MGMT 386 Lecture Notes - Lecture 1: Cost Leadership, Competitive Advantage, Product Differentiation
-cost leadership
-differentiation
Cost leadership
generate economic values by having lower-cost products/services than competitors
Differentiation
generate economic value by increasing the perceived value of products/services relative to the
perceived value of others firms products
Sources of Cost Advantage
-economies of scale
-learning-curve
-differential input access
-technology
-policy choices
Economies of Scale
-average cost per unit falls as quantity increases
-cost advantage because competitors may not be able to match the scale because of capital
requirements
Learning Curve
-a firm becomes more efficient at a process with experience
-more complicated processes offer greater experience advantage
Differential Input Access
May result from:
-history (right place, right time
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-market timing (first in market)
-natural endowment (owning mineral deposit)
-locking up a source (owning all output from source)
Technological Independent of Scale
-tech differences create cost differences
-may allow small firms to become cost competitive
-size of advantage depends on how valuable and protectable the technology is
Policy Choices
-decisions about the products/services sold
-high sales volume needed for low-cost goods (low profit margins per unit)
-involved with cost reduction
Implementing a cost leadership strategy:
-a strategy is only as good as its implementation**
-must adopt an appropriate: organizational structure, set of managerial controls, compensation policies
Strategic Management Process
mission >
objectives >
e/i analysis >
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Document Summary
Cost leadership generate economic values by having lower-cost products/services than competitors. Differentiation generate economic value by increasing the perceived value of products/services relative to the perceived value of others firms products. Average cost per unit falls as quantity increases. Cost advantage because competitors may not be able to match the scale because of capital requirements. A firm becomes more efficient at a process with experience. Locking up a source (owning all output from source) May allow small firms to become cost competitive. Size of advantage depends on how valuable and protectable the technology is. High sales volume needed for low-cost goods (low profit margins per unit) A strategy is only as good as its implementation** Must adopt an appropriate: organizational structure, set of managerial controls, compensation policies. Strategic management process mission > objectives > e/i analysis > strategic choices > strategy implementation > competitive advantage. A base of differentiation must fill some customer need, such as:
