





































 

18 
 

 
 
 
 

Strategic Choice and Firm Performance during 
COVID-19 

 
 
 

Albena R. Ivanova 
Robert Morris University 

 
Marcel C. Minutolo 
Robert Morris University 

 
 
This paper aims to identify successful strategies for private companies to increase liquidity during 
times of crisis. We define four strategic choices based on an introduction and/or discontinuation of 
new products or services: cannibalization, retrenchment, expansion, or entrenchment. We use a micro 
data set from a worldwide survey of 10,349 companies conducted between April and September 2020 
by the World Bank. Our results show that for most companies liquidity during COVID-19 decreased 
or at best stayed the same. Due to the pandemic, firms applied one of the four strategies, with the 
majority of the firms applying an intrench strategy. The Chi-square test was used to assess which 
strategy is associated with increased liquidity during the COVID-19 pandemic. Results indicate that 
liquidity increased or stayed the same for the companies using the expansion strategy, followed by 
cannibalization, intrench, and retrench strategies. Expansion and cannibalization strategies are both 
associated with the introduction of new products and/or services, suggesting that innovation is the 
key to surviving a pandemic crisis.  
 
Keywords: crisis, crisis management, strategic choice, innovation, COVID-19 
 

Introduction 
 Duquesnois et al. (2010) build the argument that in times of crises some firms “will disappear, 
others will not be affected, while others will improve their performance” (p. 251). While it may seem 
tautological, the statement warrants additional consideration. Managers of firms will implement 
strategic choices in these periods that will result in the overall survival of the institution. In times of 
crisis, firms have four options: cannibalizing their existing offerings, retrenchment, intrenchment, or 
expansion. The COVID-19 pandemic has caused firms all across the world to face difficult 
competitive choices given strict government policies enforced to mitigate the spread. During the peak 
of the quarantine policies in the United States, unemployment rose to 13 percent as a result of 
businesses shutting down and laying off employees (U.S. Bureau of Labor Statistics, 2021). During 
this period, some organizations opted to offer new products or services; some discontinued operations 
altogether; and, still others offered their existing products or services in new ways. Firms found 

http://journals.sfu.ca/abr 
2023, Volume 13, pages 18-32 

http://journals.sfu.ca/abr


 

19 
 

different channels to deliver their products or services while others found new means for customers 
to access them. 
 The pandemic is, as Thompson (1995) stated, a crisis that has strained businesses’ capacity to 
respond. The COVID-19 pandemic has caused a managerial crisis that differs significantly from well-
understood systems where firms produce relatively known and continuous output while minimizing 
distinct and undesirable events (Schulman, 2021). Regardless of the policies that governments enacted 
during the pandemic, firms had to decide how to react. Small and medium enterprises (SMEs), 
compared to large enterprises, were under more pressure to survive, requiring them to respond 
effectively to the crisis (Birinchi, 2022). In their work on how prepared small businesses are to manage 
in times of crisis, Mikušová and Horváthová (2022) note the importance of understanding the strategic 
orientation of small and medium-sized enterprises during the economic crisis. Under such conditions, 
a firm might decide to update its offerings or organization (Briciu et al., 2012), innovate (Doern, 2017), 
be entrepreneurial or change its market orientation (Beliaeva et al. 2020). The current research is 
motivated by the behaviors that firms took in response to the crises caused by the pandemic. In this 
article, we employ Miles et al.’s (1978) framework to test firms’ strategic responses. The framework 
proposed uses two dimensions: exploration and exploitation, wherein firms have four strategic 
responses to changes in market conditions: prospect, analyze, defend, or react. A prospector creates 
new products (high exploration) with high technology flexibility for rapid response facilitated by 
administration (low exploitation). An analyzer locates new products and opportunities (high 
exploration) while maintaining the same customer base (high exploitation). A defender creates a stable 
set of existing products without new products (low exploration) and focuses on the efficiency of the 
current process by maintaining strict administrative control (high exploitation). A reactor has no 
specific business approach and thus is the most undesirable strategy (low exploitation and low 
exploration) (Miles et al., 1978). The particular contribution of this work is in analyzing these strategic 
responses amid global crises.  
 In the remainder of this paper, we discuss the salient literature and then present our data and our 
approach to consider the relationship between this strategic choice typology. After the methods 
section, we present the results. Finally, we present a discussion of the results and potential implications 
as well as follow-up research that may be of value. 
 

