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IJPPM
66,7
914
Received 15 March 2016
Revised 29 August 2016
Accepted 30 August 2016
International Journal of
Productivity and Performance
Management
Vol. 66 No. 7, 2017
pp. 914-931
© Emerald Publishing Limited
1741-0401
DOI 10.1108/IJPPM-03-2016-0059
A comparative analysis of
competitive priorities and
business performance between
manufacturing and service firms
Nancy Bouranta and Evangelos Psomas
University of Patras, Patras, Greece
Abstract
Purpose – The purpose of this paper is to investigate and contrast the levels of focus on competitive
priorities (CPs) between service and manufacturing firms in Greece during an economic crisis and the
influence of those CPs on business performance.
Design/methodology/approach – Empirical data were collected from 298 company representatives of
Greek firms with an approximately equal proportion of the firms being from the manufacturing (n ¼ 157) and
service (n ¼ 141) industries. Exploratory and confirmatory factor analyses were conducted to validate the
proposed first-order latent constructs as well as to determine the second-order latent construct (CPs). The CPs
were employed to represent the hypothetical structural relationship of business performance. The fit and
predictive accuracy of the model was estimated using AMOS software.
Findings – The proposed CPs model consists of five latent constructs: quality, delivery, cost, innovation, and
customer focus. It was also verified regardless of industry (manufacturing or service) that the same set of CPs
was used. However, these two sectors differed on the emphasis they paid to the selected CPs.
Originality/value – The major contributions of the paper are fourfold. First, this study represents the first
empirical investigation, to the best of the authors’ knowledge, into CP issues in the service and manufacturing
industries, to determine whether there are differences in CPs between these two sectors. Second, the paper
focused on the operations strategy of service enterprises in a field where the empirical evidence remains
scarce. Third, the current research is conducted in a developing country with economic problems and political
instability, while previous empirical research was mainly conducted in large and highly industrialized
countries. Knowing about the Greek economy’s economic crisis and the CPs of different industries within it
provides a unique and interesting perspective to this research. Finally, the findings introduced a set of
common CPs as being applicable to both sectors (services and manufacturing), as the number and the nature
of its dimensions seems to be independent of the type of sector examined.
Keywords Manufacturing, Economic crisis, Company performance, Service, Competitive priorities
Paper type Research paper
1. Introduction
The business environment has long been identified as an important contingency in the
conceptual and empirical studies of strategic and operations management (Qi et al., 2011;
Merschmann and Thonemann, 2011). Environmental characteristics such as diversity,
complexity, dynamism, and hostility affect business strategy. These numerous forces,
which are beyond the control of firm management, at least in the short run, pose threats as
well as opportunities to firms (Chi et al., 2009). Longoni and Cagliano’s (2015) study emerged
as a key source of manufacturing companies’ competitive advantage in environmental and
social sustainability.
In the last few years, however, the European community has been influenced by an
economic, political, and institutional crisis that began in mid-2008. Greece and other
periphery countries (Ireland, Portugal, Spain, and Cyprus), which were supported by an
economic and monetary union, were more affected by this crisis mainly because of its
high public debt and high deficit. The austerity program proposed by the troika
(International Monetary Fund, European Central Bank, European Commission) increased
taxation, raised unemployment, decreased wages and public spending for social welfare
(Duquenne and Vlontzos, 2014). According to economic actors, the economy has shrunk by Analysis of
25 percent, and unemployment in Greece was 25 percent at the end of 2015. As a CPs and
consequence, the Greek population is living below the poverty level, with pensioners, business
former entrepreneurs, and immigrants making up the majority (Duquenne and Vlontzos,
2014). The continuous drop in GDP has led to rapid reduction in domestic demand, an performance
increase in domestic competition, and an intense requirement for global exports. All these
unprecedented radical and dramatic changes, concerning the political and economic 915
environment, have affected Greek firms, which have to constantly adapt in order to
survive and prosper, thereby being forced to choose more effective strategic options.
Thus, manufacturing and service firms should identify the appropriate competitive
priorities (CPs) of their operations functions based on the country-specific determinants
and external variables (Ahmad and Schroeder, 2002). Because better business
performance can be achieved based on those CPs they are important for a specific
market (Slack and Lewis, 2008). The term “CPs” is used to describe a business’ choice of
planned or intended strengths in the field of operations strategy (Swink et al., 2005).
Over the past few decades, CPs have become an increasingly important research topic
in operations strategies, and empirical studies have focused on strategic preferences
that, mainly, a manufacturing industry must choose to compete in the marketplace.
Although there is a high degree of agreement in the literature about the list of CPs (low
cost, quality, delivery performance, and flexibility) (Skinner, 1978; Kathuria et al., 2010),
there has been a series of debates about additional priorities (Phusavat and
Kanchana, 2007; Zeng et al., 2008; Peng et al., 2011). Scholars also have found a
significant relationship between CPs and business performance in the manufacturing and
service industries (Chi et al., 2009; Avella and Vázquez‐Bustelo, 2010).
This paper aims to shed light on the CPs of the Greek manufacturing and service
industries during the period of economic crisis (2012-2015). CPs, as part of
the manufacturing strategy, have been the focus of academics and practitioners.
Indeed, few studies have focused on operations strategy of service enterprises despite
their significance in the world economy (Naqshbandi and Idris, 2012). Jayaram and
Xu (2016, p. 266) highlighted that the literature on manufacturing CPs is more mature
compared to the domain of service operations. Prajogo and McDermott (2011, p. 467)
believed that the limited number of research studies in the service sector could be because
