Cost leadership is among the three porter’s generic business strategies, which was written in potter’s competitive strategy book. Any company which a practice cost leadership strategy will achieve competitive advantages and will also gain higher returns and competitive advantages by selling their goods and services at the reduced prices. Cost leadership needs a dynamic search of minimization methods. Costs can be minimized through enhancing the operating efficiencies, accessing the raw materials uniquely, through economies of scale, having special relationships with suppliers, customers or distributors, and production learning. Cost leaders are usually integrated vertically into high value-added services and proprietary components. This capacity will permit them to be the best well-organized processors in more than one stage of the value-added chain. The cost leader companies commonly own high market shares, enabling several economies of scale advantages in their manufacturing sector. An order winner is a feature that is used to win the customer purchase or the bid. Thus every company must give the quantifiers for them to stay or get into the market. When the firm is improving the order-winners then they should set standards that are greatly different for their competing firms.
The cost leadership strategy pursues to give the lowest price offering in a product or service group to the customers by frequently lowering the cost. The balancing between the quality and price is very crucial for the leadership cost , since it will come to a point where a decrease in quality is no longer cause by lower prices as they are stated by the customers (Gu, Jitpaipoon, & Yang) A cost leadership strategy is a broad approach to business, thus there is an important aspect of the company strategy in an effort to operate as a lower-cost business in the company. One of the most crucial strategies the company should take into consideration is that they should be able to take market leadership to increase the order winner. Various companies have used many cost leadership strategies and cost leadership which is more integrated to create great barriers to the product.
The prior studies have explained various aspects of the cost leadership strategies, specifically on the effects of the cost leadership strategies on order-winner. Even if the earlier studies focus on contributing important information on the knowledge then it is very crucial to monitor the effect on the cost leadership strategies in improving the order winner. Over many decades there is an advancement in the growth of the cost leadership strategy and the ways of improving the order-winner for the better of the company performances. So for the company to identify the existing gap then it is necessary to study the strategic link of the cost leadership strategy and the organization performance on the innovation processes
Porter’s strategies
Cost leadership strategy
The drives of this strategy are for the firm’s low-cost product bids in a company. The strategy for cost leadership will greatly rely on the production facilities investments, quality management, wisely monitoring and conserving on the total operating costs and experience. The prevailing literature is consists of some discussion of the reason behind the association between the performances and leverage depending on the strategy firm’s choice. The company who are intending in to improve the cost leadership strategy so that order winner is improved will gain some benefits from the utilizing of leverages in relations to the increase in managerial efficiency which lenders have the authority in monitoring them. According to (Gu, Jitpaipoon, & Yang) a lenders monitoring will greatly limit the opportunistic behaviors of the managers by reducing the available resources for unrestricted spending. Thus. ( Peng, 2018) projected that the control function of the debt is very crucial to the firms who are striving to be efficient. Porters (2014) suggest that the firms who intend to control cost leadership are required to control costs tightly and reduce the cost which can be incurred by the firm in the innovations and marketing.
This type of strategy focuses on improving the goods and services from the company based on the customer brand loyalty. A firm can give the high-quality outcomes and unique offers that every one of them can validate the high prices. Miller (2015) stated that the product differentiation of any company intending to heavily invest in development and research activities so that innovative capability is increased and thus their ability to maintain with their innovations from their competitors. The Problems of increasing the requirements and debt to satisfy the covenants of the debt will greatly obstruct the creativity of managers and the quality of maintaining competitive advantages for product differentiation. ( Peng, 2018) stated that the product differentiation company will encounter uncertainty which is very high since their strong accent on invention that needs them to take part in activities which are of more risks and in addition betting on the products which are uncrystable.This will make it both undesirable and very difficult for the company to use a lot of debts.
Many studies on performance and financial leverages have been done, for instance (Narkhede, 2017). Estimated the effect of stock returns on financial leverage . Their outcomes show that there was a great difference between financial leverages and the debt to equity. This illustrated that the firms which have diverse investments have higher financial leverage as compared to the firm which focuses on a single investment (Hill,2017 Examined the impacts of the industry and the average concentration of the return stock. After that, the control factors which include the ratio of book value to the market and size, come up that the firm’s competitive companies took a return on the stock to a greater. The Outcomes of prior studies were inconsistent with the connection between performance and financial leverages. Various researchers who take part in this research use the universal methods, which scrutinize the effects of cost leadership strategy on improving the order –winner. (Hutton, & Eldridge, 2019) Stated that the prior studies greatly focus on the effects of the business strategy of the company and the contends that might explain for results. Porters ( 2015) develops a framework that explains how the firm will choose a good business strategy for them to work efficiently and compete with other firms. He stated that the company should make a choice of competing with producer who generate lower price in their industry that is as cost leadership strategy or by challenging in availing distinctive products in terms of product-related services, physical features and terms of the quality. Moreover, he stressed on the needs of a company business strategy is through choice of the activities which will deliver good services to their customers.
The theoretical framework is any structure that can support the theory of the research study specifically in studying the impact of cost leadership strategy in improving the order-winners. The theoretical framework will explain why the impacts of the cost leadership strategy under the current study.
This strategy was founded in the year 1980 by Michael Porters. At that time porters argue that this strategy either targets cost leadership, differentiation and thus the company should choose all of the three strategies so that they can improve the order-winners. The porter theory is very crucial since it helps the company in knowing the competitiveness that exists in the company. In addition, studying the effects of leadership cost strategy in improving the order –winners will help the company in coming up with competitive strategies which will help the firm in identifying the firm’s strength, weaknesses, threats, and opportunities. (Hill,2017)Argues that the 1980 Porters theory will claim that the success of the company needs to adopt the competitive strategies in improving the cost leadership strategies as they are trying to improve the order-winners. In the firm, there are two competitive advantages which the firms can put in place to control the impact of cost leadership strategies in improving the order winner. As stated out by the porters in the cost leadership, a company will focus on ending the ease makers in its industry. The cost advantages sources varied and it depends on the firm structure. Porter’s generic strategies on improving the order-winners have been acknowledged by various researchers. And on the other hand, the typologies have critics in the literature, more specifically for the claim that the standard strategies are most mutually exclusive. Many scholars have argued that the tracking generic strategy which is single may results into a low performances in improving the order-winner. In relation to this study, many companies who study the impact of cost leadership strategies in improving the order-winners will have adopted porter’s elements of competitive strategies.
The origins of this theory come out in the years 1959 from a famous researcher called Porter. The importance of this school of thought was on the importance of improving the order –winner and to be specific is on studying the impacts of cost leadership strategies in improving order-winner. In addition, this theory will highlight the idea of Europeans journal of business and strategies management that a firm must perceive as the capacity and gaining of resources that creates competitive advantages to the firm. The resource-based theory argues that a company can achieve the overall competitive advantages if they have the resources which are either competitive or non-competitive. These four features of resources state the required strategic assets which if it is mobilized properly then it will sustain and build the company’s competitive advantage and as result, the company performance will reduce and thus the order-winners will be improved. According to (Qi, Huo, Wang, & Yeung, 2017). this theory is being criticized for getting rid of the management and some business dynamics, in addition, this theory was criticized due to their presents underlying assumptions in improving the order- winners. In accordance with the (Anand, 2017) The resource-based view theory will links the capabilities strategy to the value creations and also it will posit that only do capabilities need to be considered as the based to develop the competitive advantages. The figure below should the theoretical framework of the company.
The overall objective of this study is to formulate the effects of the cost leadership strategies in improving the order –winners in various companies all over the world. With the focuses of the following:
The Importance of this study is to outline various strategies that the firm needs in outlining the effects of the leadership strategies as they are intending to make sure those order-winners in the company is improved.
Various studies are related to showing a negative and positive relationship between the various performance indicators and TQM practices and leadership cost strategies. Also, there is a connection between the company performance and competitive strategies (Hu, Chiu, Yen, & Cheng, 2015). Our study here aims at showing the clear relationship between the cost leadership strategy and financial performances using various practices from TQM and research models as an intermediary. The figure below shows how the research model looks as it used improving the order-winner.
The following are results of the research model as it is used in defining various ways of improving the order-winners as the firms are trying out to finds the effects of cost leadership strategies.
H1; The cost leadership strategy is related positively to the TQM practices
H2; Also the Cost leadership strategy is linked to company financial performance
H3 The practices from TQM are completely associated with financial performance.
H4; The TQM practices is used as mediator between Cost leadership strategy and financial performance.
Thus in outlining the effects of the cost leadership strategies as a way of improving the order-winner then it is necessary to use the research model with contains other parameters such as TQM practices and the company performance structure.
The model structure of the leadership cost strategy explains how various ways of improving order-winner. The model structure also clearly explains how cost leadership strategy is relating to other disciplines such as price leadership. The diagram below shows the model structure of the cost leadership model.
The table below summarizes the variables in analyzing the impacts of cost leadership strategies.
Since the goal of this study is to states the impact of cost leadership strategies in improving the order-winner then the research hypothesis is classified into two categories as shown below
H1: There is an important association between the company order winner and cost leadership strategy. H2: There is an important connection between cost leadership strategy and the company’s performance.
H3: There is an important association between the size of the company and the company’s performance.
H4: There is an important association between order –winner and company’s performance.
The second hypotheses which the companies can use for the order –winner as a strategy for product differentiation strategy.
H1: There is an important association between product differentiation strategy and performances of the company (Anand, 2017).
H2: There is an important association between cost leadership strategy and order –winner.
H3: There is an important association between the company size and the company performances.
H4: There is an important association between order-winner and the performances of the company.
In discussing the impacts of cost leadership strategies then it is necessary to focus on the variables. The variables which we shall focus on are dependent, independent variables and control variables (Stratton, 2018). The dependent variable is based on the company size and the performance as the impacts of the cost leadership strategies are initiated in improving the company order-winner. The independent variable includes business strategies. And these strategies are categorized into two collections the cost leadership strategy and the cost differentiation strategy. The cost of leadership strategy explains the difference between the total sales and total assets.
The research designed which was used was explanatory research which was designed to assists in explaining the relationship between impacts of the cost leadership strategies and on how to order the winner will be improved. The explanatory research will form a good step for the research in finding the effects of cost leadership strategies in improving the order-winner. The explanatory methods will adopt the mixed designed approach that combines both the quantitative and qualitative modes and also the hypotheses tested by measuring the associations between various variables (Göleç, 2015). Data will be analyzed using statistical methods. It also includes other types of quantitative research which will take initiative in identifying the relationships through the correlation analysis between various variables.
The use of special terms such as impact and effects will lead to common qualitative research and these terms denote the casual relationship. The explanatory research design is appropriate since the study was majorly concerning relationship quantifying. The designed used supports the use of quantitative data and promotes the comparison of statistical analysis. It also gives opportunities for presenting a greater diversity of various views in the company. The main merits of utilizing the mixed methods research in the study are that it enables the researcher to answer some questions regarding to the impacts of cost leadership strategies in improving the order-winner (Banchuen, Sadler, & Shee, 2017).
The target populations of this study are a group of individuals who were taken from the population who shares similar features and under the effects of leadership strategies. The target population was procurement officers from a given company who on the ways of improving the order-winner by outlining various impacts of the cost leadership strategy in the company (Wurzer, & Reiner, 2018).
A sample is a part of interested population . Sampling aims to gain a more understanding on various attributes of all populations. Sampling is based on drawing a target population from the sample. The sample of the population was determined using Yamane (1972) sample of size formula with the confidence level of 95%, P=0.5, the sample size is computed as shown.
n = the sample size, N = the population size, e = the acceptance sampling error = 766/1+766(.05)2 = 264 respondents
The open and close-ended questionnaire was used to determine the impact of leadership cost strategies in the company (Prajogo, 2016). The data was collected using questionnaires where the targeted population who were procurement officers were encouraged filling all of the questionnaires correctly.
The data concerning the impact of the cost leadership strategies can be analyses using two forms of analysis the descriptive analysis and hypotheses testing. The descriptive analysis is a very crucial step for conducting the statistical analysis since it gives the idea of the distribution of the data about the impact of the cost leadership as they are trying to improve the order-winner. This method of analysis will help in identifying the associations among variables and thus preparing an individual in conducting the statistical analysis (Barbosa, & Azevedo, 2015).
The research on the impact of cost leadership strategies in improving the order-winner can also be analyzed by testing the hypothesis. Hypothesis testing can be used to infer the results of a hypothesis achieved on the sample data from a very large population. The test will notify the researcher whether the hypothesis is true or falls. Statistical analysts test the hypotheses by examining and measuring the random sample of the population being analyzed.
The outcomes of this research will ratify the worthy of the cost leadership strategies in improving the order-winner. The results also value the earlier studies that recognized the impact of cost leadership as an important strategic factor in the current business environment. Current studies should those various companies approximately 15% use the impact of the cost leadership strategy as a tool for improving the order-winner (Theagarajan, & Manohar, 2015, March). Hypothesis 1 illustrates how leadership strategy has a positive impact on the companies performance and as a result of the research will be the same results to that of the industries which are found in the industries.
Conclusions
The firms’ goal in studying the impacts of cost leadership strategy will help the company in providing low-cost producers in their industry. A lower-cost position will give the firm the defenses against their competitors’ since it can retain the company’s profits (Chaudhuri, & Boer, 2016). Cost leaders will seek to improve the supply chain of any organization. The cost leadership strategy affects company performance.
The evidence from the study implies that the impact of the cost leadership strategies has impacted the order-winner. Thus based on the finding it’s very crucial for the researcher to remote that various procurement officers should come together to identify various impacts that come as a result of improving the order-winner (Bäckstrand, Tiedemann, & Hedén, (2015). In addition, it is recommended that manufacturing companies should focus on using fewer raw materials as a way of reducing the cost and also for lowering the impact of leadership cost strategies.
References
Banchuen, P., Sadler, I., & Shee, H. (2017). Supply chain collaboration aligns an order-winning strategy with business outcomes. IIMB management review, 29(2), 109-121.
Wurzer, T., & Reiner, G. (2018). Evaluating the impact of modular product design on flexibility performance and cost performance with delivery performance as a moderator. International Journal of Operations & Production Management, 38(10), 1987-2008.
Chaudhuri, A., & Boer, H. (2016). The impact of product-process complexity and new product development order winners on new product development performance: The mediating role of collaborative competence. Journal of Engineering and Technology Management, 42, 65-80.
Qi, Y., Huo, B., Wang, Z., & Yeung, H. Y. J. (2017). The impact of operations and supply chain strategies on integration and performance. International Journal of Production Economics, 185, 162-174.
Hutton, S., & Eldridge, S. (2019). Improving productivity through strategic alignment of competitive capabilities. International Journal of Productivity and Performance Management, 68(3), 644-668.
Peng, H. C. (2018). Discussion of the Competitive Performance and Competitive Strategies of Solar PV Manufacturers. DEStech Transactions on Economics, Business, and Management, (accessed).
Gu, Q., Jitpaipoon, T., & Yang, J. (2017). The impact of information integration on financial performance: A knowledge-based view. International Journal of Production Economics, 191, 221-232.
Narkhede, B. E. (2017). Advance manufacturing strategy and firm performance: An empirical study in a developing environment of small-and-medium-sized firms. Benchmarking: An International Journal, 24(1), 62-101.
Göleç, A. (2015). A relationship framework and application in between strategy and operational plans for the manufacturing industry. Computers & Industrial Engineering, 86, 83-94.
Theagarajan, S. S., & Manohar, H. L. (2015, March). Lean management practices to improve the supply chain performance of the leather footwear industry. In 2015 International Conference on Industrial Engineering and Operations Management (IEOM) (pp. 1-5). IEEE.
Barbosa, C., & Azevedo, A. (2015, October). Operations strategy frameworks in manufacturing, services, and product-service systems. In 2015 International Conference on Industrial Engineering and Systems Management (IESM) (pp. 1111-1120). IEEE.
Prajogo, D. I. (2016). The strategic fit between innovation strategies and the business environment in delivering business performance. International Journal of Production Economics, 171, 241-249.
Bäckstrand, J., Tiedemann, F., & Hedén, E. (2015, March). Competitive advantage based purchasing matrix: a portfolio-approach to differentiated purchasing strategy. In Proceedings of the 24th Annual IPSERA Conference, Amsterdam (pp. 1-10).
Stratton, R. (2018). Reinterpreting Fisher’s coordinated strategies: a longitudinal case study. International Journal of Operations & Production Management, 38(5), 1166-1187.
Anand, A. (2017). Capacity Expansion at Elgin Free Range Chickens: Applying Project Management Success Factors to Maintain Order Winners (Doctoral dissertation, University of Cape Town).
Hu, H. Y., Chiu, S. I., Yen, T. M., & Cheng, C. C. (2015). Assessment of supplier quality performance of the computer manufacturing industry by using ANP and DEMATEL. The TQM Journal, 27(1), 122-134.
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