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CostLeadership - Planning through Performancesm Brief `...

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Planning through Performance sm Brief ` 1 Copyright 2010 www.edbarrows.com Generic Strategy: Cost Leadership Key Points: The cost leadership strategy focuses a firm on the single objective of becoming the cost leader in a particular industry. As such, each industry has only one cost leader. To achieve the cost leading position, a firm’s overall policies, goals, activities , investments and focus need to be singularly oriented on gaining and maintaining the low cost position. Cost leaders risk losing their low cost positions to competitors with better technology, to changes in market tastes, or to increases in input costs that reduce the value of cost advantage relative to the value provided by differentiators. Main Thoughts: Firms can achieve better than average returns in their industries by achieving the low- cost position. To accomplish this, the entire firm ’s focus must be on the single objective of cost leadership. Throughout the entire value chain, emphasis is concentrated on driving costs down below the point of the next most efficient competitor (i.e. the second lowest cost competitor). This concentration on driving down costs does not have to be accomplished within every value chain activity; however, it must be done in total. Cost leadership strategy is effective because it mitigates many, if not all, of the challenges faced in industry competition. Customers generally cannot find prices that are lower than those provided by cost leader.
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