of specific service characteristics (intangibility, heterogeneity, inseparability,
perishability), which makes their study more difficult. The majority of operations
strategy empirical research has been conducted in large and highly industrialized
countries without serious economic problems or political instability (Mady, 2008).
Hence, this study also improves our understanding of the influence the environment has
on operations strategies. In addition, this research attempts to verify whether type of
sector (manufacturing and service) differentiates in the level of focus placed on CPs.
The literature separately documents priorities and practices of manufacturers
(Hussain et al., 2015; Ahmad and Schroeder, 2011; Zeng et al., 2008) and services
(Naqshbandi and Idris, 2012; Prajogo and McDermott, 2011), but, to the best of our
knowledge, no empirical research has been conducted to critically compare their
differences concerning the CPs espoused. To fill this void in the literature, this study
makes a modest attempt to identify the CPs in the two sectors. The final goal of this
study is to examine the impact of the CPs on company performance dimensions.
The paper has four additional sections. The first section provides a survey of the related
literature referring to strategic priorities and company performance literature and the
research questions; this is followed by the methodology and the results, which are presented
in the second and third sections, respectively. Finally, the paper discusses the findings
and ends with the main practical implications for academic researchers and practitioners.
IJPPM 2. Literature review and research questions
66,7 2.1 CPs
The central elements of the prevailing manufacturing strategy framework are the decision
categories concerning areas such as layout, production planning, quality control, etc.
(Skinner, 1978). These infrastructural and structural decisions translate customer requirements
into CPs (Vachon et al., 2009). CPs in the manufacturing as well as in the service settings can be
916 defined as strategic emphasis on developing certain manufacturing or services capabilities,
which may enhance a plant’s or an organization’s position in the marketplace (Prajogo and
McDermott, 2011, p. 467). The appropriate choice of CPs set reflects on the future direction of a
firm (Phusavat and Kanchana, 2008) and has fundamental importance to the achievement of its
competitive advantage (Awwad et al., 2013), which may lead to business performance
improvement (Sengupta et al., 2013). There is a high degree of agreement among operations
strategy researchers that CPs can be generally expressed into four basic dimensions
(Chi et al., 2009; Skinner, 1978; Kathuria et al., 2010; Oltra and Flor, 2010; Awwad et al., 2013;
Bulak and Turkyilmaz, 2014): low cost (price), quality, delivery, and flexibility. Taking into
consideration limited firm resources (Pattnaik and Elango, 2009) as well as the assumption that
these dimensions are difficult to achieve at the same time as a similar level of success
(Mady, 2008), firms may give strategic emphasis to some of them in order to obtain an
advantage compared with that of their competitors (Skinner, 1978; Dabhilkar et al., 2016).
The degree of emphasis (weight) provides a broad measure of what a firm considers important
at a particular time and may reflect the core competencies and capabilities that a firm possesses
or on which it wants to focus (Kroes and Ghosh, 2010). However, compatibility found between
different CPs (Kathuria et al., 2010) and the thought of trade-offs is not only possible but also
necessary to a firm facing global competition. For example, quality improvement provides the
basis for long-term improvement in other CPs such as cost leadership by reducing setup time
and manufacturing cost (Awwad et al., 2013). Although there is a high degree of agreement in
the literature review about the aforementioned list of CPs, studies have integrated additional
dimensions into the basic set, which may be due to their country of origin (Porter, 1990), the
industry-specific determinants (Mady, 2008), or the traits of the studied companies (Cai and
Yang, 2014). Another possible explanation is the fact that most preview studies have not
explicitly considered performance frontiers in their models that facilitate the definition of the
relationships between environmental factors and CPs. (Cai and Yang, 2014). The following
paragraphs present an overview of different CPs in the manufacturing and services sectors;
some of the most representative studies of the last five years are presented in Table I.
For example, Vickery et al. (1997) identified four dimensions of performance achieved on
CPs for the furniture industry: innovation, delivery, flexibility, and the value made up of the
combined effects of quality and cost. Phusavat and Kanchana (2007) recognized six CPs:
quality, cost, delivery, flexibility, customer focus, and know-how. It was found, in another
survey, that flexibility and cost are CPs for large and small manufacturing companies in the
United Arab Emirates (Hussain et al., 2015). Kathuria et al. (2010) examined the level of
strategic consensus between senior executives and manufacturing managers. The survey
data were collected from 78 manufacturing units in an emerging economy (India).
The results revealed that senior executives tend to stress upon outward-looking CPs
( focused on quality and delivery), while manufacturing managers are more internally
focused (emphasized flexibility and cost). The senior executives (operators) have a greater
awareness of the priorities with which they come into daily contact, while managers focused
on the intra-organizational upper-level priorities (Mirzaei et al., 2016). Other researchers
added to the traditional four broad CPs with a fifth and increasingly important CP:
innovativeness (Peng et al., 2011; Mady, 2008; Ahmad and Schroeder, 2011; Lara and
Guimarães, 2014). However, it should be noted that there is a positive relationship between
flexibility (mix and labor) and product innovation (Oke, 2013). In the same vein, many of the
 Manufacturing industry Service industry
Analysis of
Vivares- Hussain Thürer Kathuria Peng Bulak and Awwad Prajogo and Naqshbandi CPs and
Competitive Vergara et al. et al. et al. et al. Turkyilmaz et al. McDermott and Idris
priorities et al. (2016) (2015) (2013) (2010) (2011) (2014) (2013) (2011) (2012)
business
performance
Cost X X X X X X X X X
Quality X X X X X X X X X
Delivery X X X X X X X X X
Flexibility X X X X X X X X 917
Innovativeness X X X
Retention X
Speed X
Responsiveness X
Brand image X
Productivity X Table I.
Recovery X Comparison of
Environment X competitive priorities
protection constructs across
Service X different studies