Literature Review 
 
Strategic Choices 
 The explanatory framework proposed by Miles et al. (1978) identified four strategic choices: 
prospect, analyze, defend, or react. The first three choices may be viewed as positively adaptive 
behaviors in response to market conditions whereas the fourth is maladaptive behavior. In the context 
of this framework, prospectors develop new products or services in response to changes in the market. 
Defenders’ choice in response to changing conditions is to “dig in” and maintain their market position 
which may come in the form of cost reductions. Those firms that choose an analyze strategy focus on 
two activities: learning and scanning. The analyzers are taking a “wait and see” approach keeping their 
strategy open and waiting to see how the market responds and looking for creativity. Finally, those 
who merely react find themselves constantly shifting, trying to stay afloat but without gaining any 
stability. Some have criticized this framework as an oversimplification of the strategy-structure 
relationship (Conant et al., 1990) but many claim that Miles et al. (1978)’s framework remains relevant 
(Desarbo et al., 2005; Hambrick, 1983; Kabanoff & Brown, 2008). 
 In response to the strict quarantine restrictions imposed on establishments, firms had to decide 
(i) to offer or not to offer new products or services and (ii) to keep or discontinue existing products 
or services. This is illustrated in Figure 1 where we model the strategic choice space. Those firms that 



 

20 
 

continue their existing offerings while introducing new ones do so at the risk of cannibalizing their 
existing products. These establishments are referred to as prospectors. Organizations that discontinue 
an offering while not introducing new products are retrenching; these firms are reactors. Firms that do 
not innovate or discontinue products are intrenching; they are the defenders. Finally, firms that 
discontinue a product and introduce a new product are expanding; they are the analyzers.  

 
Figure 1 - Graphic Representation of Strategic Choice Space 
 

 
 

Liquid Assets Theory 
 Liquid assets theory states that firms need to hold large amounts of liquid assets as reserves 
against possible demands for payment of depositors (Nzotta, 2004). Holding short-term assets under 
this theory is necessary as a buffer in the face of various uncertainties in business operations and the 
various needs of a firm. Nzotta (2004) states that the amount of liquid assets is dependent on a firm’s 
perceived needs, volatility of deposits, financial market conditions, and monetary policies of the 
government. 
 The response by governments around the world during the Covid-19 pandemic resulted in a 
large direct shock to corporate profits (Almeida, 2021). This shock increased risk for many firms 
resulting in a rise in the demand for liquidity from affected firms. Chebbi et al. (2021) found that as 
the daily number of new cases increased, stock liquidity decreased. In response to the increase in cases, 
governments around the world imposed lockdown restrictions to arrest the spread. Guerini et al. 
(2020) found that the lockdown triggered an unprecedented increase in the share of illiquid and 
insolvent firms in France. Amnim et al. (2021) found that the lockdown restrictions harmed liquidity 
in Nigeria. Analyzing 49 countries around the world, Zaremba et al. (2021) found that business and 
school closures resulted in the deterioration of liquidity broadly. 
 In response to liquidity challenges faced by firms during the pandemic, some countries issued 
long-term debt to increase cash holdings (Almeida, 2021) by providing access to stimulus and capital 
to prop up the firms. For instance, in the United States, the government provided the Paycheck 
Protection Program as forgivable loans as a means to provide payroll support allowing for greater 
liquidity (https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-
protection-program). Nonetheless, firms still needed to find a way to respond to the changing 

Retrench
(reactor)

Cannibalization
(prospector)

Intrench
(defender)

Expansion
(analyzer)

New Product

D
is

co
nt

in
ue

d 
Pr

od
uc

t

No Yes

N
o

Y
es



 

21 
 

purchasing patterns that resulted from government health policies. As suggested above, one strategic 
choice was to introduce new products or services for the market or to discontinue them to reduce 
risk. Formalizing the hypothesized relationship between each of the strategic choices in light of 
liquidity theory, we propose the following: 

 
H1. Firms that introduced new products or services (expansion and cannibalization) will report 

more often an increase in liquidity compared to those who did not introduce new products or 
services(intrench and retrench) 

 
H2. Firms that discontinue old products or services (retrench and cannibalize) will report a 

decrease in liquidity more often compared to those who did not discontinue old products or services 
(intrench and expansion) 

 
The response “introduce new products or services” is thought to be a proactive, offensive response 
to the changes in the market when there is increased solvency. Conversely, the response “discontinue 
old products or services” is thought to be a reactive, defensive strategy in light of increased insolvency. 
In the following section, we introduce the proposed relationship between the strategic choice 
developed in the preceding section and liquidity as developed in this section. 
 
Proposed Relationship between Strategic Choice and Liquidity 
 One may argue that strategic choice and environmental determinism represent mutually 
exclusive, competing explanations of organizational adaptation. This research will explore the view of 
Hrebiniak and Joyce (1983) that strategic choice and determinism are independent. They demonstrate 
that the result is a typology of firm adaption where the interaction of choice and determinism can be 
described as natural selection, differentiation, strategic choice, and undifferentiated choice. This 
typology determines the decision space of strategic choices available to the firm. This typology fits 
well with the Miles et al. (1978) typology and aligns with the current work. In fact, under the conditions 
set by the COVID-19 restrictions, environmental determinism would directly affect firm behavior. 
However, strategic choice suggests that firms have volition as to how they respond. 

As illustrated in Figure 1, one strategic choice that a firm has in the face of environmental 
determinism is to expand its product or service offering while continuing to offer what it had been 
offering in the past. This decision is Hrebiniak and Joyce’s (1983) strategic choice, what we call 
expansion. Under the same environmental conditions, some firms may discontinue a product or 
service thereby cannibalizing their current business, a differentiation choice. This leads us to the 
following hypotheses: 

 
H3: Firms that use expansion will report an increase in liquidity more often than firms that use 

cannibalization 
 

H4: Firms that use expansion will report an increase in liquidity more often than firms that 
intrench 

 
 Building on the previous line, firms have additional choices available to them. In addition to 
expansion and cannibalization, as illustrated in Figure 1, firms may decide to intrench or retrench. In 
the case of intrenchment, firms decide to “dig in” with their current offering and wait to see what the 
environment will do; this amounts to an undifferentiated choice. Finally, others may decide to cut out 



 

22 
 

some of their offerings focusing on a small, core piece of their business. This approach amounts to 
retrenchment or, as Hrebiniak and Joyce (1983) state, natural selection. The cannibalization, expansion 
and intrench strategic choices correspond to prospector, analyzer, and defender as introduced by Miles 
et al. (1978). These three strategies are viewed as positively adaptive behaviors in response to market 
conditions, whereas the fourth strategy, retrenching (reactor) is a maladaptive behavior and thus 
should be avoided (Miles et al. 1978). This is a situation when the company’s top management does 
not have a specific business approach but rather tries to catch up with the market as the environment 
changes. Miles et al. (1978) suggest three reasons for this unstable strategic choice: (i) top management 
does not have a strategy; (ii) the organizational structure does not support the business strategy; and, 
(iii) top management maintains the old ways of doing things. This strategic choice is the way firms fail 
and will lead to the lowest performance. In line with this logic, we propose:  
 

H5: Firms that intrench will report an increase in liquidity more often than firms that retrench 
 

H6: Firms that cannibalize will report an increase in liquidity more often than firms that use 
retrench 

 
We can expand on Figure 1 with the inclusion of the hypotheses. Figure 2 provides a summary of 
the hypotheses. The direction of the arrows illustrates the direction of increased liquidity. 

 
Figure 2 – Summary of hypotheses 

 

 
 

In the next section, we present our data and methodological approach. 
 
 
 
 
 

Retrench
(reactor)

Cannibalization
(prospector)

Intrench
(defender)

Expansion
(analyzer)

New Product

D
is

co
nt

in
ue

d 
Pr

od
uc

t

No Yes

N
o

Y
es

H1

H2 H3

H4

H5

H6



 

23 
 

Method 
 
Survey and Dataset 
 We source our data from The World Bank Open Data database (World Bank). The World 
Bank developed a Follow-up COVID-19 company survey to assess the impact of the COVID-19 
pandemic on the global private sector. The Follow-up COVID-19 data is part of the Enterprise Survey 
that The World Bank conducts. This survey is a firm-level survey of a representative sample of an 
economy’s private sector. The survey targets companies with five or more employees and is answered 
by business owners and top managers. The Follow-up COVID-19 survey was carried out in 30 
countries, but the number of interviews depends on the economy’s size, from 150 in small countries 
to 1200–1800 in large economies (Olczyk & Kuc-Czarnecka, 2021). 
 The World Bank had two rounds of follow-up surveys. Our research is based on data obtained 
during the second completed round, between June and September 2020. The topics covered include 
changes in sales, demand for products or services, supply of inputs, workforce, cash flow availability, 
and government support. The survey was conducted using mainly computer-assisted telephone 
interviewing (CATI), a telephone surveying technique in which the interviewer follows a script 
provided by a software application. Telephone interviews are supported by email for self-
administration if needed. The exceptions are three African countries (face-to-face interviews) and 
Russia, where an online survey was applied (Olczyk & Kuc-Czarnecka, 2021).  
 Respondents to the survey cover micro, small, medium, and large enterprises from 30 
countries including Europe, Asia, Africa, and Central America. A representative sample of the private 
sector excluding agriculture and extractive industries covers companies dealing in manufacturing 
(49.2%), retail (20.1%), and other services (30.8%). Small and medium-sized firms account for 60% 
of the sample in the manufacturing sector and almost 88% in retail. We present the descriptive 
statistics of the sample in Table 1 where we see that the largest number of respondents come from 
manufacturing. 

 
Table 1 - Descriptive Statistics of the Variables (N = 10,288) 
 

Respondents Number Percentage 
Sector      

Manufacturing 5,064 49.2 

Other Services 3,156 30.7 

Retail Services 2,068 20.1 

Size (by # of employees)   
Micro (less than 10) 158 30.8 

Small (10-49) 4352 42.5 

Medium (50-249) 2141 20.9 

Large (more than 250) 599 5.8 

Strategic Choice     
Cannibalization 917 8.9 

Retrench 1,187 11.5 

Expansion 1,307 12.7 

Intrench 6,817 66.3 



 

24 
 

Missing 60 0.6 

Liquidity     
Increased 970 9.4 

Remained the same 3,531 34.3 

Decreased 5,728 55.7 

Don’t Know 59 0.6 

Introduced New Products 
or Services      

Yes 2,230 21.7 

No 8,011 77.9 

Don’t Know 47 0.5 

Discontinued Old 
Products or Services     

Yes 2,107 20.5 

No 8,128 79 

Don’t Know 53 0.5 

 
 
Measures 
 The strategic choice was measured by combining the answer to two questions. The first 
question asks the respondent if the company has introduced or discontinued new products or services. 
The second question asks the respondent if the company has seen an increase, decrease, or no change 
in liquidity.  
 The analysis covers survey data obtained from the World Bank’s Enterprise Surveys - COVID-
19 Survey, Round 2 from 2021 (Enterprise Survey, 2021). The research sample includes 10,288 
companies from 30 countries. However, it should be noted that not all respondents answered every 
question; hence, the number of observations at individual stages of the analysis may differ. The Chi-
Square test was used to determine the differences between the expected and the observed values of 
the variables of interest for different strategic choices. 
 

Results 
 

 In this section, we present the results of our analysis. In each section, we test the hypothesis 
developed earlier using the chi-square test of homogeneity. Franke et al. (2012) state that the chi-
square test of homogeneity is often used to compare two or more conditions on a categorical outcome. 
Given the nature of the survey and the responses of the participants, our data is categorical, and as 
such this test statistic is appropriate. 
 
New Products or Services and Liquidity 
 The first hypothesis (H1) states that firms that introduced new products or services, a form 
of innovation during the crisis, will report an increase in liquidity. The null hypothesis is that there is 
no relation between the introduction of new products or services and a change in liquidity. The 
expected counts presented in Table 2 are the counts in case the null hypothesis were valid. The 
observed counts (listed only as “Counts” in the table) report the actual counts of companies in each 
crosstabulation category. For example, if there is no relationship between new products/service 



 

25 
 

introduction and liquidity, we would expect to have 209 companies that report an increase in liquidity, 
762 will report no change in liquidity, and 1,241 will report a decrease in liquidity. However, we 
observe that these numbers are different. In particular, the number of companies that introduced new 
products and services and reported an increase in liquidity (n = 399) was higher than the expected 
count (n = 209). The number of those who introduced new products and services and did not observe 
a change in liquidity (n = 682) was lower than the expected count (n = 762). The number of those 
who introduced new products and services and reported a decrease in liquidity (n = 1126) was lower 
than the expected count (n = 1241). The Pearson chi-square statistic for this test is 247.50 (p < 0.001), 
which leads to a rejection of the null hypothesis and the conclusion that there is a significant 
correlation between new products and services introduction and change in liquidity. The conclusion 
is that companies who introduced new products and services reported an increase in liquidity more 
often than expected and companies who did not introduce new products and services reported an 
increase in liquidity less often than expected. This provides support for Hypothesis 1.  
 
