The study focuses on cost leadership strategy and sustainable competitive advantage of naivas supermarket chain in kenya. The focus is on the strategy generation and execution phase of the strategy process. A cost leadership strategy is an integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to that of competitors, with features that are acceptable to customers. Differentiated, imitation, innovation, efficiency, merchandising, and sustainable. As it workers are aware, the forces of globalization have no mercy in their enablement of companies to offshore work in an attempt to lower costs.
But we will also encourage you to take responsibility and initiative for how you implement those strategies on a daytoday tactical level. This paper aims to provide an understanding of the nature and dimensions of strategic leadership. Master dissertation of jinan university a study on lowcost leadership strategy. It is difficult to deploy the strategy because the management must constantly work on reducing cost at every level to remain competitive. Cost leadership strategy ceopedia management online. In many settings, cost leaders attract a large market share because a large portion of potential customers find paying low prices for goods and services of acceptable quality to be very appealing. Cost leadership and differentiation strategies are popular research topics within the field of strategy and have been widely discussed, in particular.
Quality, manufacturing strategy, differentiation, data envelopment analysis, cost leadership, generic strategy, situational models. Cost leadership is among several general business strategies developed by author and wellknown business management guru michael porter. Cost leadership strategy, product differentiation strategy, financial. Thus, the principal aim of this article is to provide evidence that the hybrid strategy both cost leadership and differentiation strategy has been implemented by companies throughout the world.
Dec 11, 2016 cost leadership low cost business strategy. Cost leadership strategy takes place through experience, investment in production facilities, conservation and careful monitoring on the total operating costs through programs such as reducing the size and. Strategic management cost leadership tutorialspoint. Pdf does cost leadership strategy still work for ryanair. Jan 15, 2016 thus a cost leadership strategy helps create barriers to entry that protect the firmand its existing rivalsfrom new competition. The who of strategic leadership strategy involves an ongoing discovery process having both topdown and bottomup elements. The relationship between strategic leadership and strategic. The challenge of this strategy is to earn a suitable profit for the company, rather than operating at a loss and draining profitability from all market players. Cost leadership strategy a firm which finds and exploits all sources of cost advantage and aims at becoming a lot cost producer in the industry is said to pursue. Apr 03, 2016 low cost leadership strategies enable an organization to develop standardized products in large volume at low cost, which give that organization a competitive edge over the competitors in the market. Cost leadership is a strategy companies use to increase efficiencies and reduce production costs below the industry average or their closest competitor. Cost leadership and differentiation strategies are popular research topics within the field of strategy and have been widely discussed, in particular since michael porter presented his model of generic strategies in 1980.
Cost leadership theory is a practice of lowering operating costs to be able to offer lower prices than ones competitors. Coca cola also uses cost leadership strategy to set up its position on csd market. The cost leadership strategy and value chain are both concepts developed by author and business management expert michael porter. Advantages and disadvantages of cost leadership open. Porters generic competitive strategies iosr journals. In the recent years, an increasing number of companies have chosen a strategic mix to attain market leadership. Apr, 2019 price leadership is when a firm that is the leader in its sector determines the price of goods or services. Cost leadership is one of three generic business strategies discussed by porter in his wellknown book, competitive strategy 1980. Pdf this research used strategy implementation perspective and strategic alignment of organizational strategies to investigate the link of cost. In the case of focus strategy firms can design new products especially for customers.
Introduction to strategic leadership 3 in strategic leadership, we will help you develop that bigpicture understanding of how to guide your actions. In doing this, the study adopted porters generic competitive strategies which states that, cost leadership is a firm sets out to become the low cost producer in its. If cost leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm. Challenging a cost leader in a price war may end up destroying a company. Do cost leadership strategy and process innovation influence the performance of malaysia hotel industry.
This approach can leave the leaders rivals with little choice but to follow its lead. Pdf do cost leadership strategy and process innovation. A critique of porters cost leadership and differentiation strategies. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Asian economic and social society the effects of cost leadership strategy and product differentiation strategy on the performance of firms hashem. Its a method to reduce costs and produce the least expensive goods in a market or industry in an effort to gain. It is used to reduce the cost of the operation in running the grocery store.
The goal of cost leadership strategy is to offer products or services at the lowest cost in the industry. Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience learning curve. Leadership, and particularly strategic leadership, is widely believed to be one of the key drivers of efficient strategy execution. Cost leadership strategy and sustainable competitive. Aldi is a typical hard discounted store pursuing cost leadership strategy bonn, 2010.
However, differentiation strategy had a higher coefficient of determination meaning that, it had the greatest effect on firm performance. How cost leadership builds powerful businesses, and why it. Coca cola also uses cost leadership strategy to set up its. This post focuses on cost leadership because its the strategy that relates tangentially to it and the concept of globalization. Introduction in this paper i have evaluated michael porter. Assessment of the effect of cost leadership strategy on. Their concept is to attract the largest number of customers while providing the lowestcost general merchandise. Some rearchers, in fact, refer to this model as being among the.