representatives of small manufacturing companies in Brazil reported in a semistructured

telephone interview that their companies have invested and will continue to invest in R&D
given that product and process innovation are considered to be amongst the most important
competitive factors and future opportunities (Thürer et al., 2013). Chinese manufacturing
firms, in their internationalization efforts, considered technology level, cost control, and
brand consciousness as the three most important factors affecting competitive strategies
(Zeng et al., 2008). Quality, delivery, and flexibility priorities have been traditionally
neglected by Chinese firms focusing on low-cost priority (Chi, 2015). The effective supply
chain network, which is based on the appropriate collaboration, communication, and
coordination among SC members, could also be proposed as a valuable competitive
advantage for any individual member firm (Tsironis and Matthopoulos, 2015).
As far as the services industry goes, a limited number of surveys in this field used the
basic CPs list (low cost, quality, delivery performance, and flexibility) (Naqshbandi and
Idris, 2012). Specifically, while focusing on nine service industries in Malaysia, noted that
the four CPs differ across industries, as six service industries ( fast food, hospital, retail
store, bank, private college, and accountant industries) are focused on quality while the
remaining three industries (hotel, auto repair, and architecture) prioritized delivery.
However, both high- and low-performance firms recognize quality as the top CP followed by
delivery, flexibility, and cost. Phusavat and Kanchana (2008) revealed six CPs. Quality
represented the most important priority, followed by service provision, customer focus,
know-how, costs, and flexibility, respectively. Prajogo and McDermott (2011) also used an
extended list of CPs such as quality, innovation, retention, speed, on-time delivery,
responsiveness, brand image, cost, productivity, and recovery. The majority of these
priorities (except cost) aimed at building service differentiation capabilities.
From the aforementioned brief literature review, it is obvious that there are some studies
concerning CPs in the manufacturing and service sectors, but no study has been conducted
to identify a set of common CPs as being applicable to both sectors. However, Table I
demonstrates that both sectors share almost the same set of CPs. Specifically, most of the
aforementioned priorities are common or very similar facts that offer opportunities for
combination. For example, speed or responsiveness can be categorized as a sub-dimension
of the delivery priority, cost control can be considered a cost priority, and recovery or
retention should be combined with the customer focus priority. Motivated by this
conclusion, as well as by the limited number of studies in the service sector and, specifically,
IJPPM in the Greek environment, this study aims to integrate the CPs implemented in Greek
66,7 business over the last few years during the economic crisis. It was supported that the
competitive intensity of the environment has an impact on the choice of manufacturing and
service strategy (Thun, 2008). Thus, the following research question is formulated
and examined through this study:
RQ1. What is the underlying structure (latent factors) of the CPs implemented in Greek
918 business in the last years?
It is generally accepted that key distinctive characteristics differentiate service firms from
manufacturing firms, mainly based on the nature of their output and the degree of customer
contact. Specifically, services tend to be predominantly intangible, inseparable, perishable,
and heterogeneous (Berry and Bendapudi, 2007). Manufacturing operations produce goods
with specific tangible features such as color, size, shape, and weight, while service
operations provide intangible services that may not be easily identifiable. In addition,
manufacturing can be broken down into two stages, production and consumption, which
may occur in different places and times; whereas, in service firms, production and
consumption typically become simultaneous with customer participation (Moeller, 2010).
An additional characteristic of service is that it cannot be stored, warehoused, or
inventoried. Finally, in service-oriented companies, heterogeneity makes it difficult for a
firm to standardize the quality of its services, as there is variation in the same service from
day-to-day or from customer-to-customer (Palmer, 2011). Because of the aforementioned core
differences between the service and manufacturing industries, it is expected that they will
differ also in their operational strategies. As previously mentioned, studies have separately
identified the CPs in the service or manufacturing industries, but the present work goes
beyond earlier studies by examining the differences between these two sectors. Thus, this
study has been conducted to critically compare the differentiation in CPs between service
and manufacturing firms:
RQ2. The two sectors (service and manufacturing) significantly differ in the level of
focus placed on CPs?

2.2 CPs and business performance

Reports on previous studies proposed a positive relationship between CPs and business
performance. Skinner (1978) suggested that manufacturing controls focus on cost, quality,
flows, inventory, and time, and that results may be measured in terms of productivity,
service, quality, and return on investment. US textile manufacturing firms were the subject
of empirical investigation that lead to the establishment of a conceptual model focusing on
the impact of alignment among business environment characteristics, CPs, and supply chain
structures on business performance (Chi et al., 2009). The paper supported the idea that
when the alignment between business environment characteristics, firm CPs, and supply
chain structure is achieved, the firms exhibit relatively high business performance.
Avella and Vázquez‐Bustelo (2010) also concluded that production competence, which is
defined as a second-order factor/construct in terms of five dimensions (cost, flexibility,
quality, delivery, and environmental protection competence), is a determinant of business
performance. Manufacturing capabilities contributing to low-operating costs and product
quality are positively related to venture performance. The environmental protection
competence is the most novel one due to the increasing global business and
customer concern for protecting the environment and minimizing pollution
(Vivares-Vergara et al., 2016). Another survey revealed that manufacturing capabilities
contributing to low-operating costs and product quality significantly predict sales growth,
return on sales, and return on assets (Terjesen et al., 2011).
 The relationship between CPs and business performance was also supported in the service Analysis of
industry. Specifically, Naqshbandi and Idris (2012) reported a significant relationship among CPs and
the four dimensions of CPs, namely, cost, quality, delivery, flexibility, and financial business
performance of the service firms. The authors measured the financial performance of firms
and proposed that future research look at other measurements of company performance. performance
Prajogo and McDermott (2011), also using an extended list of CPs, shed light on their relative
importance and contribution to business performance. The survey, conducted in the 919
Australian service sector, used the importance-performance analysis matrix, which revealed
that CPs of customer retention and productivity are characterized by a high level, whereas
speed and innovation are characterized by a low level of importance and effectiveness on
business performance. On the other hand, the CPs of brand image, cost, and recovery have a
low level of importance but a high level of effectiveness, which means that particular attention
is required on those CPs from service businesses. Finally, the CPs of quality, on-time delivery,
and responsiveness typically exhibit a high level of importance but a low level of effectiveness
on business. The aforementioned literature review provided the argument that organizations
could pursue different strategies that also could be equally effective. The third research
question is:
RQ3. The CPs have a positive influence on business performance?

