n order to maintain its competitive advantage over time, an organization needs t
ID: 355794 • Letter: N
Question
n order to maintain its competitive advantage over time, an organization needs to make a number of strategic decisions. This competitive strategy influences and modifies many activities, including those related to its network of value-creating activities, also known as its value chain.
Suppose that Nebulon Inc., a manufacturer of lighting fixtures, has decided to change its competitive strategy from high-quality differentiation to cost leadership. In an essay, describe how this decision would affect Nebulon’s value chain activities. What would Nebulon do differently after adopting a cost leadership strategy?
Explanation / Answer
Cost leadership strategy: The approach companies take where the goal is to be the lowest cost producer or provider or one or more products at a particular level of quality is known as cost leadership strategy. It contrasts differentiation strategies that emphasize quality or high value. Using this strategy, businesses can use their advantages in low-cost operations to either reap more profits at industry average prices or to operate as a low-cost provider to increase volume & customers.
Value Chain: In his value chain analysis, Michael Porter identified five basic value-generating steps in typical business operations. They are: inbound logistics, operations, outbound logistics, marketing and sales and service. Porter's point in the value chain depiction is that companies can generate the greatest profit margins by emphasizing customer value in each of these stages. Optimal customer value, and subsequently optimal profit margins, result from a combination of either low-cost or high-quality processes.
Effect of cost leadership strategy on value chain activities:
Companies that want to use the low-cost strategy must figure out how to optimize costs in each element of the value chain. Nebulon Inc., a manufacturer of lightning fixtures, can use supply chain management and logistics to negotiate the best product prices and run the most efficient inbound and outbound transportation processes. It could also use a modest advertising budget to promote low costs and affordable value to its customers to attract buyers.
Nebulon's decision to adopt a cost leadership strategy will require a swift paradigm shift. They used to emphasize on efficiency and quality product processes in its value chain. They would collaborate with vendors to create, market and distribute products of high repute.
However, now as a result of their change in business strategy, they can optimize profit margins or try to compete as the dominant low cost provider in the lighting fixtures industry.
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