A Descriptive Alternative to Cluster Analysis: Understanding Strategic Group Performance with Simulated Annealing

  • Isaac Fox
  • Shaker Srinivasan
  • Paul Vaaler


Fixed effects models featuring cluster analytical techniques underlie much of the empirical research on strategic groups and their significance in explaining performance differences among competing firms. We propose an alternative “descriptive” approach for analyzing strategic groups and their impact on firms, particularly in multi-industry research settings. Our descriptive alternative utilizes a random effects model and simulated annealing in order to avoid some of the limitations of cluster analytical approaches as well as to provide insight on the relative importance of strategic group-level factors on variance in firm returns. We demonstrate our descriptive approach with simulated annealing of data from the Federal Trade Commission’s Line of Business Program. The demonstration suggests that strategic group-level factors are important for explaining persistent differences in firm performance, but that such factors are fluid and ephemeral, rather than fixed and durable over time.


Simulated Annealing Variance Component Firm Performance Random Effect Model Group Structure 
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Copyright information

© Springer Science+Business Media Dordrecht 1997

Authors and Affiliations

  • Isaac Fox
    • 1
  • Shaker Srinivasan
    • 2
  • Paul Vaaler
    • 2
  1. 1.Department of Management & SystemsWashington State UniversityUSA
  2. 2.Carlson School of ManagementUniversity of MinnesotaUSA

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