
nothing to be ashamed of, less censorship in movies,
· Hippies and Yippies, protested american politics by being a

little funny and goofy, wrote “nobody” on ballot, threatened to
put LSD in major water supply
· More people begin to think twice about previous aspirations
and values
· Women
· Playboy - women seen as sex objects in the 1960s, satin outfits
· Helen Brown - “Good girls go to heaven; bad girls go
everywhere”, got married at 37, took advantage of men, people
had a problem with her manipulation of men
· Gloria Steinem - don’t call adult women “girls,” one of her
many differences with Helen Brown,
· More of the single sex schools became coed, fear of admitting
fewer men
· UD in the 60s/70s
· Traditional campus in early 1960s
· Clear rules about when you had to be back in the dorms,
security was alerted and would notify parents if you weren’t
found by 2 a.m, dress code in Club Morris, all new faculty had
to take a loyalty oath that was notarized
· 1970s- reps of black students demanded more black faculty
should be hired
· Concerned about our own education, fewer requirements and
more choice, phys ed was dropped, new majors with fewer
requirements, honors program, winter session, introduction on
coed dorms, needed notarized document to live in Harrington
· The wife of president Trabant got married at 20, decided to go
back to earn masters in 60s, 2nd master in 70s, accepted full
time job as social worker
The Shopping Mall High School
· Variety, Choice, & Neutrality
· How many schools responded to the high school protests
· Integration in many communities, special ed program, more
willing to celebrate diversity, want students to be happy
· Variety in a shopping mall -> amazing array of courses and
programs in high schools, pick the english class you want senior

year, rise of alternative schools (schools within a school, 75-
100 students together most of the day, particular theme,
decision making)
· Variety in the sense of different course levels, ability
grouping, 3-4 levels of the largest courses, extracurriculars (co-
curriculars) could earn credit for graduating
· Social services - sense that it was harder growing up, there are
more risks/dangers in front of the young, schools added health
center and a daycare facility so young mothers could attend,
program to rehabilitate teenage prostitutes, enough variety so
everyone could feel they succeeded
· Choice - let’s let students pick and choose, many states eased
up on required courses to graduate, colleges eased up on
entrance requirements
· Neutrality - schools are reluctant to say what is better than
another thing, protests were about clothing/hair length, schools
backed off dress code since students took them to court,
implemented smoking areas, we can celebrate diversity
· Specialty Shops
· Advanced placements began to expand, Special ed increased
due to legislation and court cases, Extracurriculars - female
sports took off due to Title 9, Vo-Tech - was it a split day?
Located in the HS? Benefited from donations from private
industries, Troublemakers
· Admission procedures to get into these five shops, you’ve
been chosen, outside allies or advocates
· Teachers - Part of their professional identity, what they’re
proud of having accomplished, feel special, Less of the wide
open choice from the rest of the “mall”
· The “Unspecial”
· Treaty/understanding between teachers and students - Mrs.
Austin, does not require students to do any serious writing, she
allows students to eat in class and comb their hair (keep it in
bounds, relaxed), she is not a passionate advocate of literature,
using your mind is optional and it’s ok to zone out
· Engagement is optional, live and let live treaty

· Purpose, push, personal attention
· 80% of 18 year olds are graduating at this time
· Purpose - faculty would share the purpose of the school,
reinforced by peer pressure as it was ok to study,
· Push - people are looking over your shoulder and expecting
you to work, school rules on HW rather than teacher’s choice,
requirement to play sport even if you’re terrible as being a
spectator is a sign of being unspecial, giving teachers enough
free time to tutor students after class
· Personal Attention - you could be faceless in the “mall” but
opposite in private schools due to small size of schools, avg
class size smaller of 15 kids, advisory groups, send home
narrative report about student, most important form was college
counseling
School Improvement 1980s-Now
· Accomplishments in the 1970s
· Equity - women’s sports multiplied, bilingual schools
· Schools are orderly and safe, parents still concerned about
discipline as teachers were more relaxed and informal with
students, Academics were not as a high of a priority, Fewer
outstanding undergraduates wanted to be teachers
· The shopping mall high school was an ingenious display of
diversity, too many of young are not prepared for college and
the economy, inflation hit 12%
· Alexander Hamilton was the first secretary general
· Students can do the basics, but not complicated tasks. Students
could not figure out tip from bill in a multi-step problem,
couldn’t summarize main argument from a longer news article.
· “A Nation at Risk” (1983) - Diagnosis and Remedy
· Academic focus - students not being pushed hard enough, the
general track (unspecial) has a lot of students that don’t lead to
a specific career.
· Other countries have high expectations as their school years
are longer
· Recommendations to states and localities: increase grad
requirements to three years of a course, foreign language

required, colleges to increase entrance requirements, teachers to
assign more HW
· Tone of we need to buckle down and be more serious
· Didn’t talk about costs and teaching methods and what type of
science/math, steered away from details of curriculum
· States began to supply more money for education as teacher
salaries went up, made education a central political issue,
Who’s speaking and how is education compared to the other
topics
· Salience - how visible is an issue?
· Better teachers? Restructured schools?
· Raise teacher salaries and hire teachers with degrees in
education
· Teach For America - modeled after Peace Corps, identified
students to go to six week institute, mid career programs to
offer support and advice
· Up the standards for teacher education
· Modeled on other professions - board certified (fellow
specialist) you meet our standards, peer review that says certain
teachers are excellent
· Tenure, Student-teacher ratio lowered, students need certain
number of credits to graduate, curriculum has barely changed
· Restructured - need to rethink old traditions, show certain
skills and competency, require senior project, restructure class
length, teams of teachers that work together
(English+History=American studies), high school partnered
with community college to earn credits
· Standards & Assessments
· You make crystal clear what students should learn and then
you engage, stipulate in detail what you should know,
· If you monitor how students are doing, you’ll be able to see
the black/white differential, marketplace competition, professor
Cuban
· Big Hairy Audacious Goals - everyone can bring up their
performance, some subjects had no agreements on the standards
(history), history classes focused on what divided us (KKK), not

enough names, dates, and facts
· Federal gov’t supplied money to draft voluntary standards,
backed off from initial draft
· To what extent should you be allowed to use a calculator?
Word problems? Blocks and sticks to learn math?
· How does a 5 or 6 year old learn how to read?
· Some people said that schools with less money doesn’t have
the same opportunity to reach these standards
Choice
· Catholic Schools, 1950s-Now
· 1950s- 40% of catholic children went to catholic schools
· Small, modest in appearance, keep cost down, single sex to
not encourage dating, first period class was about memorizing
catholic doctorate, large classes as catholics prided themselves
on being able to educate 40+ students at one time, did not try to
offer a wide range of tracks and programs, teachers upheld
morals and felt free to use corporal punishment
· Half of the factory are lay teachers, lower than public school
salaries
· More co-ed by the 1990s, quarter of families are not catholic,
course about ethics and caring, discipline was not as harsh but
clear schools rules and you can’t be expelled, fear is not as
obvious as it was, common effort to create a sense of
community, curriculum is narrower than a public HS, more
room for discussion, school uniform makes perfectly good sense
· Charter Schools (1990-Now)
· Public school that receives taxpayer money, faith in the free
market, not required to have a particular emphasis in your
school, some focused on business and technology, public safety,
arts
· Most charter schools were brand new and not converted from
previous schools, not affiliated with other schools, some parts
of national chains,
· Small, average size of 300, far fewer teachers in CS belonged
to unions, get certain amount of flexibility from states
· Particular/clear goals and focus, high expectations of

everyone, no excuses culture, faculty works hard and wants to
be there, putting in more time on task
· If you have a sibling in the school, have to show interest in
field of study,
· Safety and happiness are top two considerations
· No tenure, no unions, one year contract for everyone
· Home Schooling (1980s-Now)
· Arises due to small groups that say public schools are no
good, homeschooling defies public schools rules and
regulations, public schools no longer emphasize values
· Slow, steady growth in homeschooling, state matter,
· Biggest variable is cost, can you give up income to teach at
home
· Will it become easier to homeschool with technology since ¾
of parents have no training as teachers?
· The Expansion of Federal Activity in Education
· Education tucked inside the department of interior, national
groups that had no connection to the gov’t
· Women’s Christians Temperance Movement pushed to teach
values of abstinence and negative effects alcoholism
· School lunches helped farmers, money for native american
children’s education, however budget was small
· 1960s- LBJ urged federal gov’t to help impoverish districts by
giving a boost to those who need resources, equity and fairness
· Head Start - designed for children in low income families,
enriched daycare that targets academics and health
· Loans to college students - avg debt of $28,000
· Fair amount of money available for research, 10-20 special
programs to test new ideas and reforms
· Many programs revolving around drug-free schools,
educational technology
· State Dept. in Delaware funded by federal dollars
· SAT and ACT are non profit- exert a national influence on
education
· No Child Left Behind (2001) & Race to the Top (2009)
· State gov’t stepped in, but federal gov’t set requirements.

State gov’t set standards, grades 3-8 and once in high school
tested in reading and math every year, test scores to be looked
at and shown to particular groups (stats by race), law about
equity and Bush campaigned that he was fighting the soft
bigotry of soft expectations, have to make yearly progress,
weaker schools can be restructured as teachers could lose their
job and students can receive free tutoring or transfer to other
schools, Schools need to base research on scientific laws, more
emphasis on statistics
· Race to the Top - expectation is that achievement gap will be
narrowed, discrepancy is narrowing over time, interventions for
the weakest schools
· The History of School Lunch
· Even poor kids had to pay for lunch at first but it is now free
· Free and reduced lunch - income of 27,000 (free), 30,000
(reduced)
· Discrepancy about what counts as a fruit, vegetable, junk food
· ⅓ of american children overweight, 40% of calories eaten at
school
· Michelle Obama - double vegetable, milk fat free, cup of fruit,
less sodium and salt, Gov’t supplies beef to the schools,
Example of growth of popular federal program
R17 - Brown v Board of Education
· Reading question: What evidence did the Court rely on to
overturn Plessy (1896)
· The decision declared that separate educational facilities for
white and African American students were inherently unequal.
It thus rejected as inapplicable to public education the “separate
but equal” doctrine
R18 - Green v. New Kent County
· Reading question: Why was freedom of choice rejected as a
way to end segregation
· Only a few African American students transferred to New
Kent and no white students transferred to George W. Watkins.
· Did not successfully integrate the school systems and
segregation was still very much prevalent.

R19 -
· The University of Michigan would not have won the Grutter
case if its admission office had done the following:
· Not had a race-blind admission
· Advise a bright Asian-American 16-year-old what s/he should
do to maximize the chances of getting accepted by Harvard:
· They could pick a major not as popular, focus on
athletics/extracurriculars that you would succeed in.
R20 - Blooming: A Small-Town Girlhood
· more differences between the 20’s and 50’s as ignorance
seemed to be promoted, and sex education and risky behavior
were not as prevalent as they were in the roaring 20’s
R22-Tinker v. Des Moines
· The Supreme Court held that the armbands represented pure
speech that is separate from the actions or conduct of those
participating in it.
· The Court also held that the students did not lose their First
Amendment rights to freedom of speech when they stepped onto
school property. -R23- Unspecial were just “average” so they
took average classes
Temporary vs. Permanent Employee Debate:
In Favor of Temporary Employees in the Workforce
Introduction
The workforce in the United States and abroad is
composed of various classifications of workers such as
permanent, part-time, lease, buffer, contract, and temporary.
The focus of this debate paper is about the favorable aspects
along with controversial facets of the temporary employee.
Temporary workers are defined as individuals that are assigned
to jobs that are organized through an employment agency or
intermediary and are of brief duration oftentimes with a
predetermined termination date (De Cuyper et al., 2008; Marler,
Barringer, & Milkovich, 2002). Research from some scholars

argue that temporary workers are an advantage to organizations.
Conversely, other scholars dispute these findings and illustrate
temporary workers as a disadvantage to organizations.
Temporary Employees
Advantages
It is important to illustrate the advantages of temporary workers
in the workforce. There are many supporting reasons to utilize
temporary workers. As an example, from the perspective of the
organization, temporary workers provide a vital resource of job
knowledge along with possible innovative ideas to further the
growth of the organization. Another illustration is temporary
workers customarily are part of a temporary agency which,
alleviates some of the administrative responsibilities for human
resources (HR) professionals such as payroll, training, and
benefits. Temporary workers are a valuable resource for both
the workforce and organizations (Darrow, 1989; Smith &
Neuwirth, 2009).
Additionally, from the viewpoint of some temporary employees,
temporary assignments can sometimes lead to full-time
employment. Short duration of employment can give temporary
employees a chance to experience working in an organization to
determine if it is a possible place to remain for employment. On
the other hand, other temporary employees are pleased with
working brief assignments in an organization. Temporary
workers with these feelings oftentimes have other commitments
or situations that prevent permanent employment. Temporary
agencies, temporary workers, and organizations appreciate the
flexibility of temporary work as it fulfills the needs of the
affected stakeholders (Darrow, 1989; Felfe & Franke, 2010;
Smith & Neuwirth, 2009).
Disadvantages
Oppositely, disadvantageous findings include temporary
workers lack allegiance to assigned organizations and its
stakeholders. Moreover, threats to job security along with other
stressful feelings sometimes occur between permanent
employees and temporary workers. These particular types of

issues and conflicts lessen the productivity of workers as focus
is placed on matters of self-interest rather than achieving the
goals of the organization (Broschak & Davis-Blake, 2006;
Scheel, Rigotti, & Mohr, 2013; Slattery, Selvarajan, &
Anderson, 2008).
Position of Debate
In the debate between temporary versus permanent workers
in the workforce and organizations, the position of this debate
paper is in favor of temporary workers. Supporting reasons for
temporary workers illustrate the vital importance of this
particular classification of worker. As the evidence points out,
there are tangible and intangible benefits for the affected
stakeholders including temporary workers, temporary agencies,
and organizations along with its internal and external
stakeholders. Although, evidence also illustrates
disadvantageous aspects of temporary workers, management of
both temporary agencies and organizations are able to control
these unfavorable conditions (Scheel et al., 2013; Smith &
Neuwirth, 2009; von Hippel, Mangum, Greenberger, Heneman,
& Skoglind, 1997).
Supporting Reasons
Upholding the reasons for temporary workers in the
workforce and organizations sustain the vital need for this
particular classification of workers. It is of importance to
demonstrate the advantages of temporary workers so that the
reader is able to determine what positive aspects effect the
temporary worker, temporary agencies, organizations and its
affected stakeholders. Presented below is supporting evidence
that illustrate the advantages of temporary workers.
Flexibility
Flexibility is provided to both temporary employees as well as
organizations. From the viewpoint of flexibility for temporary
employees, it provides opportunity for a convenient work
schedule without committing to, or having the time, for a
permanent job. Other temporary employees prefer the ease of
working at an organization without the permanent commitment

if the organization is not a good ‘fit’. Still, some temporary
employees prefer the diversity of people and work assignments
(Ettorre, 1994; Marler et al., 2002; von Hippel et al., 1997).
Likewise, flexibility for organizations that include temporary
employees in the respective workforce is able to provide
sufficient service to customers and clients. As internal and
external customer demand can occasionally vary due to
customary or unforeseen conditions, the ability to enlist the aid
of temporary employees enables the organization to perform
successfully its day-to-day operations. In addition, as
permanent employees might be absent from work due to illness
or scheduled time off, these demands are addressed as well with
the flexibility of temporary employees (Ettorre, 1994; Marler et
al., 2002; von Hippel et al., 1997).
Temporary employees also provide the flexibility of performing
job duties that permanent employees prefer not to do such as
working extended hours due to seasonal demand in
organizations. This particular illustration can also entail
temporary employees performing work that otherwise does not
normally occur in day-to-day operations in organizations.
Additionally, management can organize work distribution
accordingly with temporary assistance (Ettorre, 1994; Marler et
al., 2002; von Hippel et al., 1997).
Cost Saving
Organizations experience cost savings by utilizing temporary
employees. Reduction in costs is oftentimes reflected in wages
and benefit expenses for organizations. As temporary
employees receive benefits from temporary agencies or
elsewhere, this is a savings for organizations. In addition, hiring
temporary employees is a cost savings as opposed to paying
permanent employees overtime for extra time at work.
Administrative costs are also reduced as recordkeeping for
temporary employees are handled by temporary agencies.
(Ettorre, 1994; Marler et al., 2002; von Hippel et al., 1997).
What is more regarding cost savings for organizations is
temporary agencies handle recruitment, testing, and screening

of temporary employees. In addition, training is sometimes
offered by temporary agencies for temporary employees. These
services are provided by temporary agencies, even though a fee
is charged for organizations using temporary employees,
savings is expressed by allocating the resource of time to other
tasks that can be performed by HR professionals. Cost savings
of temporary employees yield increase of returns to
shareholders and revenue for organizations (Ettorre, 1994;
Marler et al., 2002; von Hippel et al., 1997).
Specialized Skills
Both organizations and temporary employees benefit from
specialized skills. Currently, the temporary workforce
encompasses many different types of skills and abilities such as
computer specialization, engineering, legal, medical, and senior
management capabilities. For instance, organizations sometimes
need specialized skills, which are outside the capabilities of
current, permanent employees in a respective organization. As
work environments are constantly evolving and changing with
demands, an urgent problem can arise which permanent
employees are unable to handle. However, with the assistance
of competent and qualified temporary employees, a solution can
be found for the issue (Ettorre, 1994; Felfe & Franke, 2010;
Marler et al., 2002).
Yet, temporary employees acquire unique job skills and abilities
that can enhance professional growth. This tacit knowledge
provides opportunity for future job assignments and positive
marketability to temporary agencies. Adding value of
specialized skills and abilities for temporary employees gives
insight to innovative ideas for organizations (Ettorre, 1994;
Felfe & Franke, 2010; Marler et al., 2002).
Effectiveness and Efficiency
Recapping thus far, supporting reasons of flexibility, reduction
in cost, and specialized skills as advantages of temporary
employees in organizations that yields to the general

