Hoofdstuk 4 Cost Leadership Flashcards
Cost leadership business strategy
Gaining advantages by reducing its costs to below those of all its competitors
Sources of cost advantages
- Size differences and economes of scale (increase in firm size is lower costs; specialized machines, larger plants, employee specialization, overhead costs)
- Size differences and economies of scale (smaller firms; diseconomies because physical limits to efficient size, managerial diseconomies or complexity, worker de-motivation, higher transport costs)
- Experience differences and learning-curve economies (efficient production)
- Differential low-cost access to productive inputs
- Technological advantages
- Policy choices (simple standardized products for low prices)
Value of cost leadership
- Threat of entry: cost-based barriers to entry
- Threat of rivalry: pricing strategies
- Threat of substitutes: keep products attractive
- Threat of suppliers: flexibility in higher-cost
- Threat of buyers: flexibility in lower prices
Rarity of cost leadership
Learning-curve economies of scale, differential low-cost access to productive inputs, technological ‘software’
Not-rare: economies of scale, diseconomies of scale, technological hardware, policy choices
Imitability of cost leadership
Easy to duplicate: (dis)economies of scale
Possible to duplicate: learning-curve economies, technological hardware, policy choices
Hard to duplicate: differential low-cost access, technological ‘software’
Organization of cost leadership
Organization structure: functional structure where each of the major business functions is managed by a functional manager with few layers, simple reporting relationships, small corporate staff and focus on narrow range of business functions
Management control systems: tight cost control, quantitative cost goals, close supervision and a cost leaderships philosophy
Compensation policies: reward for cost reduction and incentives to be involved in cost reduction
