Theory of Constraints Handbook - James Cox Iii [347]
FIGURE 17.1 Ansoff’s growth matrix. (From Ansoff, H. I., 1965. Corporate Strategy. New York: McGraw-Hill. Original source: Table 6.1, 109. Used by permission of the Ansoff Family Trust.)
Low-cost leadership is generally recognized as a difficult position to maintain in the marketplace. A firm must have a means for achieving sustainable cost advantage. Michael Dell found it in the personal computer industry by putting together logistical alliances with suppliers and an unprecedented Internet-based distribution channel. Other companies have chosen to produce no-frills products, locate a source of cheaper raw materials, improve the overall efficiency of production, or otherwise reduce overhead, such as outsourcing some functions. However, a low-cost strategy is challenging. Even Walmart, with its highly sophisticated logistical system, no longer claims to be the “lowest” price in town.
Differentiation, on the other hand, offers nearly limitless possibilities. Kotler (2003, 318–327) identifies five different bases on which meaningful differentiation may take place: product differentiation, services differentiation, personnel differentiation, channel differentiation, and image differentiation.
Product differentiation can be accomplished by changing the form of a product or adding features. The performance quality of the product can be enhanced and durability may be increased. The product can be made more reliable or easier to repair, thus saving replacement costs. Design is increasingly a factor that adds value to a company’s product offerings as, for example, in Italian-designed leather clothing or German-engineered personal appliances. A related notion is style, which is an important aspect of Apple computers, Montblanc pens, and Harley-Davidson motorcycles (Schmitt and Simonson, 1997).
Services differentiation includes ordering ease and accuracy, on-time delivery, timely and accurate installation, customer education with respect to product usage, and follow-up maintenance and repair.
Companies that have very well-trained sales and service personnel may be able to establish personnel differentiation. Lands’ End customer service representatives are known for their courtesy and their willingness to go out of the way to assist customers with size, color, and style recommendations.
Image differentiation relies on how the brand’s identity is expressed and whether customers develop a strong identification with the company or the brand. Some brands that have established a strong, positive image include Hershey’s Chocolate, Coca-Cola, and Betty Crocker. Non-food brands include Mercedes-Benz, Hallmark, and Crayola.
The Resource-Based View
The resource-based view of strategy is primarily based on the analysis of a firm’s strengths and weaknesses. This approach draws from three primary research traditions (Barney, 2007, 127–169). The first area of study is theories of distinctive competence. Distinctive competence looks at the quality and decision-making skill of the company’s general managers who have a very large impact on the company’s performance. A second but related area, from a sociological perspective, is the relationship of institutional leaders combined with the firm’s organization and structure to generate distinctive competencies.
The second area of study comes from David Ricardo’s (1817) work in economics focusing on land uses and the concept of economic rent, “the payment to an owner of a factor of production in excess of the minimum required to induce that factor into employment” (Barney, 2007, 130). For example, a company makes higher profits than its competitors, who are also selling into the same market, because its factory workers have developed production methods with higher productivity rates than competitors. Finally, incorporated into the resource-based view is the