3. Methodology
3.1 Establishing the constructs
In order to answer the research questions, an empirical survey was carried out among the
Greek manufacturing and service firms. A questionnaire was used as the data collection
method. The question format was based on previously developed measurement instruments.
Specifically, CPs were obtained using a specially developed 21-item inventory grounded in the
relevant literature. Table II demonstrates the items of this research and the studies from which
they were adapted. Given the multidimensional nature of the CP, multiple items were used to
capture a firm’s emphasis on each of them. The items were organized into six themes, one
covering each theoretical component. Looking at the set of CPs in various theoretical and
empirical papers and critically analyzing some selected recent research studies (Table I), the
present study used the following content variables: cost, quality, flexibility, delivery,
innovation, customer focus. As shown in Table I, the core CP set refers to cost, quality,
flexibility, delivery in the manufacturing and service industry. The dimension of innovation
was added to the traditional, broad four CPs based on the suggestion of several researchers
(Vickery et al., 1997; Peng et al., 2011; Mady, 2008; Ahmad and Schroeder, 2011; Lara and
Guimarães, 2014; Thürer et al., 2013; Prajogo and McDermott, 2011). In addition, the dimension
of customer focus was included due to its importance in the design, production, and delivery
of products and services, as highlighted by Phusavat and Kanchana (2007, 2008). Thus, the
CPs included in this research are defined (as follows):
• Cost priority: a company’s ability to effectively manage production cost.
• Quality priority: focus on high conformance to product specification.
• Flexibility: the capability to quickly respond to changes.
• Delivery priority: fast as well as on-time delivery and short manufacturing cycle time.
• Innovation priority: a firm’s ability to introduce innovative improvement to existing
products/production processes and/or continuously develop new ones.
• Customer focus: the degree to which an organization identifies customer
requirements and expectations.
IJPPM Kaiser-Meyer-Olkin ¼ 0.816 Factor loadings
66,7 Items Quality Customer Cost Delivery Innovation

Products or services meet design specifications 0.861

Products or services meet customer expectations 0.850
Products or services design adjustments based on
customer requirements 0.786
920 Reduction in corrective action cycle time 0.688
Company’s objectives exceed customers’ requirements 0.898
Time from customer’s recognition of need to delivery 0.875
Collecting and analyzing customer complaints 0.687
Personal relationships between managers and customers 0.631
Low waste resources cost 0.818
Low quality cost 0.803
Offer competitive price 0.703
Reducing production lead time 0.610
Delivery speed 0.846
Delivering the customers’ orders on time 0.840
Ability to provide effective after sales support 0.645
Increase in new product sales revenue portion of total
sales revenue 0.906
Customer perception as a leader in innovation 0.905
Aggressiveness of R&D and other departments 0.694
Table II. Eigenvalue 5.934 2.101 1.975 1.560 1.249
Exploratory factor Cumulative variance % 16.726 14.660 13.878 13.167 12.820
analysis of the Cronbach’s α 0.86 0.80 0.80 0.83 0.81
competitive priorities Note: n ¼ 298

