Optimal distinctiveness: Broadening the interface between institutional theory and strategic management

• DOI: http://doi.org/10.1002/smj.2589
• Date: 01 January 2017
• Author: Eric Yanfei Zhao,Greg Fisher,Danny Miller,Michael Lounsbury
• Published date: 01 January 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 93–113 (2017)

Published online EarlyView 15 November2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2589

Received 7 April 2014;Final revision received19 March 2016

OPTIMAL DISTINCTIVENESS: BROADENING

THE INTERFACE BETWEEN INSTITUTIONAL

THEORY AND STRATEGIC MANAGEMENT

ERIC YANFEI ZHAO,1*GREG FISHER,1MICHAEL LOUNSBURY,2

and DANNY MILLER3

1Department of Management and Entrepreneurship, Kelley School of Business,

Indiana University, Bloomington, Indiana, U.S.A.

2Department of Strategic Management and Organization, Alberta School of

Business, University of Alberta, Edmonton, Alberta, Canada

3Department of Strategic Management and Organization, University of Alberta &

HEC Montreal, Montreal, Québec, Canada

Research summary: Attaining optimal distinctiveness— positive stakeholder perceptions about

a rm’s strategic position that reconciles competing demands for differentiation and

conformity— has been an important focal point for scholarship at the interface of strategic man-

agement and institutional theory. We provide a comprehensivereview of this literature and situate

studies on optimal distinctiveness in the broader scholarly effort to integrate institutional theory

into strategic management. Our review nds that much extant research on rm-leveloptimal dis-

tinctiveness is grounded in the strategic balance perspective that conceptualizes conformity and

competitive differentiation as a trade-off along a single organizational attribute. We argue for a

renewed research agenda that draws on recent developments in institutional theory to conceptu-

alize organizational environments as more multiplex, fragmented, and dynamic, and discuss its

implications for core strategic management topics.

Managerial summary: This article aims to providemanagers with a more comprehensive and con-

temporary view of how rms can become optimally distinct— being different enough from peer

rms to be competitive, but similar enough to peers to be recognizable. We aim to equip man-

agers with an understanding of rms as complex, multidimensional entities, and encourage them

to identify and orchestrate various types of strategicresources to reconcile conformity versus dif-

ferentiation tensions, address the multiplicity of stakeholder expectations, and aptly modify their

positioning strategies in orderto succeed in dynamic environments. Copyright © 2016 John Wiley

& Sons, Ltd.

INTRODUCTION

One of the core paradoxes at the interface of

strategic management and organization theory is

how rms strategically manage competing pres-

sures to be both “like” and “different from” their

organizational peers (Deephouse, 1999; Durand and

Keywords: optimal distinctiveness; differentiation; con-

formity; legitimacy; strategic balance; institutional theory

*Correspondence to: Eric Yanfei Zhao, Department of Manage-

ment and Entrepreneurship, Kelley School of Business, Indiana

University,1309 E. Tenth Street, Bloomington, IN 47405, U.S.A.

E-mail: ericzhao@indiana.edu

Copyright © 2016 John Wiley & Sons, Ltd.

Calori, 2006; Miller and Chen, 1996). On the one

hand, institutional theorists have asserted that rms

aim to be similar to peers in order to gain legiti-

macy and avoid performance penalties associated

with deviance from existing norms, expectations,

and practices (e.g., DiMaggio and Powell, 1983).

On the other hand, strategy scholars have empha-

sized how rms striveto be different to gain compet-

itive advantage by establishing valuable, rare, and

inimitable resources, and by staking out a unique

competitive position (Barney, 1991; Helfat et al.,

2007; Hoopes, Madsen, and Walker, 2003; Porter,

1996). Given this conformity versus differentiation

94 E.Y. Zhao et al.

tension, scholars have argued that rms need to

engage in strategies that achieve optimal distinc-

tiveness— positive stakeholder perception that this

tension has been appropriately reconciled (Durand

and Kremp, 2016; Philippe and Durand, 2011). In

turn, stakeholder perceptions are theorized to affect

performance outcomes1.

Building on Brewer’s (1991) ideas about how

individuals forge unique identities amid strong nor-

mative pressures to conform, a broad literature

has emerged to address the sources and conse-

quences of rm-level optimal distinctiveness(Zuck-

erman, 2016). While not every study dealing with

the tension between conformity and differentiation

invokes the notion of optimal distinctiveness,it pro-

vides a useful label and conceptual focal point to

synthesize a diverse literature that grapples with this

common problem. This is important because there

remains a great deal of ambiguity about how rms

can achieve optimal distinctiveness and how we as

researchers should study it.

To date, the “strategic balance perspective,”

which conceptualizes rms as betwixt and between

the competing demands of conformity and differ-

entiation, has provided the most explicit guidance

on how rms can attain optimal distinctiveness

(Zuckerman, 2016). This perspective recommends

that managers adopt a moderate level of novelty

that positions a rm “as different as legitimately

possible” (Deephouse, 1999: 147). Scholars

adopting this perspective have generally proposed

that carefully balancing pressures to conform

and differentiate helps managers cope with these

competing demands, leading to performance

maximizing outcomes. A robust stream of research

now exists on the rm-level problem of cultivating

a distinctive strategic position while not breaching

the norms and understandings of established indus-

tries or categories within which they are embedded.

Current scholarship has highlighted how the

strategic decisions of rms in response to this

problem have key implications for a variety of rm

1Differentiationrefers to the extent to which a rm is perceived to

be distinct from other rms (Navis and Glynn, 2011); it accounts

for whether a rm deviates from the practices and approaches

that are perceived as pervasive within an industry or locale

(Durand and Kremp, 2016). Stakeholder refers to an individual

or a group of individuals that evaluate a rm with an expectation

that they may stand to gain from the rm’s successful operation

(Donaldson and Preston, 1995; Jones, 1995). Stakeholders may

include employees, customers, suppliers, shareholders, managers,

patrons, and board members, among others (Scott and Lane,

2000).

outcomes, including resource acquisition (Louns-

bury and Glynn, 2001), corporate governance

(Zajac and Westphal, 1994), rm and stakeholder

attention (Ocasio, 1997), reputation (Basdeo et al.,

2006), and nancial performance (Deephouse,

1999).

However, despite the importance of, and grow-

ing research on the sources and consequences of

optimal distinctiveness, this scholarship has nei-

ther been critically reviewed nor synthesized to

enable the development of a more progressive and

cumulative domain of knowledge. A key problem

inhibiting research progress on this topic is that

related studies employ different conceptual terms

and operationalizations, creating ambiguities in the

literature2. While the different notions of the same

underlying issue signal its theoretical relevance and

scope, the failure to synthesize these studies has pre-

vented a coherent body of knowledge from emerg-

ing. Hence, it is difcult to discern the various

mechanisms by which rms can achieve optimal

distinctiveness. In addition, as our review indicates,

most research in this stream has concentrated on the

strategy-performance linkage, neglecting the role of

stakeholder perceptions as a mediator in this rela-

tionship. Furthermore, ndings of some studies are

seemingly at odds with the predictions of strategic

balance theory (e.g., Cennamo and Santalo, 2013;

Zott and Amit, 2007). We believe that the time is

right to take stock of research on optimal distinc-

tiveness, and articulate a research agenda on how

managers cope with the contingent disparities asso-

ciated with creating and maintaining a distinctive

yet legitimate strategic position that maximizes rm

performance.

2Studies grappling with the underlying problem related to optimal

distinctiveness have surfaced across variousdisciplinary domains

including strategy, organization theory, and entrepreneurship,

often framed with different labels such as “competitive cusp”

(Porac, Thomas, and Baden-Fuller, 1989), “emancipation ver-

sus accommodation” (Rindova, Barry, and Ketchen,2009), “pro-

gressiveness versus rationality” (Abrahamson, 1996), “rationality

versus creativity” (Tschang, 2007), “static versus dynamic ef-

ciency” (Ghemawat and Ricart Costa, 1993), “exploration versus

exploitation” (March, 1991), “global conformity versus local dis-

tinctiveness” (Voronov, De Clercq, and Hinings, 2013), “classi-

cation versus enumeration” (Strandgaard Pedersen and Dobbin,

1997), “code preservation versus code violation” (Durand etal.,

2007), and “strategic focus versus strategic plurality” (Glynn,

Barr, and Dacin, 2000). The labeling of the potential solu-

tions of the conformity and differentiation paradox are equally

diverse, ranging from “strategic similarity” (Deephouse, 1999),

“competitive conformity” (Chen and Hambrick, 1995), “strategic

conformity” (Finkelstein and Hambrick, 1990), “legitimate dis-

tinctiveness” (Navis and Glynn, 2011) to “strategic categoriza-

tion” (Vergneand Wry, 2014).

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 93–113 (2017)

DOI: 10.1002/smj