Table 2 - Cross Tabulation Results for New Product Introductions and Change in Liquidity 
 

   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 

Introduced new 
Products or 

services 

Yes 
Count 17 399 682 1126 2224 

Expected Count 12 209 762 1241 2224 

No 
Count 37 563 2823 4581 8004 

Expected Count 42 753 2743 4466 8004 

Total 
 Count 54 962 3505 5707 10228 
 Expected Count 54 962 3505 5707 10228 

Note: The Chi-Square test was significant at 0.001 
 
 
Discontinuation of Old Products or Services and Liquidity  
 Our second hypothesis states that firms that discontinue old products or services will report 
a decrease in liquidity more often as compared to those that do not. The results from the analyses 
presented in Table 3 reveal that the number of those who discontinued old products or services and 
reported a decrease in liquidity (n = 1512) was higher than the expected count (n = 1176). Similarly, 
the number of those who did not discontinue old products or services and reported a decrease in 
liquidity (n = 4201) was lower than expected (n = 4537). The Pearson chi-square statistic for this test 
is 342.05 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is 
a significant relationship between the discontinuation of old products or services and the change in 
liquidity. Companies who discontinued old products or services reported a decrease in liquidity more 
often than expected and companies who did not discontinue old products or services reported a 
decrease in liquidity less often than expected. This provides support for Hypothesis 2. 
 
Table 3 - Cross Tabulation Results for Discontinued Products or Services and Change in Liquidity 
 
   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 



 

26 
 

Discontinued 
products or 

services 

Yes 
Count 20 202 373 1512 2107 

Expected Count 11 198 722 1176 2107 

No 
Count 34 760 3133 4201 8128 

Expected Count 43 764 274 4537 8128 

Total  
 Count 54 962 3506 5713 10235 
 Expected Count 54 962 3506 5713 10235 

Note: The Chi-Square test was significant at 0.001 
 
Expansion Versus Cannibalization and Liquidity 
 Our third hypothesis states that firms that use expansion will report an increase in liquidity 
more often than firms that use cannibalization. The results from the analyses presented in Table 4 
reveal that the number of those who chose expansion and reported an increase in liquidity (n = 252) 
was higher than the expected count (n = 235). Similarly, the number of those who chose 
cannibalization and reported an increase in liquidity (n = 147) was lower than expected (n = 165). The 
Pearson chi-square statistic for this test is 105.21 (p < 0.001), which leads to a rejection of the null 
hypothesis and the conclusion that there is a significant correlation between expansion and 
cannibalization, and the change in liquidity. Companies who chose expansion reported an increase in 
liquidity more often than expected and companies who chose cannibalization reported an increase in 
liquidity less often than expected. This provides support for Hypothesis 3. 
 
Table 3 - Cross Tabulation Results for Cannibalization and Expansion and Change in Liquidity 
 
   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 

Strategic 
Scope 

Cannibalization 
Count 11 147 186 573 917 

Expected Count 7 165 281 464 917 

Expansion 
Count 6 252 496 553 1307 

Expected Count 10 235 401 662 1307 

Total 
 Count 17 399 682 1126 2224 
 Expected Count 17 399 682 1126 2224 

Note: The Chi-Square test was significant at 0.001 
 
Intrench Versus Expansion and Liquidity 
 Our fourth hypothesis states that firms that use expansion will report an increase in liquidity 
more often than firms that use intrench. The results from the analyses presented in Table 5 reveal that 
the number of those who chose an expansion and reported an increase in liquidity (n = 252) was 
higher than the expected count (n = 122). Similarly, the number of those who intrenched and reported 
an increase in liquidity (n = 508) was lower than expected (n = 638). The Pearson Chi-square statistic 
for this test is 190.67 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion 
that there is a significant correlation between expansion and intrench and the change in liquidity. 
Companies who chose expansion reported an increase in liquidity more often than expected and 
companies who intrenched reported an increase in liquidity less often than expected. This provides 
support for Hypothesis 4. 