The research instrument was pre-tested by two academics and one industrial expert who
provided comments and suggested changes during on-site interviews. The proposed
questions were also translated into Greek and then back into English by a bilingual person
employed in the strategic management field. In addition, 24 managers completed the pilot
questionnaire to indicate any ambiguity or other difficulty they experienced in responding
to the questions. These procedures helped to smooth questionnaire implementation,
prevent subjects from missing questions, and clarify the language of some others. All items
were measured on seven-point Likert scales with 7 indicating the “most emphasis” and
1 indicating the “least emphasis”.
As far as the business performance measurement, there is no guidance for selecting
which one precisely measures or which type of measures (subjective or objective) are most
appropriate for a given situation. The measures based on managers’ opinion or estimates
were fixed vs the objective measures, which are based on independently observable facts.
Ettlie et al. (1990, p. 68) proposed that “it was necessary to rely on perceptual performance
measures because of the virtual nonexistence of accurate, standard, and objective
performance data, and the practical difficulties associated with attempting to gather it.”
Other researchers have also supported perceptual measures as being useful and even
necessary in the case of comparisons across units with different technologies and operation
lines or permit assessment of lagged effects of strategy firm (Ketokivi and Schroeder, 2004;
Swink et al., 2005). For example, Albacete-Sáez et al. (2011, p. 1179) concluded that
“subjective measure permits better comparison between different kinds of industries and
situations.” Thus, based on prior research, business performance is measured using the
respondent’s perception using eight items. These items, which refer to customer satisfaction
and financial company status, match the organization’s competitive strategy and are easily
comparable across different industries represented in the current research sample.
The items were based on Bouranta et al.’s (2017) measurement instrument and were Analysis of
measured on seven-point Likert scales. CPs and
The data collection instrument incorporated also questions related to respondents’ business
socio-demographic characteristics: age, tenure, education, and residence.
performance
3.2 Sampling process
As explained in a previous section, this study was conducted in two sectors (services and 921
manufacturing). The database of the Greek Chamber of Commerce was used for choosing
the service and manufacturing firms that would participate in the research study.
Simple random and stratified sampling techniques were used to select 1,400 firms (700 from
each sector) operating all over Greece. An initial e-mail was sent to all these firms, inviting
them to participate in the research study, explaining the purpose of the academic study and
attaching the questionnaire. It was requested that the questionnaire be answered by the
company representative (CEO or managing director, vice-president). Participants were
assured of total confidentiality and anonymity. Follow-up reminder e-mails were sent after
the initial e-mailing to the targeted respondents that failed to reply in the first place in order
to increase the response rate. A sample of 316 questionnaires was collected, of which
18 were excluded because they were ineligible; they provided answers that were uniformly
positive or negative (skewed responses), or returned blank or with incomplete answers.
Hence, the total usable sample for analysis consists of 298 questionnaires from the two
sectors: services (n ¼ 141) and manufacturing (n ¼ 157). The respond rate (21.2 percent) is
considering satisfactory taking in to consideration the difficult conditions that are prevailed
in the Greek economy. The respondent manufacturing firms covered a wide range of
activities including tobacco, furniture, leather, chemicals, food, etc. The service companies of
the final sample operated in various industries including hospitality, bank, tourism, medical
care etc. Accordingly, to the results indicate that 38.6 percent of the firms employ fewer than
ten employees, 38.3 percent occupy 11-50 employees while 23.1 percent employ more
than 250 employees. Among the respondents, the 23.5 percent of them had a master degree,
while many had a university degree (53.7 percent), or a high school degree (22.8 percent).
Tenure length groupings were 0-5 years (11.4 percent), 6-10 years (47 percent), 10-25 years
(29.5 percent) and 26 plus (12.1 percent). The respondent profile indicates that they have the
knowledge and the experience to provide precise answers to the survey questions.
Comparing the early and late responses, it was confirmed that non-response bias is not
a cause for concern in this study (Kim et al., 2012) as the results did not indicate a
significant difference between the two groups. Furthermore, since the questionnaire was
completed by a single respondent (company representative), the common method
variance was checked by applying the single-factor test (Martinez-Costa and
Martinez-Lorente, 2008). This method produced poor results, confirming that common
method variance is not a substantive problem.

3.3 Data analysis

Prior to feeding the data to factor analysis, it was confirmed that the assumptions of
normality, linearity, and homoscedasticity were not violated. Then, exploratory factor
analysis (EFA), using SPSS software, was applied for the six latent constructs of quality,
delivery, flexibility, cost, innovation, and customer focus. EFA was employed using the
principal component factor extraction method with the orthogonal varimax rotation method.
The extraction criterion was set as eigenvalue above 1. Loadings of ±0.45 are considered
statistically significant for sample sizes of more than 150 as in the present research study
(Hair et al., 2010). Thus, variables with factor loadings less than 0.45 were ignored for the
rest of the analysis.
IJPPM Based on the assumption that the first-order constructs are represented in a group be a
66,7 second-order construct, confirmatory factor analysis (CFA) within structural equation
modeling was used to further validate the proposed by CFA first-order latent constructs and
determine the second-order latent construct (CPs). CFA relies on several statistical tests and
indices that determine the adequacy of model fit to the selected data. In this study, the
adopted indices includes: the Tucker Lewis index (TLI suggested to exceed 0.90), the
922 comparative fit index (CFI acceptable value above 0.90), the goodness of fit index (GFI
considered poor fit if below 0.90), the root mean square error of approximation (RMSEA
suggested to be 0.08 or less) and the relative χ2 which should be less than 3 (Hair et al., 2010).
EFA as well as CFA procedures were also applied to verify the goodness of fit for service
and manufacturing data (sub-groups) and noticed any difference on the emphasis was paid.
The reliability of the instruments were also tested using Cronbach’s α coefficient, which
is the most common method for reliability analysis. The measurement of the concepts was
based on previously developed instruments, so that content validity was assured.
Additionally, two academics in the field and one experienced practitioner (strategy
consultant) provide their comments and offer suggestions combining with the result of the
pilot survey. The EFA analysis is also used to check convergent validity of the instruments
(Hair et al., 2010). To establish discriminant validity, the recommended approaches on the
construct level concerning AVE-SE comparisons were used.

4. Results
4.1 Confirming the constructs dimensionality
As displayed in Table II, factor analysis of CPs revealed five factors. The factors explained
71.26 percent of the total variance, a rather satisfactory result in the context of social science
research (Hair et al., 2010). Three items referring to flexibility factor were deleted due to their
multi-factor loading, and 18 items remained for subsequent analysis. None of the factors had
eigenvalues less than 1 (Kaiser criterion). In addition, the data for factor analysis were tested
using the Kaiser-Meyer-Olkin index (sampling adequacy equal to 0.816) and the Bartlett test
of sphericity (which rendered highly significant results; p ¼ 0.000), both of which were
considered satisfactory. All questions load as expected on the factors. The extracted latent
factors are explained using the measured variable loadings and can be labeled as follows:
quality, customer, delivery, cost, and innovation. In order to further examine the five-factor
structure of the scale and measure the relationship between the latent ( five factors revealed
in the EFA) and the observable variables (18 items comprised five dimensions), a CFA was
utilized for the whole sample. The results shows an adequate model ( χ²(124) ¼ 337.558,
p ¼ 0.000, GFI ¼ 0.90, CFI ¼ 0.93, TLI ¼ 0.92, and RMSEA ¼ 0.07).
The test for reliability of the factors and the instrument provided Cronbach’s αs
coefficients that exceeded the recommended level of 0.70 and rather strong item-to-total
correlations. More specifically, the Cronbach’s α values ranged from 0.79 to 0.86,
suggesting that the factors had internal consistency. Similarly, the same value of the CPs
construct was equal to 0.87, suggesting high internal consistency (Oliveira and
Roth, 2012). The significance and contribution of the 18 items of the scale were also
examined by the “α if removed” measure, and they were all retained in the analysis.
The EFA analysis also verified that the factor loading of the concepts exceed the
0.45 threshold on its parent factor with low cross-loading, which supports that
the measurement instruments reached convergent validity. It was also found that the
square root of the average variance extracted (AVE) of each latent construct was greater
than the highest correlation coefficient between the factor of interest and the remaining
factors. Examining the discriminant validity of the extracted factors, it was verified as the
confidence interval does not include 1.0. This demonstrated discriminant validity between
the extracted latent factors (Henseler et al., 2015).
 Then, the sample of 298 questionnaires was separated into two sub-samples based on the Analysis of
type of industry (manufacturing or service). The procedures of data analysis were repeated CPs and
for both sub-samples. In both cases the same structure of CPs was revealed through the business
EFA. The results of factor analysis show that there are slightly distinctions on emphasis of
competitive capabilities between manufacturing and service industry (Table III). For both performance
industries, quality contributes the most in the variance of CP at the level of 16.9 and
16.2 percent, respectively. For manufacturing managers, quality is followed by low cost at 923
14.1 percent and customer performance at 13.7 percent. In contrast, for service industry
managers, customer performance contributes slightly more in the variance of CPs
(15.8 percent), comparing with low cost (14 percent). In addition, the respondents from both
industries pay almost equal attention to delivery (13.2 manufacturing and 13.9 percent
service). Finally, the service industry managers grant very close weights to the types of
competitive capabilities.
Figure 1 illustrates the second-order CFA models for manufacturing and service industry
respectively, including the standardized factor loadings. The CFA models for both
sub-groups show a good fit to the collected data for both industries, although GFI is slightly
below the recommended 0.90 level. It was found that this index increased as the number of
parameters increases and it has also an upward bias with large samples (Bollen, 1990).
Given the GFI sensitivity and taking in to consideration that the other indexes meet the
recommended levels the goodness of fit of the models are acceptable in both cases.
Summarizing, the EFA and CFA results support that the CPs, followed by Greek firms
during the economic crisis, consist of quality, delivery, cost, innovation, and customer focus.
It was also verified that regardless the type of industry (manufacturing and service) the
same set of CPs is suitable for their measurement.
The EFA of the company performance instrument proved a very good fit that revealed
two factors explaining 63.7 percent of the total variance (Table IV ). The Kaiser-Meyer-Olkin
statistic was 0.765. The Bartlett test of sphericity also provided satisfactory results.
The Cronbach’s α coefficients of the performance dimensions and the instrument were equal
or above 0.7, exceeding the minimum threshold level. The extracted latent factors are

Manufacturing industry (n ¼ 157) Service industry (n ¼ 141)

Items Quality Customer Cost Delivery Innovation Quality Customer Cost Delivery Innovation

Qual_1 0.844 0.874

Qual_2 0.859 0.834
Qual_3 0.788 0.783
Qual_4 0.719 0.600
Cust_1 0.894 0.877
Cust_2 0.876 0.861
Cust_3 0.606 0.688
Cust_4 0.559 0.719
Cost_1 0.814 0.777
Cost_2 0.816 0.770
Cost_3 0.677 0.743
Cost_4 0.599 0.625
Del_1 0.815 0.850
Del_2 0.813 0.815
Del_3 0.566 0.718
Inov_1 0.872 0.923
Inov_2 0.895 0.913 Table III.
Inov_3 0.670 0.711 Exploratory factor
Eigenvalue 5.850 2.158 1.894 1.484 1.280 6.160 2.253 2.072 1.447 1.296 analysis of the
% of variance 16.946 13.723 14.110 13.202 12.382 16.223 15.809 14.039 13.982 13.436 competitive priorities
Cronbach’s α 0.86 0.75 0.79 0.80 0.78 0.84 0.83 0.81 0.86 0.84 in both industries
IJPPM Manufacturing industry
66,7 Quality

0.53
Customer
924 0.38

Competitive
0.76
Cost priorities
0.73

Delivery 0.41

Innovation

Service industry
Quality

0.53
Customer
0.55

Competitive
0.72
Cost priorities
0.79

Delivery 0.31

Innovation

Figure 1.
Results of the second-
order CFA models for
competitive priority
Notes: Manufacturing industry: Normed  2 = 1.98; TLI = 0.90;
GFI = 0.85; RMSEA = 0.07. Service industry: Normed  2 = 1.88;
TLI = 0.91; CFI = 0.93; GFI = 0.86; RMSEA = 0.07

explained using the measured variable loadings and can be labeled as follows: financial
performance and customer-focused performance. In order to further examine the factors
structure of the scale, a CFA was utilized. The two-factor structure shows an adequate
model ( χ² (18) ¼ 26.011, p ¼ 0.000, GFI ¼ 0.96, CFI ¼ 0.98, TLI ¼ 0.97, and RMSEA ¼ 0.06).
Kaiser-Meyer-Olkin ¼ 0.765 Factor loadings
Analysis of
Items Customer-focused performance Financial performance CPs and
business
Customer satisfaction from product/service price 0.916
Customer satisfaction from product/service performance
specifications 0.906
Customer loyalty 0.841
Company and its products’ image and reputation 925
in the market 0.739
Return on Investment 0.784
Operating income per employee 0.708
Market share 0.691
Sales growth – asset turnover 0.686 Table IV.
Eigenvalue 3.330 1.765 Exploratory factor
Cumulative variance % 37.341 26.337 analysis of company
Cronbach’s α 0.87 0.70 performance

4.2 Testing the CPs-performance relationship

The third research question refers to the relationship between the CPs and the business
performance. The CPs are employed to represent the hypothetical structural relationship of
business performance. The fit and predictive accuracy of the model was estimated with the
use of AMOS software. The goodness of fit, incremental and parsimonious tests, except GFI,
are equal or exceed the 0.90 cut-off point, thus supporting the good fit for the tested model
( χ² (286) ¼ 608.442, p ¼ 0.000, GFI ¼ 0.87, CFI ¼ 0.92 TLI ¼ 0.91, and RMSEA ¼ 0.06). The
results indicated that CPs have a direct and positive effect on customer-focused performance
at the p-valueo 0.001 level (Table V ). In addition, it was supported that the CPs are directly
and positively related to financial performance. Both path estimates identified as
statistically significant, in the predicted direction and with standardized residuals within the
acceptable limits. They also indicate that CPs are of considerably greater importance, in
terms of predicting financial performance than customer-focused performance.

5. Discussion and conclusions

Traditionally, CPs studied in the manufacturing industry have given little attention to the
service industry (Naqshbandi and Idris, 2012). This research examines CPs not only in the
manufacturing industry but in the operations strategy of service enterprises as well, mainly
because of their significance in the global economy. Thus, this paper contributes to extant
nascent literature, as empirical evidence regarding CPs in services remains scarce (Prajogo
and McDermott, 2011). CPs indicate which performance areas should be emphasized to
guarantee the competitive success of a company, thus directing managers’ decisions. It is
considered of high importance that CPs be clearly identified and established in order to
determine a firm’s strategy (Phusavat and Kanchana, 2007, p. 797). Managing firms
successfully requires clear action plans (Vivares-Vergara et al., 2016). The CPs construct of
this study has been conceptualized in a similar way to that used by accepted models of
previous research (Table I). The core set of CPs typically include price (cost), quality

Relationships Coefficient CR (t-value) p-value

CPs – customer-focused performance 0.467 4.494 0.000 Table V.