effectiveness and efficiency of organizations. Temporary
employees are an efficient means for organizations to remain
productive despite fluctuations in the respective workforce.
Cost savings, both monetary and intangible as time resources
related to enlisting temporary employees in organizations
enables improvement of profitability along with potential
growth of investing time to sustain the competitive advantage of
organizations (Darrow, 1989l; Ettorre, 1994).
Along with efficiency, temporary employees effectiveness
aids in achieving goals set forth by organizations. The skills
and abilities obtained by temporary employees bring value to
organizations with a different perspective, which might improve
day-to-day operations. With support from temporary agencies,
HR professionals and management, temporary employees help
to produce the desired results organizations are seeking to be
successful in business (Darrow, 1989l; Ettorre, 1994).
Rebuttal
Although, the significance of favorable aspects related to
temporary workers is the position of this debate paper, it does
not go with mention that the disadvantageous aspects of
temporary workers along with a rebuttal should also be
illustrated. The reader is able to view the opposing side of the
debate with a favorable outcome. Illustrated below are a couple
of arguments opposing temporary workers followed with a
rebuttal.
Temporary vs. Permanent Employee Conflict
Permanent employees oftentimes feel threatened by temporary
employees in terms of job security and promotion. As the
proportion of temporary employees increase so does this
particular form of tension from permanent employees. These
described feelings usually originate from permanent workers in
entry-level positions at organizations. They believe that
temporary employees might replace them. Some think temporary
employees may be placed as permanent employment limiting the
chance of promotion for current permanent employees. In
addition to this, permanent employees feel burdened by the

oftentimes necessity to train temporary employees to
successfully fulfill job responsibilities (Broschak & Davis-
Blake, 2006).
Moreover, higher-level workers appear to have a more secure
working relationship. Temporary employees are possibly more
apt to appease higher-level employees so that they along with
their work are recognized with a better opportunity for
permanent work status. Higher-level employees, in turn, view
temporary employees as workers that are able to handle the
tasks other employees might not want to perform for various
reasons. Thus, creating this type of relationship leads to more
tension between permanent entry level and temporary employees
(Broschak & Davis-Blake, 2006).
HR professionals and management of organizations need to
recognize the necessity for training temporary employees
thereby lessening the burden for permanent employees. Policies
and procedures should also be part of the organization so that it
is understood by permanent as well as temporary employees the
opportunity or lack thereof a possible change of employment
status for temporary workers. In addition, including group
events and encouraging social interaction between employees
regardless of status enables better communication along with
possibly reducing the tension in the working environment.
(Broschak & Davis-Blake, 2006; von Hippel, 1997).
Furthermore, temporary agencies are charged with the
responsibility as well to assure that temporary employees are
able to perform the assigned job tasks for the organization.
Time to assess skills and abilities of temporary employees are
important for temporary agencies success in working with
organizations. Temporary agencies can also offer training to
enable temporary employees with the necessary skills for
success at an assigned job (von Hippel, 1997).
Acquiring the needed skills to perform job tasks, adds value for
temporary workers. Temporary employees are able to learn a
variety of skills and abilities furthering opportunities in the
temporary job market. Temporary agencies bring success to

organizations with highly skilled employees. This, in turn, can
lead to higher wages for temporary employees. Temporary
employees might prefer a career of brief work assignments with
expanding job knowledge. Management appreciates and values
specialized skills of temporary employees along with innovative
ideas to further growth of organizations (Marler, et al., 2002).
Lack of Organizational Commitment
Some scholars argue that temporary employees lack
organizational commitment due to the short duration of work
assignments rather than permanent employees that regularly
work in a respective organization. This, in turn, generally leads
to less productivity and lower quality of work exhibited by
temporary employees. However, De Cuyper et al. (2008)
describes that further research observation and analysis need to
occur in which current findings are inconsistent and based upon
general problems of temporary employees in an organization.
Instead, a better accuracy of the emotional effects in
relationship to organizational commitment.is more effective
research examining the auspicious or disparaging elements of
temporary work along with inspirations and expectancies of
temporary workers (De Cuyper et al., 2008).
An example of the above-mentioned research and analysis
conducted by Haden, Caruth, and Oyler (2011) yielded results
from aspects of trust and fairness which leads to organizational
commitment along with better productivity from both temporary
and permanent employees. The findings in this particular
research illustrated that employees, regardless of temporary or
permanent work status, are individuals. Moreover, if an
organization along with its HR staff and management treat
employees fairly, this establishes a trustful environment for
employees discounting employment status. Therefore, behaviors
of employees are individualistic and are driven by environment
as in this case, organizations (Haden et al., 2011).
As previously mentioned, the management of temporary
agencies has responsibilities towards respective temporary
employees. Temporary agency management should educate

temporary workers that work performed at organizations, even
for a short time, affects many stakeholders while at the same
time demonstrating commitment to the goals of an organization.
This behavior and action generates a positive reputation for
future job opportunities at a respective organization or other
entities (George, Levenson, Finegold, & Chattopadhyay, 2010).
To develop organizational commitment, HR professionals
and management of organizations need to instill the value and
importance of temporary employees in the organization.
Creating a work environment of temporary employee inclusion
generates feelings from permanent employees that temporary
employees are as vital to the success of the organization.
Further organizational commitment from temporary employees
can be achieved by clarifying job roles for temporary
assignments. Providing opportunities for professional growth
enhances the feeling to temporary employees their importance
as a person. In addition, guidance and assistance from
management solidifies relationships between organizations and
temporary employees (George et al., 2010).
Conclusion
To summarize, in the debate of temporary versus
permanent employees, the stance of this paper is in favor of
temporary employees as a part of the workforce and further,
organizations (Darrow, 1989; Smith & Neuwirth, 2009).
Although, there are arguments by scholars supporting and
opposing temporary employees, there are positive statements as
rebuttals to reinforce the favorable dimensions of temporary
employees. Temporary agencies along with HR professionals
and management of organizations are responsible for
establishing an environment, which befits both respective
entities. As the relationship develops in a positive direction
between temporary agencies and organizations along with its
affected stakeholders which includes temporary and permanent
employees, success will be achieved, goals accomplished, and
satisfaction from affected stakeholders (Broschak & Davis-
Blake, 2006; Scheel et al., 2013; Slattery et al., 2008).

References
Broschak, J. P., & Davis-Blake, A. (2006). Mixing standard
work and nonstandard deals: The
consequences of heterogeneity in employment
arrangements. Academy of Management Journal, 49(2), 371-
393.
Darrow, T. L. (1989). Temporary expertise develops into a
permanent solution. Management
Review, 78(11), 50-52.
De Cuyper, N., de Jong, J., De Witte, H., Isaksson, K., Rigotti,
T., & Schalk, R. (2008).
Literature review of theory and research on the psychological
impact of temporary employment: Towards a conceptual
model. International Journal of Management Reviews, 10(1),
25-51.
Ettorre, B. (1994). The contingency workforce moves
mainstream. Management Review, 8(3),
10-16.
Felfe, J., & Franke, F. (2010). Invited reaction: Examining the
role of perceived leader behavior
on temporary employees' organizational commitment and
citizenship behavior. Human Resource Development
Quarterly, 21(4), 343-351.
George, E., Levenson, A., Finegold, D., & Chattopadhyay, P.
(2010). Extra-role behaviors
among temporary workers: How firms create relational wealth
in the United States of America. International Journal of Human
Resource Management, 21(4), 530-550.
Haden, S. P., Caruth, D. L., & Oyler, J. D. (2011). Temporary
and permanent employment in
modern organizations. Journal of Management Research
(09725814), 11(3), 145-158.
Marler, J., Barringer, M., & Milkovich, G. (2002). Boundaryless
and traditional contingent
employees: Worlds apart. Journal of Organizational
Behavior, 2(3), 425-453.

