Suitability of an Integrated Cost and Differentiation Competitive Strategy

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Table of Contents

Introduction
Arguments for integrated cost and differentiation competitive strategy
Arguments against integrated cost leadership and differentiation strategy
Conclusion
Reference List

Introduction

At the moment, the business environment is characterized by a high rate of dynamism as a result of technological advancement, coupled with a high rate of globalization. To survive in such an environment, firms operating in different economic sectors are increasingly considering ways through which they can develop a competitive advantage in the facing of the mounting competition.

A firm only attains a competitive advantage over its rivals after the implementation of a unique competitive strategy. A competitive strategy refers to the decision regarding how a firm intends to establish itself in a certain domain. The competitive strategy entails both offensive and defensive mechanisms which are aimed at dealing with the five competitive forces (Vallabhaneni, 2009, p. 15).

These forces include barrier to entry, rivalry from firms in the industry, the threat of substitute, supplier bargaining power and lastly, buyer bargaining power. There are a wide range of competitive strategies that firms may decide to incorporate in their daily operations. The main strategies include cost leadership, differentiation strategy, cost focus, broad differentiation, and low cost strategy (Schermerhorn, 2010, p.223).

Firms adopt different competitive strategies depending prevailing environment in the market. For example, Fiat Motor Company integrated a broad-line competitive strategy in its operations. This competitive strategy means that the car manufacturer is a regional producer of a wide range of automobiles.

Through an effective implementation of a competitive strategy, a firm is able to create value for its products. The resultant effect is that the firm attains a high competitive edge over its rivals in the market. On the other hand, to survive in the long run, it is important for firms to ensure that they implement a sustainable competitive advantage.

In the 21^st century, the purchasing behavior of consumer has undergone a major change and if at all firms do not keep pace with these changes, they are likely to lose a large share of their market to their dynamic rival companies that have embrace the changes.

The change in the purchasing behavior of consumers is worsened by the increase in the degree of complexity within the business environment as a result of technological advancement arising from innovation and the high rate of globalization (Hoskisson, et al., 2008, p.121).

To attain a high competitive edge, firms have deemed it appropriate to adopt the integrated cost and differentiation strategy. The research paper endeavors to examine whether or not it is suitable for forms to implement integrated cost and differentiation competitive strategy in an effort to attain competitive advantage.

Arguments for integrated cost and differentiation competitive strategy

According to Hoskisson, Hitt and Ireland (2009, p.147), a firm which has adopted integrated cost and differentiation strategy is more efficient in its operations compared to a firm that has incorporated only one business-level strategy.

For example, a firm that has incorporated an integrated strategy is able to respond to the changes in the business environment more effectively. This is due to the fact that the firm is not constrained in the implementation of its strategy. However, the firm can easily change its competitive strategy depending on the prevailing business conditions.

An integrated cost and differentiation strategy also provides a firm with an opportunity to enhance its human capital. For example, the firm’s employees can easily learn new skills. According to Ogbor (2009, p.254), developing the skills of a firm’s employees play a vital role in the firm’s efforts to attaining a competitive advantage in the market.

Alternatively, a firm can also easily take advantage of technological advancement in the industry. The acquisition of current technologies and new skills means that there is a high probability for firms to advance in their core competences.

The result is that the firms will be able to produce highly differentiated products that add value to the customers. Currently, consumers are increasingly demanding differentiated products and services at low prices (Manning 2001, p. 32).

Further, the integration of new technology may result in a firm undertaking its production cost effectively. Consequently, the firm in question is better placed to attain competitiveness owing to the low cost of its products.

Integrated cost and differentiation competitive strategy greatly enhances the attainment of competitive advantage through low pricing and ensuring that customers attain value for their money (Hoskisson, et al., 2008, p.121). For example, the differentiation strategy can enable a firm to adopt an integrated premium pricing strategy.

On the other hand, the cost leadership contributes towards a firm being effective in its pricing strategy. For example, a firm can be able to set the price of its products at a relatively low point compared to its competitors. This may culminate into an increment in the firm’s sales revenue considering that consumers are price sensitive in their purchasing patterns (Viney, Winchester & Boojihawon, 2010, p.244).

A study conducted by researchers revealed a strong correlation between a firm adopting integrated cost and differentiation competitive strategy and attaining above-average returns (Warner, 2010, p.105). Findings of other researchers conducted by different scholars revealed that firms that have adopted multiple strategies outperformed those which adopted only a single strategy (Hoskisson, Hitt & Ireland, 2009, p. 148). For example, the most successful firms in the Korean electronic industry are those which have adopted the integrated strategy.

Arguments against integrated cost leadership and differentiation strategy

Despite the fact that the adoption of multiple competitive strategies enhances a firm’s ability to attain above-average returns, there are a number of costs associated. According to Hitt, Ireland and Hoskisson (2009, p.120), integrated strategy may lead to a firm being inefficient in undertaking some of the primary and support activities.