 

27 
 

 
Table 5 - Cross Tabulation and Chi-square Results for Expansion and Intrench and Change in 
Liquidity 
 
   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 

Strategic 
Scope 

Expansion 
Count 6 252 496 553 1307 

Expected Count 6 122 504 675 1307 

Intrench 
Count 28 508 2636 3645 6817 

Expected Count 29 638 2628 3523 6817 

Total 
 Count 34 760 3132 4198 8124 
 Expected Count 34 760 3132 4198 8124 

Note: The Chi-Square test was significant at 0.001 
 
Intrench Versus Retrench and Liquidity 
 Our fifth hypothesis states that firms that intrench will report an increase in liquidity more 
often than firms that retrench. The results from the analyses presented in Table 6 reveal that the 
number of those who intrenched and reported an increase in liquidity (n = 508) was higher than the 
expected count (n = 480). Similarly, the number of those who retrenched and reported an increase in 
liquidity (n = 55) was lower than expected (n = 84). The Pearson Chi-square statistic for this test is 
278.38 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a 
significant correlation between intrench and retrench and the change in liquidity. Companies who 
intrenched reported an increase in liquidity more often than expected and companies who retrenched 
reported an increase in liquidity less often than expected. This provides support for Hypothesis 5.  
 
Table 6 - Cross Tabulation Results for Retrench and Intrench and Change in Liquidity 
 

   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 

Strategic 
Scope Retrench 

Count 9 55 187 936 1187 

Expected Count 6 84 419 679 1187 

 
Intrench 

Count 28 508 2636 3645 6817 
 Expected Count 32 480 2404 3902 6817 

Total  Count 37 563 2823 4581 8004 
  Expected Count 37 563 2823 4581 8004 

Note: The Chi-Square test was significant at 0.001 
 
Retrench Versus Cannibalization and Liquidity 
 Our sixth hypothesis states that firms that use cannibalization will report an increase in 
liquidity more often than firms that retrench. The results from the analyses presented in Table 7 reveal 
that the number of those who chose cannibalization and reported an increase in liquidity (n = 147) 
was higher than the expected count (n = 88). Similarly, the number of those who retrenched and 



 

28 
 

reported an increase in liquidity (n = 55) was lower than expected (n = 114). The Pearson Chi-square 
statistic for this test is 96.36 (p < 0.001), which leads to a rejection of the null hypothesis and the 
conclusion that there is a significant correlation between cannibalization and retrench and the change 
in liquidity. Companies who chose cannibalization reported an increase in liquidity more often than 
expected and companies who retrenched reported an increase in liquidity less often than expected. 
This provides support for Hypothesis 6. 
 
Table 4 - Cross Tabulation Results for Cannibalization and Retrench and Change in Liquidity 
 

   Liquidity/Cash Flow Change 
   Don't 

know Increased Remained 
the same Decreased Total 

Strategic 
Scope 

Cannibalization 
Count 11 147 186 573 917 

Expected Count 9 88 163 658 917 

Retrench 
Count 9 55 187 936 1187 

Expected Count 11 114 210 851 1187 

Total 
 Count 20 202 373 1509 2104 
 Expected Count 20 202 373 1509 2104 

Note: The Chi-Square test was significant at 0.001 
 
 

Results 
  
 Results suggest that, overall, expansion is the best strategic choice during a pandemic crisis. 
The results from the analysis provide a comparison of the four strategic choices and their impact on 
liquidity. As illustrated in Figure 2, expansion was associated with the highest percentage increase in 
liquidity and the lowest percentage decrease in liquidity. Combination of “Remained the Same” and 
“Increased”, the two best outcomes during a crisis, is highest in the expansion. While firms may want 
to grow, during a time of crisis they may satisfice with at least not declining. Hence, the best strategic 
choice overall is expansion. On the other hand, the retrench choice was associated with the lowest 
percentage increase in liquidity and the highest percentage decrease in liquidity. The combined total 
of “Increased” and “Stayed the Same” for the intrench strategy was lowest across the board. 
Therefore, digging one’s feet in is not a good choice given the results here. 
 
 
 
 
 
 
 
 
 
 
 
 



 

29 
 

Figure 3 - Changes in Liquidity by Strategic Choice 
 

 
 

 When comparing cannibalization and intrench choices, we observe an interesting 
phenomenon. Cannibalization is associated with both a higher percentage increase in liquidity and a 
higher percentage decrease in liquidity at the same time. This implies that some companies that chose 
a cannibalization strategy can increase their liquidity, whereas others failed in execution. With 
cannibalization, the company discontinues an old product and introduces a new product. As there is 
a risk associated with this decision, two outcomes are possible. The first possibility is for the new 
product to be successful, in which case the company will increase its liquidity. The second possibility 
is for the new product to fail, in which case the company will decrease its liquidity. As there is no 
support from the old production, the company takes the risk of possible failure. Thus, cannibalization 
is a risk-taking strategic choice. 
 In intrench, the company continues the production of the old product, without introducing 
any new products. The percentage of companies reporting an increase or decrease in liquidity is smaller 
compared to cannibalization. The percentage of companies reporting no change in liquidity is higher 
compared to cannibalization. This is the risk-averse strategic choice.  
 