Scheel, T. E., Rigotti, T., & Mohr, G. (2013). HR practices and
their impact on the psychological
contracts of temporary and permanent workers. International
Journal of Human Resource Management, 24(2), 285-307.
Slattery, J., Selvarajan, T., & Anderson, J. (2008). The
influences of new employee development
practices upon role stressors and work-related attitudes of
temporary employees. International Journal of Human Resource
Management, 19(12), 2268-2293.
Smith, V., & Neuwirth, E. B. (2009). Temporary help agencies
and the making of a new
employment practice. Academy of Management
Perspectives, 23(1), 56-72.
von Hippel, C., Mangum, S. L., Greenberger, D. B., Heneman,
R., & Skoglind, J. D. (1997).
Temporary employment: Can organizations and employees both
win? Academy of Management Executive, 11(1), 93-104.
Reproduced with permission of the copyright owner. Further
reproduction prohibited without permission.
Current Approaches to HR Strategies: Inside-Out Versus
Outside-In
Patrick M Wright; Scott A Snell; Peder H H Jacobsen
HR. Human Resource Planning; 2004; 27, 4; ABI/INFORM
Global
pg. 36

References
Canning, K. (2013). Celebrate the differences. Private Label
Store Brands, 35(5), 66.
Chavez, C. I., & Weisinger, J. Y. (2008). Beyond diversity
training: A social infusion for cultural inclusion. Human
Resource Management, 47(2), 331-350.
EEOC (2017). Laws Enforced by EEOC. EEOC.
https://www.eeoc.gov/laws/statutes/index.cfm
Hunt, V., Layton, D., Prince, S. (2015). Why Diversity Matters.
McKinsey &Company. https://www.mckinsey.com/business-
functions/organization/our-insights/why-diversity-matters
Kerby, S., Burns, C. (2012). The Top 10 Economic Facts of
Diversity in the Workplace. Center for American Progress.
https://www.americanprogress.org/issues/economy/news/2012/0

7/12/11900/the-top-10-economic-facts-of-diversity-in-the-
workplace/
Mobley, M., & Payne, T. (1992). Backlash! The Challenge to
Diversity Training. Training and Development, 46(12), 45-52.
Thakrar, M. (2017). How To Lead The Push For Diversity In
The Workplace Forbes.
https://www.forbes.com/sites/forbescoachescouncil/2017/06/09/
how-to-lead-the-push-for-diversity-in-the-
workplace/#765d2046415b
Leadership training is needed because times and people change.
For example, if leaders are retiring in a company, then there
should be leaders who are already trained to move an
organization or business in to the future.
“Competent leaders are assets to the organization; therefore,
developing leaders is a notable concern for all types of
organizations.” (Hammond & Palanski, 2017)
To emphasize the importance of developing and training
leaders, Conger & Fulmer (2003), insist that choice and
cultivation of future leaders is vital for the long-term health of
the company.
Leadership Redefined
Why Leadership Training?
A leader needs to have a character that is worthy of being
followed. To be worthy of being followed, one has to exhibit
certain characteristics. A leader has to be:
· An influencer and a role model.

· Competent
· Trustworthy for the followers to invest their loyalty on him or
her.
· A person of integrity
· Always humble
· Forgiving
· Hungry to keep learning
For a leader “Interest and gratitude encompass a genuine caring
attitude toward the follower and being grateful for more than
just successful results at work. Caring involves a genuine
concern for others’ pain, and kindness.” If the followers know
that their leader cares about them beyond business matters, then
they will be more willing to submit to him or her.
Leadership is the process whereby an individual influences a
group of individuals to achieve a common goal.
· Leadership is not about individuals who occupy roles (Haslam
& Steffens, 2015)
· To lead, there must be followers or people one is looking to
influence. “The absence of followers indicates the clear absence
of leadership” (Haslam & Steffens, 2015)
· Long-term outcome of a leader are based on the quality of
followers they raise.
· King (2010), observes that , ‘when individuals follow
another’s actions, they make that individual a leader’
In every place, there is always a leader. Even among ants, there
is a leader. It is true that one has to have influence over people
to lead them. People have to believe in the vision of the leader
in order to follow him or her.
Leader = Character
Who is a leader?
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Leadership=Challenges
I compare a leader to a parent. Most of the time, children are
watching their parents, and end up acting and reacting like
them. It is the same with managers. The way a leader reacts to
anything matters; because, his or her subordinates are watching.
As a leader, what kind of legacy is one leaving? What kind of
leaders is he/she producing out of his/her followers? Leaders
are not fearful of creating other leaders. If a person is a leader,
then his or her subordinates should not remain the same. They
will change for the better.
A person is known by his or her fruits. I once worked for a
company where my manager was always challenging me and my
peers to achieve goals and to be innovative. He helped us
discover talents that we never even knew we had in us. I the
end, the CEO recognized that my manager's team was
outperforming other teams. Not only was he recognized as a
good leader; but, was promoted to a higher position.
Are you a Leader?
Leadership=Results
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Tel 555.543.5432 Fax 555.543.5431
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To conclude, a question every person who wants to lead should
ask is, AM I A leader?
· Being a leader has little to do with one’s title, authority or
seniority
· Having several people under you does not make you a leader
nor does one become a leader by how much you make.

· To be a leader you must be willing to be an influencer.
· You must be willing to be a learner.
· You must be willing to serve others even when there is no
reward associated with your service.
· You must be willing to develop others to become better.
A big challenge in being a leader is communication between
him/her and employees from diverse backgrounds. Fifty to
ninety percent of a leader’s time is spent on communication.
Poor communication costs money and wastes time.
Frequent communication is related to better job performance
ratings and organizational performance. A leader should be
careful of the resources he or she is extending based on
individual differences. People generally like to be treated as
individuals not as a group.
Unfortunately, some leaders want to take the easy route and
treat every employee the same. They should understand that the
diversity in personalities brings make teams vibrant, and also
brings diverse ideas that can improve the workplace; so, as to
reduce turnover.
References
HAMMOND, M., CLAPP-SMITH, R., & PALANSKI, M.
(2017). BEYOND (JUST) THE WORKPLACE: A THEORY OF

LEADER DEVELOPMENT ACROSS MULTIPLE DOMAINS.
Academy Of Management Review, 42(3), 481-498.
doi:10.5465/amr.2014.0431
Conger, J. A., & Fulmer, R. M. (2003). Developing your
leadership pipeline. Harvard Business Review, (12), 76.
Liborius, P. (2014). Who Is Worthy of Being Followed? The
Impact of Leaders’ Character and the Moderating Role of
Followers’ Personality. Journal Of Psychology, 148(3), 347-
385.
Platow, M. J., Haslam, S. A., Reicher, S. D., & Steffens, N. K.
(2015). There is no leadership if no-one follows: Why
leadership is necessarily a group process. International
Coaching Psychology Review, 10(1), 20-37.
King, A.J. (2010). Follow me! I’m a leader if you; I’m a failed
initiator if you don’t? Behavioural Processes, 84, 671–674.
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Does a differentiation strategy
lead to more sustainable financial
performance than a cost
leadership strategy?
Rajiv D. Banker
The Fox School of Business, Temple University, Philadelphia,
Pennsylvania, USA
Raj Mashruwala
Haskayne School of Business, University of Calgary, Calgary,
Canada, and
Arindam Tripathy
Milgard School of Business, University of Washington –
Tacoma, Tacoma,
Washington, USA
Abstract
Purpose – The purpose of this paper is to investigate the
relationship between the strategic
positioning of firms and the sustainability of firm performance.
The paper argues that pursuing a
differentiation strategy leads to more sustainable financial
performance compared to following a cost
leadership strategy. However, a differentiation strategy may
also be associated with greater risk.
Design/methodology/approach – To investigate the research
questions, the authors utilize
publicly available archival data consisting of 12,849 firm-year

observations for the period 1989-2003.
In the first stage of the analysis, factor analysis is used to
determine firms’ strategic positioning. The
resulting factor scores are subsequently used in regression
analysis to investigate the sustainability of
performance based on the strategic positioning of firms.
Findings – The results indicate that both cost leadership and
differentiation strategies have a positive
impact on contemporaneous performance. However, the
differentiation strategy allows a firm to
sustain its current performance in the future to a greater extent
than a cost leadership strategy.
The differentiation strategy, though, is also associated with
greater systematic risk and more unstable
performance.
Originality/value – Sustainability of performance refers to how
much a firm’s current profitability
can be sustained in future periods. The main contribution of this
study is the comparison of generic
strategies based on the sustainability of firm performance. This
aspect of the strategy-performance
link has not been considered in prior work. Another
contribution of the study is that it considers
multiple dimensions of firm performance in order to evaluate
the trade-offs involved with
pursuing different strategies. In particular, the authors
contribute to the literature by documenting that
while differentiation leads to more sustainable earnings, it also
leads to riskier and more unstable
earnings.
Keywords Sustainability, Differentiation, Firm performance,
Strategic positioning, Cost leadership
Paper type Research paper

