Toyota also aggressively manages its costs. Note that cost leadership is not necessarily abouthaving the lowest price, or about having a substandard product. A cost leader will often seek to provideparity in quality and features so that it can charge a comparable price with the rest of the industry.Alternatively, a no-frills budget brand may seek to cut costs to a minimum and pass the savings onthrough low prices. In both cases, however, the success of the strategy is achieved through maximisingthe margin by driving down the cost of production. Cost leadership can be sustained through econo-mies of scale, careful supply chain management, proprietary learning, innovative product designs orproduction processes, and managing synergistic interrelationships between business units.Why is it important to choose to pursue cost leadership or differentiation? An important featureof strategy is that it provides a clear direction for the company. The organisation’s resources anddecisions are then aligned and focused in a coherent way. The choice of a cost leadership or differ-entiation strategy thereby guides investment and operational decisions throughout the organisation.Without a clear priority, organisations risk being ‘stuck in the middle’, achieving neither cost leader-ship nor differentiation.Note that cost leadership and differentiation might be pursued by different divisions, and for dif-ferent products, within the same company. For example, Toyota has a cost leadership position butalso seeks to differentiate with its hybrid technology in models such as the Prius.The cost leadership and differentiation strategies can also be applied to small segmentsof the market. This is a niche strategy. Smaller companies that do not have the resources to servethe broader market often employ such a strategy. Instead of trying to meet the needs of the broadermarket, they focus on the unique customer value proposition of a targeted segment. For example,a car mechanic might choose to specialise in servicing BMWs, or a tour company might only organisesurfing expeditions.This has been a brief overview of generic strategies as a more in-depth discussion is beyond thescope of this text. The emphasis now will be on how an organisation’s strategy influences, and issupported by, the management accounting system.What strategy should Chipset follow? To help it decide, Chipset develops the customer prefer-ence map shown in Figure 15-1. They-axis describes various attributes of the product desired bycustomers. Thex-axis describes how well Chipset and Visilog, a competitor of Chipset that follows aproduct-differentiation strategy, do along the various attributes desired by customers from 1 (poor)to 5 (very good). The map highlights the trade-offs in any strategy. Chipset’s CX1 chip has an advan-tage in terms of price, scalability (the CX1 technology allows Chipset’s customer to achieve differ-ent performance levels by simply altering the number of CX1 units in their product) and customerservice. Visilog’s chips are faster, more powerful and customised for various applications, such asdifferent types of modems and communication networks.
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