Conclusions 
 
 The findings of the study provide support for all six of the hypotheses provided earlier in the 
article. The findings indicate that the company’s strategic choice during the COVID-19 pandemic 
impacts performance as measured by liquidity. Companies that chose the proactive response to 
COVID-19 by introducing new products or services outperformed those that did not (consistent with 
Hypothesis 1). Companies that chose a reactive response to Covid-19 by discontinuing old products 
decreased their liquidity compared to those who did not discontinue old products (Hypothesis 2). 
Further, companies who decide to introduce new products and keep the old production/service lines 
– expansion – reported more often an increase in liquidity compared to those who introduce new 
products but discontinue the old products/services – cannibalization (Hypothesis 3). Similarly, 
companies who decide to keep old products/services and to introduce new products – expansion – 
report more often an increase in liquidity compared to those who kept the old products/services and 
did not introduce new products/services - intrench (Hypothesis 4). In addition, companies who 
decided to keep old products/services and not introduce new products – intrench – report more often 



 

30 
 

an increase in liquidity compared to those who discontinued old products/services and did not 
introduce new products/services - intrench (Hypothesis 5) Finally, companies who decide to 
discontinue the old products/services and to introduce new products - cannibalization, report more 
often increase in liquidity compared to those who discontinue the old products/services and did not 
introduce new products/services – retrench (Hypothesis 6). 
 Our study provides empirical evidence to test the framework proposed by Miles et al. (1978). 
The results show that a proactive approach to market changes is in general associated more often with 
improved firm performance, compared to a reactive approach. New products or service introduction 
is associated with an increase in liquidity in general; however, there is a risk when trying to be proactive, 
without having the support of the old products and services, in which case liquidity may decrease. The 
findings of this study resonate with the claims of Desarbo et. al (2005) and Kabanoff and Brown 
(2008) that the proposed framework is still relevant.  
 There are some limitations related to the research. The survey does not include countries from 
the United States, Canada, Western European countries, and Japan, which are all high-income, 
developed countries. For this reason, we cannot compare the performance of the firms in developed 
and developing countries. It is also not possible to evaluate the performance of firms in specific 
sectors, which may impact performance as well as the strategic choice of a firm. Additionally, we use 
cross-sectional data and cannot evaluate performance over time. COVID-19 restrictions went through 
different stages over time with temporarily lifting the restrictions in late spring 2020 and re-introducing 
them again during the second COVID-19 wave in the fall of 2020, followed by a third wave in the 
spring of 2021. Finally, as noted by Mikušová & Horváthová (2020), restrictions were not imposed 
uniformly around the world. Therefore, further research is needed to evaluate the longitudinal impact 
of COVID-19 on firms' strategic choices and performance with respect to sanctions. A follow-up 
study in the future could provide evidence of the validity of the model in a post-pandemic 
environment.  
 
 

References 
 
Almeida, H. (2021). Liquidity management during the Covid‐19 Pandemic. Asia‐Pacific Journal of 
Financial Studies, 50(1), 7-24. 
 
Amnim, O. E. L., Aipma, O. P. C., & Obiora, C. F. (2021). Impact of covid-19 pandemic on liquidity 
and profitability of firms in Nigeria. International Journal of Academic Research in Business and Social Sciences, 
11(3), 1331-1344. 
 
Beliaeva, T., Shirokova, G., Wales, W., & Gafforova, E. (2020). Benefiting from economic crisis? 
Strategic orientation effects, trade‐offs, and configurations with resource availability on SME 
performance. International Entrepreneurship and Management Journal, 16(1), 
165–194. https://doi.org/10.1007/s11365‐018‐0499‐2 
 
Birinchi, S. (2022). Did the Pandemic Hit Small Firms Harder than Large Firms? Federal Reserve Bank of 
St. Louis, 4 August 2022. https://www.stlouisfed.org/on-the-economy/2022/aug/pandemic-hit-
small-firms-harder-than-large-firms (accessed on 12 December 2022) 
 
Briciu, S., Groza, C., & Putan, A. (2012). Small business development during the crisis. Annales 
Universitatis Apulensis Series Oeconomica, 14(2), 320–333. 



