Part II Business Level Strategies

Cost Leadership

Wal-Mart

• Growth

• The dark side

Two Generic Strategies

• Cost-leadership (chapter 4)

• Product differentiation (Chapter 5)

Other cost leaders

• BIC

• Timex

• Casio

Sources of Cost Advantages

• Size differences and economies of scale example: ATM– With higher production volume

• Firms can use specialized machines• Firms can build larger plants

– Process manufacturing

• Firms can increase employee specialization

• Firms can spread overhead cost across more units produced

Sources of Cost Advantages

• Size differences and Diseconomies of scale example: Oregon mills– Physical limits to efficient size– Managerial diseconomies– Worker de-motivation– Distance to markets and suppliers

Sources of Cost Advantages

• Experience differences and learning-Curve Economies– The learning curve

• Each time production doubles average labor costs go down by a certain percentage

• The learning curve and Competitive advantage example: Texas Instrument

– Doesn’t always happen Beer Industry

Sources of Cost Advantages

• Differential Low-cost access to Productive inputs– Productive inputs

• Land• Labor• Capital• Raw Materials

Ethics The Race to the Bottom

• Nike

• Response

Sources of Cost Advantages

• Technological Advantages independent of scale– Technological Hardware– Technological Software

Sources of Cost Advantages

• Policy Choices• HP wanted a $49

printer to compete with Lexmark

• 43% of sales and 65% of profits

Cost Leadership and…

• The Threat of Entry

• The Threat of Rivalry

• The Threat of Substitutes

• The Threat of Suppliers

• The Threat of Buyers

Cost Leadership & Sustained Competitive Advantage

Entrepreneurship

• Oakland A’s– Small Market– Second most wins – Evaluate players– Batters

• OBP & Total Bases

– Pitchers• First pitch strikes & speed

of fast ball

– Consistency in farm system

The imitability of sources of Cost Advantage

• Easy to duplicate– Economies and Diseconomies of scale

• Costly to duplicate– Learning curve?– Differential low-cost access

Organizing for cost leadership