1. What organizational costs are there of differentiation strategies that do not

Question

1. What organizational costs are there of differentiation strategies that do not exist for enterprises that pursue low-cost strategies? Why do they arise?

2. ‘Low technology’ sectors have innovated typically by adopting new technological solutions from innovators elsewhere. In markets such as eyesight testing, how far can small, independent providers adopt the same technologies to compete with the national chains? How can they compete more effectively in other ways?

Answer these two questions. Reconcile them using the textbook readings, personal experience, and research to develop an answer to the questions posed?

Textbook(s)/ISBN:

Pitt, M., & Koufopoulos, D. N. (2012). Essentials of Strategic Management. London: Sage. ISBN: 9781849201872

Magretta, J. (2012). Understanding Michael Porter: The Essential Guide to competition and strategy. Boston, MA: Harvard Business Review Press. ISBN: 9781422160596

Explanation / Answer

Costs arising out for differentiation strategies as compared to low cost strategy : -

1. Innovation cost :- Innovation is a must for differentiation strategy. Innovation is also required for achieving low cost but there it is more process oriented and focussed on a rational approach but in differentiation there is more focus on Product. As a result a number of costs arise such as

a. getting better people

b, keeping people more engaged

c, giving higher salary etc so as to motivate people to innovate.

d. Also there is a requirement of new equipments , testing apparatus etc which may or may not yield returns and

e. lastly the opportunity cost of capital is huge as while pursuing differentiation a large number of money for a large amount of time is kept blocked / used on research which is not paying dividends.

Part 2

First and foremost the small and independent providers need to be aware of the technological advances in their sector. Then they should figure out their customer segmentation and analyse which of these technologies should they adopt. This might mean installing a new equipment , educating oneself or hire a new worker. However there is a very limited scope to which a small eye care provider can adapt because of low economies of scale and financial constraints. He can however compete through other ways such as better customer service , personalize contacts , door to door service etc

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