 

31 
 

 
Chebbi, K., Ammer, M. A., & Hameed, A. (2021). The COVID-19 pandemic and stock liquidity: 
Evidence from S&P 500. The Quarterly Review of Economics and Finance, 81, 134-142. 
 
DeSarbo, W. S., Anthony Di Benedetto, C., Song, M., & Sinha, I. (2005). Revisiting the Miles and 
Snow strategic framework: uncovering interrelationships between strategic types, capabilities, 
environmental uncertainty, and firm performance. Strategic management journal, 26(1), 47-74. 
 
Doern, R. (2017). Strategies for resilience in entrepreneurship: Building resources for small business 
survival after a crisis. In N. Williams, & T. Vorley (Eds.), Creating resilient economies (pp. 11–27). Edward 
Elgar Publishing. https://doi.org/10.4337/9781785367649.00008 
 
Duquesnois, F., Gurau, C., & Le Roy, F. (2010). Wine producers' strategic response to a crisis situation. 
International Journal of Wine Business Research. 
 
Enterprise Surveys, The World Bank. Available online: http://www.enterprisesurveys.org (accessed 
on 16 February 2022). 
 
Franke, T. M., Ho, T., & Christie, C. A. (2012). The chi-square test: Often used and more often 
misinterpreted. American Journal of Evaluation, 33(3), 448-458. 
 
Guerini, M., Nesta, L., Ragot, X., & Schiavo, S. (2020). Firm liquidity and solvency under the Covid-
19 lockdown in France. OFCE Policy Brief, 76, 1-20. 
 
Hambrick, D. C. (1983). Some tests of the effectiveness and functional attributes of Miles and Snow's 
strategic types. Academy of Management journal, 26(1), 5-26. 
 
Hrebiniak, L. G., & Joyce, W. F. (1985). Organizational adaptation: Strategic choice and environmental 
determinism. Administrative science quarterly, 336-349. 
 
Kabanoff, B., & Brown, S. (2008). Knowledge structures of prospectors, analyzers, and defenders: 
Content, structure, stability, and performance. Strategic Management Journal, 29(2), 149-171. 
 
Miles, R.E., Snow, C.C., Meyer, A.D. and Coleman, H.J., Jr. (1978), Organizational strategy, structure, 
and process. Academy of Management Review, 3(3), 607-21. 
 
 
Mikušová, M., & Horváthová, P. (2022). Are small businesses better prepared for crises? Czech case. 
Journal of Contingencies and Crisis Management, 1-16. DOI: 10.1111/1468-5973.12406 
 
Nzotta, S. M. (2004). Money, Banking and Finance: Theory and Practice (2nd ed.). Owerri: Hudson-
Jude Nigeria Publishers. 
 
Olczyk, M., & Kuc-Czarnecka, M.E. (2021), Determinants of COVID-19 Impact on the Private 
Sector: A Multi-Country Analysis Based on Survey Data, Energies, 14(4155), 1-17.  
 



 

32 
 

Paycheck Protection Program. US Small Business Administration, Ended May 2021, (accessed on 
12/11/2022) https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-
protection-program 
 
 
Schulman, P. R. (2022). Reliability, uncertainty and the management of error: New perspectives in the 
COVID‐19 era. Journal of contingencies and crisis management, 30(1), 92-101. 
 
Thompson, F. (1995). Business strategy and the Boyd cycle. Journal of Contingencies and Crisis Management, 
3(2), 81-90. 
 
U.S. Bureau of Labor Statistics (2021). Unemployment rises in 2020, as the country battles the 
COVID-19 pandemic. Accessed 2/23/2022 
https://www.bls.gov/opub/mlr/2021/article/unemployment-rises-in-2020-as-the-country-battles-
the-covid-19-pandemic.htm 
 
World Bank. https://data.worldbank.org/  
 
Zaremba, A., Aharon, D. Y., Demir, E., Kizys, R., & Zawadka, D. (2021). COVID-19, government 
policy responses, and stock market liquidity around the world: A note. Research in International Business 
and Finance, 56, 10135 

https://www.bls.gov/opub/mlr/2021/article/unemployment-rises-in-2020-as-the-country-battles-the-covid-19-pandemic.htm
https://www.bls.gov/opub/mlr/2021/article/unemployment-rises-in-2020-as-the-country-battles-the-covid-19-pandemic.htm
https://data.worldbank.org/

