Analyzing firm performance heterogeneity: the relative effect of business domain

Purpose – An ongoing discussion in strategic management concerns the relative impact of specific strategic decisions on firm performance. In line with that tradition, this research seeks to analyze the relative impact of business domain choices on firm performance. More specifically, it aims to discuss a method of assessing the relative impact of firm and business domain effects on firm performance within a specific industry and to demonstrate the value of this method. Design/methodology/approach – First, a model was developed to estimate the relative impact of firm versus business domain on performance. Second, all members of a specific SME‐dominated industry, namely the Belgian electrical wholesale sector, were questioned in order to test the validity of the developed model. Findings – The results indicate that: the firms in the analyzed industry operate within two distinct business domains; and business domain effects explain from 6.8 percent to 9.7 percent of the variance in the included performance variables. Practical implications – The findings should urge managers to carefully (re)consider where they are competing and assess the relative performance impact of business domain choices within their industry. Originality/value – It is widely agreed that industry membership has performance implications. The effect of industry membership considers performance variation between industries. This, however, is one of the first studies to further analyze performance heterogeneity within an industry by considering the relative effect of business domain choices.