CPs – financial performance 0.643 5.907 0.000 Structural equation
Note: t-values greater than 2.00 are significant ( p o0.05) path coefficients
IJPPM flexibility, and delivery. However, as already mentioned, there has been debate about
66,7 additional priorities. Some researchers regard innovation as a vital CPs. It is supported that
the research and development of new services or products, rapid technological
advancement, and changes in social levels necessitate novelty in order to satisfy
proliferating customers’ needs (Peng et al., 2011; Mady, 2008; Ahmad and Schroeder, 2011;
Lara and Guimarães, 2014). Other scholars also present the customer-service aspect as an
926 important priority in strategy decisions taken (Phusavat and Kanchana, 2007; Jayaram and
Xu, 2016). Knowledge in regards to customer needs, in order to retain quality products and
services for them, could be considered a competitive advantage to a business ( Jääskeläinen
et al., 2014). Hence, the present study enriches the core set of CPs, thus adding the priorities
of innovation and customer focus. However, the research analysis, using EFA and CFA,
concerning the whole sample as well as the sub-groups (service and manufacturing), reveals
five CPs (quality, customer, delivery, cost, and innovation). The flexibility priority was not
supported in the findings. This may be because its features, such as broad product line,
volume changes, design adjustment, etc. (Phusavat and Kanchana, 2007), were incorporated
into the customer focus and innovation priorities.
Once the priorities are defined, they should be applied considering the competitive
environment within the company (Díaz-Garrido et al., 2011). Existing literature has focused
on firms in developed countries; thus, there is a lack of knowledge on efforts of firms in
developing countries (Zeng et al., 2008; Jayaram and Xu, 2016); and there is a lack of
knowledge on efforts of firms in developing countries. In addition, very few studies have
focused on operations strategies of small and medium enterprises (Kathuria, 2000).
This paper further adds to the existing research by examining CPs in a crisis economy
(specifically, Greece). Greece is making efforts to restructure its economy in order to
reestablish growth and increase job opportunities in the longer term. These circumstances
are similar to those of several firms from developed countries.
In addition, this study goes a step further to critically compare the differences concerning
the CPs between the manufacturing and service industries. Looking at the previous
operations strategy studies, to the best of our knowledge, no such type of comparison has
been conducted. The comparison’s results between the two industries shows that there are
similarities and distinctions on the emphasis of CPs between service and manufacturing
managers’ perceptions. This perception was also supported by Jayaram and Xu (2016), who
pointed out that service systems compete on the basis of different CPs than the
manufacturing systems. For example, quality is considered to be the most important CPs for
the manufacturing and for the service industry. The result is in accordance with other
similar studies that rank quality first among the other CPs (Chi, 2010; Phusavat and
Kanchana, 2007). The quality strategy is considered important in any type of environment,
while a low-cost strategy is more effective in steady and predictable environments
(Chi, 2010). The possible explanation is that, in recent years, the standards-based quality
management system has been widely implemented in Greek firms (Kampouridis et al., 2015)
as well as in business environments where highly educated, professional, and quality-
oriented employees work. Manufacturing managers also recognize that the cost advantage,
which has been a predominant priority over the past decades, has slightly declined in its
influence. An older survey examined the relationship between CPs and financial
performance in not-for-profit hospitals and it was found that cost resulted in superior
business performance (Butler and Leong, 2000). Also found was the fact that that quality
programs were the most preferred CPs among managers but with a lower impact on firm
performance. Nowadays, the customer, due to drastic cuts in their wages and an increase in
unemployment as a result of the country’s economic situation, is looking for the right mix of
quality and price. In addition, the intense competition in the global market mainly from low-
wage countries has forced businesses in developed countries to explore alternative strategies.
Thus, the market-winning strategy seems giving more emphasis to quality than cost. Analysis of
Manufacturing firms also concentrate on being customer-focused and on delivery priorities as CPs and
the third and fourth most important CPs (Zhao et al., 2002). This is also justified given that business
many of the sample companies have been implementing quality management systems
according to the ISO 9001 standard. It should be pointed out that, except for quality, which has performance
a greater emphasis than other CPs, the rest of the priorities have very close weights.
In contrast, managers in the service industry consider that, except for quality (which 927
come first), a customer focus contributes to the improvement of company performance
slightly more than low cost, delivery, and innovation. Customer focus is one of the most
important criteria on which organizations need to place emphasis and, thus, direct their
resources in order to meet their requirements and ultimately achieve customer satisfaction
(Sanuri and Mokhtar, 2013, p. 68). Service includes the interaction between the service
provider and its customer as well as the active integration of the customer into a value-
creating process (Heinonen et al., 2010). The results of a recent study on the Chinese service
firms supported the indirect effect (via employee capability and job-related training) of
customer orientation on service on quality and efficiency performance ( Jayaram and
Xu, 2016). However, it should be highlighted that service managers grant very close weight
to the five CPs, which means there is no specific emphasis placed on just one or some of
them. Naqshbandi and Idris (2012, p. 987) supported that equal emphasis means no
emphasis. Thus, it can be supported that the Greek service firms have no specific orientation
that gives them a solo competitive advantage. They share their efforts and capabilities in
regards to many different attributes, thus matching their core competencies to the
environmental opportunities. This is referred to as combinative competitive capabilities,
which is described as a firm’s ability to simultaneously emphasize and enhance a set of
competitive capabilities (Kristal et al., 2010). In these cases, managers do not trade off their
capabilities but instead develop all of them sequentially, without compromising any of them.
The combinative capabilities can be achieved only if firms have the requisite internal
competencies, which enable them to move from one short-term advantage to another
(Kristal et al., 2010). Otherwise, managers should place strategic emphasis on only some of
the CPs in order to obtain an advantage when compared to their global competitors.
In addition, managers must figure out how to balance their CPs by weighing short-term and
long-term consequences in terms of money or brand image.
It should also be noted that both industries (manufacturing and service) need to become
more innovative, as this CP ranks as the last in the list of CPs. Innovation is a process that
takes new ideas, implements them, and ends up with satisfied customers. Thus, innovative
change is important to a business, as it compels firms to continuously improve their
products or services. Empirical evidence shows that a firm’s innovation has a strong and
positive effect on business performance (Chadee and Roxas, 2013; Saunila et al., 2014).
However, innovation, in the short term, often requires significant up-front investments,
which cannot easily be supported by the Greek banking system at the given point in time.
In addition to innovation concerning the strategic practices of a business, there is also
individual innovation, which characterizes the actions of an individual employee inside the
organization. Individuals with innovative behavior are people who develop, carry out,
react to, and modify ideas. An innovator introduces changes, searches for new solutions,
and defies existing limitations or restrictive resources (Krot and Lewicka, 2011).
Thus, he/she brings in novelty and makes significant changes to a product or service
line-up. Employees can be inspired in response to a market demand or a technical problem
and can be driven to innovative behavior by developing new products, new markets,
and new processes or by reducing business routines or cost in their employing organization.
This perspective points out how important employees are to companies’ efforts to improve
their innovative ability.
IJPPM As with any research, this study has certain limitations that need to be addressed and
66,7 taken into consideration when interpreting the results. First, the data analyzed in this study
are based on a single source (CEO or managing director, vice-president) using self-
perceptive answers. As such, common method bias may be a problem. Second, this study
presents an analysis of relationship between CPs and performance at a single point in time.
Moreover, data were gathered only from a country (Greece) affected by the economic,
928 political, and institutional crisis; therefore, the generalizability of the findings may be
limited. Thus, the set of CPs could be examined in different countries and, therefore, enhance
the generalizability of the specific set. Given that the business environment is constantly
changing, longitudinal follow-up studies should be designed to identify these changes and
reexamine whether and how these CPs are changing. Finally, an interesting perspective for
future research would be the compatibility between different CPs, which may also be
included in a proposed model.

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About the authors

Nancy Bouranta holds a Business Administration Degree from the Athens University of Economics
and Business as well as an MSc and a PhD both from the University of Piraeus in Greece. Her current
research interests include organizational behavior and service quality. Her research has been published
in The Learning Organization, International Journal of Entrepreneurial Behaviour and Research,
International Journal of Contemporary Hospitality Management, Thinking Skills and Creativity, etc. She
has been awarded the Highly Commended Paper Award at the Literati Network Awards for Excellence
(2013). Nancy Bouranta is the corresponding author and can be contacted at: nbouranta@upatras.gr
Evangelos Psomas is an Assistant Professor in the Department of Business Administration of Food
and Agricultural Enterprises at the University of Patras. He received a PhD in Total Quality
Management from the University of Ioannina, Greece, in 2008. He has dealt with issues of management
and marketing and has worked as a Teaching Assistant at the University of Ioannina and the
Technological Educational Institute of Epirus.

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