These activities are core elements in the firms’ effort to attain competitiveness. However, undertaking these activities is costly. For example, in order to attain low cost in its operation, the firm may be required to enhance its process engineering activities and also undertake product changes.

On the other hand, to implement its differentiation strategy, firms may be required to improve its marketing and research and development activities. Improvement of these activities will enable firms to operate cost effectively which means that firms are able to undertake effective and cost efficient production.

The resultant effect is that firms are able to create value to the customers through differentiation and low prices. For a firm to effectively adopt the integration strategy, it must be effective in implementing reducing cost and product differentiation.

Failure to execute the various support and primary activities optimally may culminate into the firm being ‘stuck in the middle’ (Hitt, Ireland & Hoskisson, 2009, p.120). This means that the firms will not be able to implement either of the competitive strategies.

The resultant effect is that the cost structure adopted by firms will not be optimal enough to enable the firm implement a low pricing strategy. Additionally, firms may not be in a position to undertake effective differentiation. In the long term, the firm may not be effective in attracting its target customers thus limiting their ability to earn above-average returns.

For example, in its operations, South West Airlines has been efficient in undertaking its support and primary activities. This has greatly enhanced the success of the firm’s integrated approach to attaining competitive advantage (Hill & Jones, 2008, p.75).

Pursuing integrated cost leadership and differentiation strategy can be costly for a firm. This arises from the fact that the firm has to implement both differentiation and low cost strategy. To attain this, a firm may be required to undertake other corporate strategies such as partnering with other firms in the industry.

However, such alliances may not culminate in a firm attaining cost leadership. Additionally, the firms may be required to undertake acquisitions in an effort to enhance its ability to differentiate itself by increasing its product portfolio. For example, a firm may consider offering products that are not offered by competing firms.

In order for generic strategies to contribute towards a firm attaining competitiveness, Michael Porter asserts that the strategies should be given complete focus so as to ensure that the intended benefits are achieved. In the event of focus lacking, there is a high probability of competing firms taking advantage (2008, p.3).

Conclusion

The analysis illustrates that there are benefits and costs associated with the adoption of an integrated cost and differentiation strategy in firms’ effort to attain competitive advantage. Integrated strategy can contribute towards a firm attaining above-average returns.

This means that the integrated cost and differentiated strategy can enhance a firms’ probability of attaining its profit maximizing objective. Additionally, an integrated cost leadership and differentiation strategy can enable a firm to attain an effective market position.

According to Porter (2008), the attainment of an effective market position acts as a defensive mechanism against intense competition. As a result, a firm is able to improve its competitive edge. Integrated strategy can also contribute towards a firm’s competitiveness by ensuring that it is effective in its pricing strategy.

This is made possible by the firms’ ability to implement a low pricing strategy. Integrated strategy also contributes towards a firm satisfying its customers as a result of the differentiation strategy. For example, the differentiation strategy can enables a firm to deliver value. Considering the fact that customers are increasingly demanding differentiated products and services at a low price, integrated strategy can enable a firm to attract a large number of customers.

Despite the contribution of integrated cost leadership and differentiation strategy, implementing the strategy may be costly for a firm. A number of support and primary activities have to be undertaken for the strategy to be effective. However, these activities are costly.

Additionally, undertaking these activities requires a firm to have adopted a flexible organizational structure so as to establish a balance between the low cost strategies and differentiation strategies. In order to achieve flexibility, firms are required to adjust their systems, methods and procedures.

This will increase the firms’ effectiveness in responding to changes in the business environment. Failure to undertake support and primary activities may lead into inefficient implementation of the integrated strategy. The resultant effect is that the firm may lose on all the benefits associated with each strategy.

Considering the high rate of globalization and technological advancement, implementing integrated cost and differentiation strategy can enable a firm to attain a high competitive advantage compared to a firm that has undertaken a single competitive strategy.

Reference List

Hill, C. & Jones, G., 2008. Strategic management: an integrated approach. Houghton: Houghton Mifflin.

Hitt, M., Ireland, D. & Hoskisson, R., 2009. Strategic management; competitiveness and globalization; concepts and cases. Mason, OH: South-Western.

Hoskisson, R., 2008. Competing for advantage. Mason, OH: Thompson.

Manning, A., 2001. Making sense of strategy. Cape Town: Zebra.

Ogbor, J., 2009. Entrepreneurship in sub-Saharan Africa: a strategic management perspective. Bloomington: Author House.

Porter, M., 2008. On competition. Boston, Harvard Business School Press. Schermerhorn, J., 2010. Management. New York: John Wiley and Sons.

Vallabhaneni, D., 2009. Whats your MBA IQ? a managers career development tool. Hoboken, N.J: John Wiley and Sons.

Viney, H., Winchester, N. & Boojihawon, R., 2010. The strategy toolkit. Walton, Hall: The Open University.

Warner, A., 2010. Strategic analysis and choice: a structured approach. New York: Business Expert Press.

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