I. Introduction
Recent work in strategic management examines the
characteristics of resources
and processes of firms that create competitive advantages that
enable sustainable
performance. Firms achieve more sustainable financial
performance when the resources
that drive the process of value creation in the existing
operations of a firm continue to
create value in future periods. Firms with sustainable
performance would be those that
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/0025-1747.htm
Management Decision
Vol. 52 No. 5, 2014
pp. 872-896
r Emerald Group Publishing Limited
0025-1747
DOI 10.1108/MD-05-2013-0282
872
MD
52,5
are less prone to external shocks that affect the creation of
value within the firm.
An examination of the patterns in firms’ allocation of resources
may reveal differences in
their ability to achieve sustainable performance in the future.
Such an examination is the

principal objective of our study.
The idea of sustainable competitive advantage is well rooted in
the strategy literature.
This notion by itself is a dynamic one – only if a firm possesses
a competitive advantage
that is sustainable, can it continue to maintain superior financial
performance over the
long run. Whether a firm possesses a sustainable competitive
advantage or not requires
the examination of financial performance of firms over time.
This question cannot be
examined by considering contemporaneous performance alone.
Prior literature indicates that a firm following either a
differentiation or a cost
leadership strategy is in a better position to achieve superior
contemporaneous
performance (Porter, 1980, 1985; Hambrick, 1983b; and others).
These advantages
can be sustained, though, only if firms can build effective
barriers to the imitation
of best practices that enable superior performance in the short
run (Ghemawat, 1986).
In more recent work, Porter (2001) argues that technological
innovations that permit
the rapid diffusion of best practices make some operational
improvements that
enhance cost efficiency easily imitable. On the other hand,
benefits derived from a
differentiation strategy built on products or services that are
perceived to be different
from competitors, take longer to imitate and hence would likely
lead to more sustainable
performance. In this paper, we use archival audited data for a
large sample of listed firms

to empirically investigate how different business strategies
affect the sustainability
of firm performance. We examine different aspects of firm
performance – earnings,
cash-flows, and firm risk.
In doing so, we heed to two calls in the literature. One suggests
that the notion of
performance is multi-dimensional and should not be restricted
to measures such as
accounting profit alone (e.g. Barney, 2002). The other call has
been to consider the
longitudinal analyses of the links of strategy with firm
performance (e.g. Allen et al.,
2007) rather than focussing on the contemporaneous effects
strategy on firm
performance. The rest of the paper is organized as follows. In
the next section we
present our theoretical framework and discuss the relevant
literature. This discussion
leads to our research hypotheses which are presented in Section
3. In Section 4, we
discuss the strategy measures. These strategy measures are used
in our empirical
model which is presented in Section 5. Section 6 discusses the
empirical results from
our analysis and Section 7 presents our concluding remarks.
II. Literature review and theoretical framework
Porter (1980) presents a framework describing two generic
strategies that a firm can
use to achieve competitive advantage: cost leadership and
differentiation. Recent
research documents that Porter’s generic strategy framework is
still applicable to
competition in the digital age (Kim et al., 2004). Firms adopting

the cost leadership
strategy aim to increase market share based on creating a low-
cost position relative
to their peers. Firms can adopt different resource allocation
methods to achieve cost
leadership: large-scale facilities, process improvements, cost
minimization, TQM,
benchmarking, and overhead control. On the other hand, firms
adopting the
differentiation strategy achieve a competitive advantage by
investing in developing
products or services that offer unique qualities desirable to
customers which allow the
firm to command a price premium. In this paper, we document
that the two generic
strategies, differentiation and cost leadership, do not represent
two ends of the same
873
Sustainable
financial
performance
continuum, consistent with the observation of several firms (e.g.
Caterpillar, Toyota)
successful in the past that have chosen to focus on both
differentiation as well as
efficiency (Hall, 1980).
Link between generic strategies and performance
Following Porter’s early work discussing the generic strategies,
many studies were

done to examine his premise that firms following both
differentiation as well as cost
leadership are able to achieve superior contemporaneous
performance. Hambrick
(1983b), White (1986), and Miller and Dess (1993) utilize the
profit impact of marketing
strategies database to analyze Porter’s theory and find evidence
of higher performance,
in terms of market share and profits, for firms following both
differentiation and cost
leadership strategies. Using a field study approach relying on
interview with
executives, Dess and Davis (1984) also find that adopting both
differentiation and cost
leadership leads to higher sales growth and ROA. More recent
studies (e.g. Hoque,
2004) also find links between strategy type and organizational
performance. However,
some others were not able to find such a link (e.g. McGee and
Thomas, 1986, 1992),
or have found that the link is not as strong under some
situational variables
(Davis and Schul, 1993; Zahra, 1993; Nandakumar et al., 2011).
Hence, there are still gaps
and contradictions in the strategy research that examines the
link between strategy and
performance. This calls for further research on the relationship
between strategy
and performance to advance strategic theory (Allen and Helms,
2006).
While many studies find links between strategy and
contemporaneous
performance, the fact that a firm has superior performance in a
given year does not,
by itself, imply that it has a sustainable competitive advantage.

As Porter (1985, p. 11)
argues “the fundamental basis of above-average performance in
the long run is sustainable
competitive advantage. Without a sustainable advantage, above-
average performance is
usually a sign of harvesting.” In the words of Ghemawat (1999,
p. 98), “We need to [y]
look at sustainability in the face of imitation. Imitation of the
resources underpinning
superior performance to the point where they are no longer
scarce is a direct threat to
the sustainability of added value.” A difficulty lies in the
inability of firms to restrain
competitors from imitating or even improving on existing
sources of its advantage. But
some barriers will be higher than others and hence more
difficult for rivals to overcome.
Systematic methods for obtaining information are generally
available to all competitors
and new techniques diffuse rapidly (Barney, 1986). A
competitive advantage is sustained
only if it continues to exist despite efforts to duplicate that
advantage (Ghemawat, 1995).
Even so, some firms are able to generate superior performance
over long time frames
(e.g. Wiggins and Ruefli, 2002). The key question then that
remains unanswered is – what
strategic positioning leads to sustained performance over time?
In this study we attempt
to answer this question by examining an aspect of firm
performance that has not been
considered in the prior literature looking at the strategy-
performance link, which is, the
persistence or sustainability of superior performance over time.
III. Research hypotheses

Cost leadership and sustainability of performance
A cost leadership strategy is usually built on the basis of
achieving operational
efficiency. To the extent the sources of operational efficiency
can be copied (D’Aveni,
1994) or rendered inoperable due to advent of newer and better
sources (Hamel, 2000)
the competitive advantage through adopting such strategies is
temporary, and
long-term sustained profitability is not feasible (Eisenhardt and
Martin, 2000).
874
MD
52,5
As Barney (2002, p. 251) explains: “[y] if cost-leadership
strategies can be
implemented by numerous firms in an industry, or if no firms
face a cost disadvantage
in imitating a cost-leadership strategy, then being a cost leader
does not generate a
sustained competitive advantage for a firm.” Continuous
improvement in operational
efficiency at a pace faster than competitors is necessary to
sustain superior
profitability over time. The rapid diffusion of best practices,
though, allows
competitors to quickly imitate management techniques and
practices. To the extent
that a strategy is built on such generic solutions related to
operational efficiency, we
expect that such a strategy would be more susceptible to

imitation by competitors and
peers, implying that the comparative cost advantages would
dissipate over time.
Achieving cost efficiency through process improvements and
technological hardware
is not likely to yield an inimitable source of competitive
advantage, especially if it is
developed by suppliers and sold on the open market (Barney,
2002). Being first with a
new process only provides a firm with a temporary cost
advantage because imitation is
inevitable (Murray, 1988). This notion is corroborated in recent
work that compares the
role of proprietary technologies vs cost leadership in giving
early entrants a durable
advantage. Coeurderoy and Durand (2004) look at this issue and
find that proprietary
technologies allow early movers significant and persistent
advantages over
competitors. On the other hand, cost leadership does not benefit
first movers with
any durable advantage.
Another documented source of cost advantage is through
economies and
diseconomies of scale. As Barney (2002, p. 253) argues “[y]
these sources of cost
advantage do not build on history, uncertainty, or socially
complex resources and
capabilities and thus are not protected from duplication for
these reasons.” An
additional source of competitive advantage following cost
efficiency is capitalizing on
learning or experience effects. On the one hand, the knowledge-
based view of the firm
suggests that organization learning developed within a firm can

represent critical
resources that can be leveraged to create sustainable advantages
(Grant, 1996).
However, studies have generally found that entry barriers are
typically quite low
despite the existence of steep learning curves (Zimmerman,
1982; Murray, 1988). This
is because information diffuses across firms and such
knowledge spillovers prevent
firms from maintaining any cost advantages over their
competitors (Lieberman, 1982).
A classic example of this is provided by Abernathy and Wayne
(1974). They point out
that firms that utilize a cost leadership strategy based on the
learning curve face the
challenge of taking their eyes off the innovative changes needed
to respond to changes
introduced by competitors. They cite the case of Ford Motor
Company which single-
mindedly focussed on the production of the Model T to achieve
the lowest costs
possible. This made the organization inflexible and vulnerable
to the strategy of
product innovation initiated at General Motors.
Differentiation and sustainability of performance
In contrast, advantages attained through differentiation are more
likely to be
sustainable because unique services or products valued by
customers cannot be easily
imitated by competitors (Grant, 1991). A strategy of
differentiation is usually
developed around firm-specific and product-specific
innovations and marketing effort
that may not be easy to imitate quickly. For instance, responses
by competitors to

