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Cost leadership is one of the strategies to gain competitive advantage because it can help the firm reduce the threat of each of the five forces acting on the industry sector where the firm competes. A firm can be a cost leader by producing a product or service at a lower cost compared to its competitors for any or a combination of the following reasons: it is bigger and has more resources, it has a bigger market share, it is more experienced, it has a source of cheap raw materials, or it uses a more advanced technology…
Its lines of communication, management control systems, and compensation systems must all follow a functional or U-form structure where the CEO acts like an orchestra conductor who coordinates everyone and everything taking place within the firm. This ensures that all stages of the value chain contribute to the cost leadership strategy and that not a single employee or manager or operating process is out of line. A functional structure is hard work, but it is the best way to ensure that the company implements its strategy without hitches or with as few difficulties as possible.
A functional structure is flat, simple, and lean, allowing everyone to focus on a narrow set of high-value activities. This structure is also highly quantitative because management has to control all costs very closely. This structure also helps everyone maintain a cost leadership focus and mentality, which would be difficult if there are too many people doing too many things. It would also help that cost savings are shared with everyone in the organization as incentives.
Firms with a cost leadership strategy usually operate internationally to: ...
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