Pdf a study on low cost leadership strategy 1 yu chen. A critique of porters cost leadership and differentiation. Literally speaking, the term strategy stands for the warart of the military general, compelling the enemy to fight as per. It is not his logic that is flawed, but his basic premise that prescribes cost leadership strategy as the. Pdf the relationship between cost leadership strategy, total.
When the strategy is implemented, business results will provide feedback on how well the leadership strategy is working and help shape. Types of strategies cost leadership,differentiation, focus. Firms that compete based on price and target a broad target market are following a cost leadership strategy. The sources of cost advantage are varied and depend on the structure of the industry. The walmart example lets face it walmart dominates many retail categories and competes against stores like target and kmart and costco and acme. Strategies often include both product differentiation strategy and the cost leadership strategy. Sas has maintained its differentiation strategy and the attempt to integrate it with a cost leadership. This strategy blossomed in the 1970s, thanks to the wide use of experience curve concept. Pdf firms need to implement some competition strategies and total quality management applications to overcome the fierce competition. Types of strategies cost leadership,differentiation, focus strategies the term strategy has been adapted from war and is being increasingly used in business to reflect broad overall objectives and policies of an enterprise. Porters fiveforces model describes strategy as taking actions that create defendable.
Several examples of firms pursuing a cost leadership strategy are illustrated below. Cost leadership mastering strategic management 1st. Cost leadership is a term used when a company projects itself as the cheapest manufacturer or provider of a particular product or commodity in a competition. It considers the nature of strategy in its broadest sense and puts forward a model of a sustainable strategically focused school. Pdf a study on low cost leadership strategy 1 yu chen lew.
Assessment of the effect of cost leadership strategy on the. The problem is that porters generic strategies are too broad. Price leadership is when a firm that is the leader in its sector determines the price of goods or services. Consequently, many people play an important role in their organizations strategic leadership. The findings contradict with equity accounting theory. A clear understanding of the relationship between different styles of leadership and the strategy performance of an organization is missing in existent literature. Analysis of cost leadership strategy influence on organizations competitiveness of sugar firms in kenya. Home accounting dictionary what is cost leadership strategy.
The cost leadership strategy is one of the socalled porters generic strategies, and the value chain, outlined in. Developing a leadership strategy a critical ingredient for. This leadership style will also look for cost controls, overhead efficiencies, and cost minimization in all possible departments. A cost leadership strategy is a broad approach to business whereby a significant aspect of a companys strategy is an effort to operate as the lowest cost business in its industry. Cost leadership is a concept developed by michael porter, used in business strategy which describes a way to establish a competitive advantage. Essentially, a firm that follows a cost leadership strategy attempts to earn higher returns and competitive advantages through offering products or services at the lowest prices in the industry. Strategic leadership have been widely accepted as popular leadership styles visible that plays an effective and significant role in gaining competitive advantages yazdani, 2009. Choose of one puts constraints on using the second.
In other words, its a companys ability to maintain lower prices than its competitors by increasing productivity and efficiency, eliminating waste, or controlling costs. When the customer has different preferences or some specialized needs they effective on focus strategy. The relationship between strategic leadership and strategic alignment in highperforming companies in south africa by lorraine wendy lear submitted in accordance with the requirements for the degree of doctor of business leadership at the university of south africa graduate school of business leadership promoter professor ernst neuland. The nature and dimensions of strategic leadership brent davies and barbara j.
Article pdf available in asian social science 1010 april 2014 with 3,7 reads. Assessment of the effect of cost leadership strategy ijbmi. Strategy of cost leadership pdf firms with cost leadership strategy and firms with product differentiation strategy. Cost leadership strategy involves achieving a cost advantage relative to competitors and attract clients by lower prices of the product, without reducing the quality of the product. Michael porters generic cost leadership strategy explained.
According to porters generic competitive strategies, cost leadership, a firm sets out to become the low cost producer in its industry. There are several advantages and disadvantages of cost leadership styles to consider if youre thinking about bring in this type of leader to the workplace. Thus a cost leadership strategy helps create barriers to entry that protect the firmand its existing rivalsfrom new competition. A cost leadership strategy aims to exploit scale of production, welldefined scope and other economies e. They may include the pursuit of economies of scale, proprietary technology. Companies such as walmart succeed with this strategy by. A cost leadership strategy aims to utilize scale of production, well defined scope and other economies such as a good purchasing strategy, producing highly standardized products, and using modern and current technologies. Pdf the effects of cost leadership strategy and product. Analysis of cost leadership strategy influence on organizations. List of the advantages of cost leadership styles 1. The firms which are using focus generic strategy simply apply to an other two generic strategy principles to a segment of the large market. There are several approaches that a company can apply to create cost advantages, for example.