pricing moves come almost immediately, while responses to
innovation through R&D
would take a much longer period. R&D allows a firm to build
technological capabilities
which are viewable as one of the most important sources of
sustainable competitive
875
Sustainable
financial
performance
advantage (Coombs and Bierly, 2006). The longer it takes for a
competitor to respond to
a particular comparative advantage, the greater the opportunity
for a firm to capitalize
on the sustained advantages and to create new ones.
Moreover, a focus on making reliable and high quality products
will have a
significant impact on sales, especially in more mature industries
or in industries in
which there is a high cost of poor performance (Porter, 1985).
Firms that focus on
differentiation often rely on product customization which, in
turn, involves depending
on close relationships developed with those customers. These
close relationships over
time build the “reputation” of the firm. A good reputation
translates into better
performance (Black et al., 2000; Graham and Bansal, 2007) and
creates a valuable

resource that is difficult to imitate thus providing the firm with
a durable advantage
(Carter and Ruefli, 2006). Product customization also involves
the willingness of the
firm to part with proprietary knowledge with suppliers. The
sharing of such
knowledge leads to more durable relationships since the firms
need to rely on each
other. The complex relationships that firms focussing on
differentiation build with
their customers and suppliers will be costly to duplicate and
hence become a source of
sustained competitive advantage.
Firms focussing on differentiation, in many cases emphasize the
level of service and
support. While a basic level of service and support may be easy
to imitate, increasing
these levels beyond the basic level involve substantial amounts
of training. Also, this
reflects in the attitude of employees toward customers which
becomes entrenched in
the organization culture and can be hard to duplicate.
Companies that excel in
developing close relationships with customers build customer
loyalty for the long term
(Treacy and Wiersema, 1993). This is turn enables such
companies to achieve
sustainable financial performance in the long run (Heskett and
Schlesinger, 1994).
Firms following a cost leadership strategy stress operational
efficiency through
process improvements and new technology, economies of scale,
and experience effects.
Kim et al. (2004) consider these issues in the context of e-

business firms. They argue
that firms pursuing a strategy of cost leadership could easily
become locked in a
vicious cycle of price-cutting because internet technologies tend
to be based on cost
structures with low variable costs and high fixed costs.
However, each of these
advantages, is likely to be temporary and not durable. On the
other hand, a strategy
based on differentiation via product R&D, reputation and brand-
building, and strong
supplier and customer networks, will provide firms with a more
durable advantages
enabling sustainable performance over time.
Accordingly, we state our first research hypothesis as follows:
H1. Firms pursuing a differentiation strategy are more likely to
sustain their
performance over time than firms pursuing a cost leadership
strategy.
An obvious question that would arise then is why do not all
firms follow a
differentiation strategy if it leads to more sustainable
performance? We next
investigate a potential trade-off involved in following a
differentiation strategy by
examining another dimension of firm performance, namely, firm
risk. Baird (1984) and
Miller and Dess (1993) advocate “stability” in firm performance
as a measure of
predictability of performance or lower risk for firms that seek to
have not only high
returns but steady sources of returns. Stakeholders of firms
including shareholders,

creditors, and suppliers have a general preference for firms that
have more stable and
predictable earnings. Firms with more volatile profit streams are
considered to be
876
MD
52,5
riskier. Firms that have strategies built on differentiated
products or services typically
invest in firm-specific intangible assets such as R&D projects,
technology alliances,
brand names, and patents which are highly idiosyncratic with
great uncertainty in
value and greater non-tradability (Lev, 2001; Gu and Wang,
2005). For example,
pharmaceutical and biotechnology firms that make investments
in developing new
drugs face a high degree of uncertainty regarding the eventual
earnings outcome of
these investments. Studies have shown that for biotech R&D
projects, the ultimate
success rate from phase I clinical trials to final approval by the
Food and Drug
Administration in the USA is only in the region of 22.5 percent
(Xu et al., 2010). As a
result, Scherer et al. (1998) find that the reward to the
innovation process is highly
skewed, as success is concentrated in a few firms or products.
On the other hand, firms
that follow a cost leadership strategy are more likely to make
investments in capital

expenditures in order to achieve economies of scale. It is well
documented that firms
that invest in expenditures related to innovation such as R&D
tend to have higher
earnings variability relative to investments in more traditional
capital expenditures
(Kothari et al., 2002). Hence, we argue that firms following a
differentiation strategy
may have more volatile earnings since the outcomes associated
with innovative
projects may be impacted more by the uncertainty associated
with economy swings.
Similarly firms that invest heavily in product and marketing
aspects, tend to invest
heavily in new products. However, 80 percent of all new
products are doomed for
failure (Crawford, 1977). Hence, investments made in marketing
and new product
design are also risky.
On the other hand, firms following a cost leadership strategy are
likely to make
significant investments in fixed assets in order to achieve
economies of scale. This
increases the operating leverage of such firms making profits
more sensitive to any
changes in the level of sales. Thus, profits for these firms are
likely to be more volatile.
If so, we may not find that a differentiation strategy is
associated with greater risk than
a cost leadership strategy.
We examine this question in our second research hypothesis
which can be stated as
follows:

H2. The earnings of firms pursuing a differentiation strategy are
more likely to be
riskier than the earnings of firms following a cost leadership
strategy.
IV. Strategy measures
Mintzberg (1987) distinguishes between intended strategy and
realized strategy.
Intended strategy is the traditional view of strategy as a
statement of intent, while
realized strategy views strategy as a pattern in a stream of
decisions followed by
actions. Realized strategies emerge through events and
environment interactions as
they unfold over time, evolving in a slow and gradual process.
Strategic choices are
manifested in firms’ resource allocation decisions which, in
turn, impact the numbers
reported in financial statements. Therefore, we may be able to
infer a firm’s strategy
from its reported financial data. While the use of perceptual
measures captured
through surveys in many prior studies is consistent with
measuring intended strategy,
we rely on an operationalization based on archival audited data
to measure the realized
strategies of firms. This addresses the concerns of perceptual
biases that have been
documented in the strategy literature (e.g. Reger and Huff,
1993; David et al., 2002).
Porter (1980, 1985) posited that a firm may obtain a competitive
advantage by
creating a higher value for its customers than the cost of
creating it, either by adopting

877
Sustainable
financial
performance
a differentiation strategy or an efficiency strategy. A firm can
differentiate itself by
offering high quality and innovative products with superior
design or brand image,
technology or customer service, a strategy typically
implemented by making
investments in costly activities such as extensive research,
product design, and
marketing. These expenditures in turn enable the firm to earn
price premiums relative
to its competitors.
Hambrick (1983b) argues that the main dimension of the cost
leadership strategy is
efficiency, the degree to which inputs per unit of output are
low. To the extent that
firms following a cost leadership strategy succeed in deploying
the minimum amount
of operating costs and assets needed to achieve the desired
sales, they would be able
to improve their financial performance (Hambrick, 1983b;
Porter, 1980). Such firms
pay great attention to asset use, employee productivity, and
discretionary overhead.
Their customers buy their products primarily because they are
priced below their
competitors’ equivalent products, an advantage achieved

through minimizing costs
and assets per unit of output (Hambrick, 1983b). We utilize six
variables to measure
strategic positioning. These variables are identical to those used
by Balsam et al. (2011)
to measure strategy. We use exploratory factor analysis with
these variables to identify
the common factors that explain the variation in these variables.
We describe the six
variables below:
SG&A/SALES is the ratio of the selling, general and
administrative expenses to net
sales. This variable captures a firm’s investment in activities
required to differentiate
its product or service offering from its competitors (Berman et
al., 1999; David et al.,
2002; Miller and Dess, 1993; Thomas et al., 1991). Firms
pursuing a differentiation
strategy will invest in a variety of activities such as advertising,
promotions, customer
service, product distribution, and other related activities in
order to differentiate
themselves from competitors. A higher allocation of resources
to SG&A indicates an
effort to build and strengthen the firm’s brand and product
image. Higher allocation to
SG&A also reflects greater effort in achieving better
coordination amongst activities
within the firm (Wiggins and Ruefli, 2002). This is also
indicative of a differentiation
focus for the firm. For these reasons, higher SG&A indicates a
greater likelihood that
the firm is pursuing a differentiation strategy.
R&D/SALES is the ratio of the research and development

expenses to net sales. Key
to the success of firms pursuing differentiation is the ability to
offer high quality and
innovative products and services. This variable captures a
firm’s propensity to spend
on research and product design[1]. Higher R&D expenditure is
likely to indicate that
a firm is pursuing a differentiation strategy (Hambrick, 1983b;
David et al., 2002;
Thomas et al., 1991).
SALES/COGS is the ratio of net sales to cost of goods sold. A
firm pursuing a
differentiation strategy is likely to create a unique perception of
its products and
services superior to its competitors, enabling it to command
above-market prices,
and greater profitability (Porter, 1980). Therefore, a higher
margin as measured by
SALES/COGS is likely to be associated with a differentiation
strategy (Kotha and Nair,
1995; Nair and Filer, 2003). Some researchers have used the
margin variable to measure
cost efficiency (e.g. Hambrick, 1983b; Berman et al., 1999),
since a firm pursuing an
efficiency strategy will aim to minimize its cost of goods sold
relative to sales in order
to improve gross margin. Hence, we conduct an exploratory
factor analysis to examine
whether this variable loads along factors for differentiation or
cost leadership.
SALES/CAPEX is the ratio of net sales to capital expenditures
on property, plant,
and equipment. Firms that follow a cost leadership strategy are
more likely to focus on

878
MD
52,5
developing processes that maximize operational efficiency
(Berman et al., 1999;
Hambrick, 1983b; Kotha and Nair, 1995; Miller and Dess,
1993). Hence, they will be
able to achieve higher sales revenue for every dollar invested in
property, plant, and
equipment. SALES/P&E is the ratio of net sales to net book
value of plant
and equipment. The net book value of plant and equipment
represents the total stock of
plant and equipment net of depreciation. Similar to the
SALES/CAPEX measure, a
higher value for this ratio also indicates a more efficient use of
the firm’s assets. An
alternate measure that has been used in the literature to capture
the productive use of
assets is the ratio of number of employees to total assets, which
we refer to as EMPL/
ASSETS (Hambrick, 1983b; Kotha and Nair, 1995; Nair and
Filer, 2003). In this ratio the
number of employees is used in the numerator as an alternative
proxy for size (output)
instead of net sales. The total assets used in achieving this size
are considered an input
in the production process. Hence, this measure captures the
ratio of outputs to inputs,
i.e. the productivity of the firm. All three measures capture a
firm’s efficiency in

utilizing its capital investments, also referred to as asset
parsimony (David et al., 2002).
We obtain data for the strategy variables from the Standard &
Poors Compustat
database which collects financial, statistical and market
information on active and
inactive companies. We utilize data from the sample period
1989-1998 to construct our
strategy variables. We compute the mean of the previous five
years of data for each of
the above six variables on a rolling basis to capture the long-
term strategic orientation
of firms. For example, the SG&A/SALES variable for firm i in
year 1995 is the mean
SG&A/SALES for firm i during the years 1990-1994. Similarly,
in 1996 we utilize the
mean SG&A/SALES during years 1991-1995, and so on. We
first conduct an
exploratory factor analysis to capture the common patterns
among the six variables.
The results of the factor analysis implemented using these six
variables are tabulated
in panel A of Table I. The variables load on two factors with
eigen values 41. The
SG&A/SALES, R&D/SALES, and SALES/COGS variables load
together on one factor
which we label as “Differentiation.” It is noteworthy that the
SALES/COGS variable
loads primarily on the differentiation factor (factor loading¼
0.87) with only a minor
loading on the Cost Leadership factor (factor loading¼ 0.23).
The other three variables,
SALES/CAPEX, SALES/P&E, and EMPL/ASSETS load
together on a second factor
which we label as “CostLeadership”. Internal consistency of the

two factors is
determined by computing the Cronbach a’s for each set of three
variables. Both the
coefficients are greater than the recommended cut-offs of 0.70
(Nunnally, 1978). We
compute factor scores for each individual firm-year observation
based on the factor
loadings for each variable, and use the standardized factor
scores as our measures of
strategy, namely, Differentiationt and CostLeadershipt. The
correlation of the strategy
variables with their lagged values (up to five lags) ranges from
0.96 to 0.99 for
Differentiationt, and 0.93 to 0.99 for CostLeadershipt.. This is
consistent with the notion
that these variables evolve through a slow and gradual process.
Next we conduct a confirmatory factor analysis (CFA) to
validate the Differentiation
and CostLeadership measures. The results of this analysis are
presented in panel B of
Table I. The model fit statistics suggest that the measurement
model provides a good
fit to the data. We find the goodness of fit index to be above the
suggested cut-offs of
0.9, while the adjusted goodness of fit index is above the
recommended cut-off of 0.80
( Joreskog and Sorbom, 1989). The comparative fit index
(Bentler, 1989) and the non-
normed index (Bentler and Bonett, 1980) are also in the
acceptable range. All the factor
loadings are large and significant based on the t-statistics (
po0.001). The composite
reliability and average variance extracted for both constructs
meet Fornell and

879
Sustainable
financial
performance
Larcker’s (1981) recommended thresholds. Overall, the results
of the CFA suggest
acceptable validity and reliability for the strategy constructs
used in our analyses.
V. Empirical model
We utilize a variety of techniques for measuring firm
performance. We begin our
analysis by considering an accounting-based measure, which is
the most widespread
method of measuring firm’s performance. Since accounting-
based measures can be
affected by discretionary accounting choices, though, we also
corroborate our results
using a cash-flow based measure of performance. We also
consider another aspect of
performance, namely, the riskiness of a firm.
We begin by developing an empirical model to evaluate our
research hypothesis on
the sustainability of performance based on the strategies
pursued by firms. We use return
on assets (ROA), the earnings before extraordinary items
divided by the average total
assets, as the measure of a firm’s performance[2]. Various
studies have used ROA
as a measure of performance of a firm (e.g. Wright et al., 1995;

Bettis, 1981; Waddock and
Graves, 1997). Achieving a high ROA is an objective of most
corporations (Hambrick,
1983a; Berman et al., 1999) and is widely relied upon by
managers and analysts
(Bettis, 1981).
Panel A: exploratory factor analysis (sample period: 1989-1998)
Variables
Cost leadership
factor loading
Differentiation
factor loading
Final
communality
SG&A/SALES �0.19 0.89 0.829
R&D/SALES �0.04 0.77 0.590
SALES/COGS 0.23 0.87 0.810
SALES/CAPEX 0.88 0.03 0.775
SALES/P&E 0.91 �0.11 0.847
EMPL/ASSETS 0.68 0.04 0.458
Variance explained 2.16 2.15
Cronbach’s a 0.77 0.80
Panel B: confirmatory factor analysis (sample period: 1989-
1998)
Cost leadership
factor loading
(t-value)
Differentiation

factor loading
(t-value)
Composite
reliability
Average variance
extracted (AVE)
SALES/CAPEX 0.87 (110.10) 0.84 0.65
SALES/P&E 0.92 (118.60)
EMPL/ASSETS 0.59 (71.16)
SG&A/SALES 0.83 (96.08) 0.80 0.57
R&D/SALES 0.68 (78.41)
SALES/COGS 0.74 (85.89)
Model fit statistics
Goodness of fit index 0.9383
Goodness of fit index adjusted for degrees of freedom 0.8381
Bentler’s comparative fit index 0.9167
Bentler & Bonett’s non-normed index 0.8437
Notes: SG&A/SALES, average of SG&A/sales from t�1 to t�5;
R&D/SALES, average of R&D
expenditure/sales from t�1 to t�5; SALES/COGS, average of
sales/cost of goods sold from t�1 to t�5;
SALES/CAPEX, average of sales/capital expenditure/from t�1
to t�5; SALES/P&E, average of sales/
net property, plant & equipment from t�1 to t�5;
EMPL/ASSETS, average of number of employees/
total assets from t�1 to t�5
Table I.
Exploratory and
confirmatory factor

analysis
880
MD
52,5
To evaluate our research hypotheses regarding the sustainability
of future
performance we need to examine whether the extent to which
current performance
persists into the future depends on the two strategies. To
empirically examine this
notion of “sustainability” we estimate the following set of
equations which includes
future ROA, the dependent variable, for each of the five
subsequent years as a function
of a firm’s current performance:
ROAi;tþj ¼ a0j þ a1jROAi;t þ ei;t j ¼ 1; 2; 3; 4; 5 ð1Þ
where ROAi, tþ j for j ¼ 1, 2, 3, 4, 5 refers to the ROA of firm i
in periods tþ 1, tþ 2,
tþ 3, tþ 4, and tþ 5, respectively. In Equation (1) the coefficient
a1 j is the measure of
the sustainability or persistence of ROA, that is, a measure of
the extent to which
current ROA persists in future periods. In H1, we aim to
examine to what extent
sustainability as measured empirically by a1 j depends on the
strategic positioning of
the firm, i.e. Differentiaton vs Cost Leadership. Hence, we can
express a1 j as a function
of differentiation and cost leadership as follows:

a1j ¼ b0 þ b0jDifferentiationi;t þ b2jCostLeadershipi;t ð1aÞ
where Differentiationi, t and CostLeadershipi, t refer to the
strategies followed by firm i
in period t as determined by individual factor scores described
in the previous section.
Note that the strategy variables are created using data from
years t�1 through t�5.
Now we can rewrite Equation (1) substituting the value of a1 j
as follows:
ROAtþj ¼ g0j þ g1jROAi;t þ g2jROAi;t �Differentiationi;t
þ g3jROAi;t �CostLeadershipi;t þ ei;t
ð2Þ
We include the following control variables in our empirical
estimation: Sizei, t, the firm
sales divided by total industry sales; LEVi, t, the firm leverage
measured by the amount
of total long-term debt divided by total equity adjusted for stock
splits; BMi, t, the book-
to-market ratio at the beginning of the fiscal year; and AGEi, t,
the firm age in number of
years. We also include industry dummies to control for
industry-specific effects.
Adding these control variables we can rewrite Equation (2) as:
ROAtþj ¼ g0j þ g1jROAi;t þ g2jROAi;t �Differentiationi;t
þ g3jROAi;t �CostLeadershipi;t þ g4jSizei;t þ g5jLEVi;t
þ g6jBMi;t þ g6jAGEi;t þ industry dummiesþ ei;t
ð2aÞ
The coefficient a1 j on ROAi, t in Equation (1) reflects the

persistence of earnings from
period t to period tþ j . Since the average value of the
Differentiationit and CostLeadershipit
scales is zero, the coefficients g2 j and g3 j on the terms
involving the strategy variables in
Equation (2a), therefore, measure the ability of firms to sustain
current performance into
the future over and above what is achieved by an average firm
on each strategy
dimension. Based on H1, we expect the coefficient g2 j on
ROAi, t � Differentiationi, t to
remain positive and significant into the future. We also expect
this coefficient to be
greater than the coefficient g3 j on ROAi, t � CostLeadershipi,
t. This would imply that
differentiation has a positive impact on sustaining current
performance into the future
to a greater extent than CostLeadership.
881
Sustainable
financial
performance
VI. Empirical results
Data
We obtain data for the strategy and financial performance
variables used in our study
from the Standard & Poors Compustat database. Our control
variables, namely, size,
book-to-market, leverage, and firm age are also obtained from
the Compustat database.

Stock price data is obtained from the Center for Research in
Security Prices (CRSP)
database which is located at the University of Chicago. The
CRSP database includes
stock price and other derived information for common stocks
traded on US exchanges
(NYSE, AMEX, and NASDAQ). We exclude financial firms and
utility firms from our
sample since the more regulated environment in which they
operate may mask
performance differences across firms and is likely to render
strategic positioning of
less importance. Our final sample consists of 12,849 firm-year
observations for the
period 1989-2003. Table II reports the descriptive statistics for
the variables used in
our empirical model and Table III tabulates the correlations
between these variables.
The correlation analysis gives us some insights into the
relationships between our
variables of interest. Both Differentiationit and
CostLeadershipit have positive correlations
with ROAit (Pearson correlation¼ 0.249 and 0.052,
respectively), ROAitþ 1 (Pearson
correlation¼ 0.123 and 0.038, respectively), ROAitþ 2 (Pearson
correlation¼ 0.035 and
0.009, respectively), ROAitþ 3 (Pearson correlation¼ 0.030 and
0.003, respectively),
ROAitþ 4 (Pearson correlation¼ 0.018 and 0.002, respectively),
and ROAitþ 5 (Pearson
correlation¼ 0.022 and �0.000, respectively) but the
correlations are higher in the case
of differentiation.
Sustainability of performance
To examine the sustainability of the differentiation and the cost

leadership strategies,
we estimate the models described in Equation (2a) using
ordinary least squares.
We adjust the standard errors to correct for serial correlation of
residuals for the same
firm by clustering standard errors by firm. This is based on
recommendations for
n Mean STD Q1 Median Q3
Differentiationi, t 12,849 0 1 �0.670 �0.284 0.366
CostLeadershipi, t 12,849 0 1 �0.127 0.291 0.529
ROAi, t 12,849 0.073 0.053 0.035 0.063 0.097
ROAi, tþ 1 12,015 0.058 0.073 0.026 0.058 0.093
ROAi, tþ 2 11,284 0.050 0.273 0.022 0.056 0.091
ROAi, tþ 3 10,562 0.047 0.283 0.020 0.054 0.088
ROAi, tþ 4 9,857 0.044 0.292 0.019 0.052 0.087
ROAi, tþ 5 9,183 0.044 0.301 0.018 0.052 0.086
Sizei, t 12,849 0.005 0.013 0.000 0.001 0.003
LEVi, t 12,753 0.317 0.512 0.024 0.150 0.389
BMi, t 12,849 1.017 1.069 0.448 0.738 1.191
AGEi, t 12,667 21.852 15.624 10.000 19.000 27.000
Notes: Differentiationi, t is the factor score for the
differentiation strategy of firm i in year t.
CostLeadershipi, t is the factor score for the cost leadership
strategy of firm i in year t. ROAi, t is
earnings before extraordinary items in year t divided by the
average total assets. Sizei, t is total sales of
firm i divided by total sales of industry (using Fama-French 12-
industry definitions). LEVi, t is total
long-term debt divided by total equity adjusted for stock splits.
BMi, t is the book-to-market ratio at the
beginning of the fiscal year. AGEi, t is the age of firm i in year
t

Table II.
Descriptive statistics
sample period: 1989-1998
882
MD
52,5
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N
o
te
s
:
T
op
ri
g
h
t
of
th
e
ta
b
le
sh
ow

s
th
e
P
ea
rs
on
co
rr
el
at
io
n
an
d
b
ot
to
m
le
ft
of
th
e

ta
b
le
sh
ow
s
th
e
S
p
ea
rm
an
co
rr
el
at
io
n
s.
V
ar
ia
b

le
d
ef
in
it
io
n
s
as
in
T
ab
le
II
.
**
*,
**
,*
S
ig
n
if
ic

an
ce
at
th
e
1,
5
an
d
10
p
er
ce
n
t
le
v
el
s,
re
sp
ec
ti
v

el
y
Table III.
Correlation analysis
883
Sustainable
financial
performance
panel data regressions provided in Petersen (2009). We include
year dummies to control
for possible time effects. We also include industry dummies to
control for industry
specific effects not captured by other explanatory variables.
Industries are classified
based on the Fama-French 12-industry classification (Fama and
French, 1997). When
estimating the models, we remove influential observations with
studentized residuals
greater than three or Cook’s D statistic greater than one
(Belsley et al., 1980). We use the
White’s (1980) test and find that we do not have a problem of
heteroskedasticiy in our
estimations. We also apply the Belsley et al. (1980) diagnostics
to check for multicollinearity.
All the condition indices are less than three, well below the
suggested cut-off of 30.
We first estimate the following model to examine the

contemporaneous relation
between the strategies followed by firms and the performance of
firms:
ROAi;t ¼ a0 þ a1Differentiationi;t þ a2CostLeadershipi;t
þ a3Sizei;t þ a4LEVi;t þ a5BMi;t þ a5AGEi;t
þ industry dummiesþ ei;t
ð3Þ
where ROAi, t is the ROA of firm i in year t. These results of
estimating Equation (3) are
presented in Table IV. The coefficient for the differentiation
strategy variable is 0.0151
(t-statistic¼ 9.96) while the coefficient for the cost leadership
variable is 0.0016
(t-statistic¼ 1.96). Consistent with prior literature, we find that
while both strategies
have a positive impact on contemporaneous performance. That
is, both differentiation
and cost leadership enable firms to achieve superior
performance, compared to firms
that focus on neither differentiation nor cost leadership. This is
consistent with Porter’s
original work wherein he espouses that both differentiation and
cost leadership enable
firms to perform better than their rivals. However, this
specification does not allow
an examination of whether this advantage gained in the period t
can be sustained in
the future.
We next estimate Equation (2a) to examine the sustainability of
performance based
on the strategies. In Table V we report the estimated
coefficients for the effect of the

Variables Predicted sign Estimated coefficient (t-stat)
ROAi;t ¼ a0 þ a1Differentiationi;t þ a2CostLeadershipi;t þ
controlsþ ei;t
Intercept 0.0986*** (39.99)
Differentiationi, t þ 0.0151*** (9.96)
CostLeadershipi, t þ 0.0016** (1.96)
Sizei, t �0.0810 (�1.12)
LEVi, t �0.0355*** (�12.61)
BMi, t �0.0075*** (�8.83)
AGEi, t �0.0001 (�1.09)
Year dummies Yes
Industry dummies Yes
R2 0.27
Number of observations 11,539
Notes: Numbers in parentheses are t-statistics based on robust
firm-clustered standard errors
(Petersen, 2009). Variable definitions are provided in Table II.
Year dummies and industry dummies are
included in the estimation. For the sake of brevity, the
coefficients for these dummies are not reported.
***,**,*Significance at the 1, 5 and 10 percent levels,
respectively
Table IV.
Strategic positioning and
contemporaneous
performance
884
MD
52,5

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