Optimal Distinctiveness: Authenticity, Reference Point and Dynamics

Abstract

Optimal distinctiveness—a state in which a firm gains a competitive edge while maintaining legitimacy through moderately distinguishing from peers—is widely viewed as a positioning strategy that firms aim to adopt. My thesis endeavors to illuminate three discernible gaps within the current landscape of optimal distinctiveness research, with each gap meticulously investigated and addressed in its respective sub-study.

My first study delves into the issue of legitimacy violation within the framework of optimal distinctiveness. While existing literature emphasizes the importance of addressing legitimacy violation in positioning strategy, it fails to recognize that this concern is not universal for all firms. Industry leaders and laggards, for instance, often feel secure in deviating from norms. Acknowledging the varying significance of legitimacy violation among firms and the diverse understanding of distinctiveness, I integrate authenticity theory into optimal distinctiveness research. This involves exploring the interplay between authenticity, reflecting within-firm comparisons, and distinctiveness, reflecting between-firm comparisons. I argue that cultivating authenticity is a crucial outcome of within-firm comparisons and serves as a means to mitigate legitimacy violations arising from distinctiveness, particularly when the audiences possess high risk-averse predisposition. Testing these arguments in the Canadian insurance industry from 1960 to 2020, I demonstrate that maintaining authenticity strategically alleviates audience concerns about risk, fostering acceptance of the firm’s distinctiveness.

The study makes three contributes. First, it extends the literature by discerning between within- and between-firm differences in positioning decisions, incorporating authenticity to reveal variations in optimal industry position. I posit that organizations with varying levels of authenticity face different legitimacy constraints, leading to variations in the optimal industry position. Therefore, achieving superior performance necessitates firms to manage their posture in both intra-firm and inter-firm comparisons. Second, scholars advocate that firms strive for moderate distinctiveness to navigate the competitive landscape and establish legitimacy. Nonetheless, my empirical evidence indicates that firms occupying such a position often experience subpar performance when their target audiences possess high risk-averse predisposition. Third, the research enriches the literature on authenticity by providing an instrumental perspective, emphasizing that authentic firms can enhance outcomes by reducing customers’ risk concerns and being perceived as more reliable and enduring.

In my second study, I focus on reference points for distinctiveness. The literature on optimal distinctiveness shows that a focal company can gain a competitive advantage by differentiating itself from the industry prototype, which embodies the central expectations of the industry. However, the strategic group literature proposes that a firm should differentiate itself from the strategic group prototypes. Investigating the strategic choices of firms in mature industries pursuing a differentiation strategy, my research reveals that companies in such industries tend to differentiate from the prototypes of their respective strategic groups. This approach is preferred as it allows firms to clearly identify the heterogeneous scope of competition and the legitimacy they face within their specific strategic group. Using a novel method based on Fuzzy C-Means (FCM) clustering to operationalize distinctiveness, I provide substantial support for these arguments in the Canadian property and casualty insurance industry from 2000 to 2020. Additionally, I address potential endogeneity concerns using an efficient GMM model with three instruments.

The research offers two key contributions. First, it enhances the optimal distinctiveness literature by adopting a cross-level perspective, considering multiple reference points like strategic group prototypes. This approach contrasts with previous studies that focused on static, single reference points, providing a more comprehensive understanding of organizational differentiation and responding to the call for theorization of “optimal distinctiveness against different benchmarks.” Second, the research challenges the assumption of firms affiliating with a single strategic group, revealing that between-group distinctiveness is crucial in determining the relationship between within-group differentiation and performance when a firm associates with multiple strategic groups.

In my third study, the focus is on the temporal and spatial dynamics of distinctiveness strategy. The current theorization of optimal distinctiveness operates with relative independence from the dynamic realities of competition and institutional change. I posit that crises may serve as significant catalysts that reshape the local institutional and competitive field, prompting firms to adjust their distinctiveness strategies for survival and adaptation. Drawing upon the punctuated equilibrium model, I shed light on the dual ramifications of competence-destroying and competence-enhancing event on distinctiveness strategy. Specifically, I argue that competence-destroying events force firms to deviate from the position of moderate distinctiveness. Such events disrupt the established consensus around optimal distinctiveness, fostering the emergence of hypercompetitive market where moderate levels of differentiation no longer suffice for competitive advantage or legitimacy. Therefore, what was once considered an optimal position for local firms becomes the least viable option for strategic escape. In contrast, competence-enhancing events reinforce the established consensus around optimal distinctiveness, safeguarding the competitive barriers of incumbents and encouraging them to maintain their moderate differentiation.

I extend the literature on optimal distinctiveness in three key areas. First, addressing the call for further exploration of spatial influences, I illuminate the geographic distribution of crisis as a central antecedent for how location shapes distinctiveness. This sheds new light on the spatial dynamics of punctuating events and their impact on optimal distinctiveness strategies. Second, I explore how firms temporarily adapt their distinctiveness strategies in response to exogenous events, which receive limited attention in the literature. Third, existing literature often assumes that firms can always achieve optimal distinctiveness vis-à-vis its competitors, while overlooking whether firms may be limited in their capabilities to pursue a differentiation strategy. I address the inquiry by investigating whether firms are capable to develop a distinctiveness strategy following a competence-destroying or -enhancing event.

Date of Award	19 Sept 2024
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Stan Xiao LI (Supervisor) & Xiaobo Wu (External Supervisor)