Question

In his book in 1984 Michael Porter stated that companies that tried to be BOTH a cost lead AND a differentiator would be 'stuck in the middle.' In 2020 we know that is no longer true. What was Porter's initial argument about why both strategies were contradictory and could not co-exist? What has changed during the past 30 years that resulted in the creation of a 'best cost' strategy? Identify a company that employs this type of strategy and explain why you think it is 'best cost'.

Answer 1

Michael Porter stated that companies that tried to be BOTH a cost lead AND a differentiator would be 'stuck in the middle.'

Initial argument of Porter was that these both strategies are contradiictory to each other because to be a COST LEAD one has to to employ cheap labour and somewhere has to compromise with the quality of raw materials and other resources used for in the business. It has to provide the same quality of products or services as its competitors,albeit at a lesser cost. COST LEAD strategy rests on the notion that cheap labor is ubiquitous and natural resources are not necessary for a good economy.

However for being an diferentiator a business has to provides better products and services as its competitors.The business will need strong research, development, and design thinking to create innovative ideas. These improvements to the goods or service could include delivering high quality to customers. If customers see a product or service as being different from other products, consumers are willing to pay more to receive these benefits.

Comparing at both the strategies it is clear that both are contradictory to each other, because for adopting the differentiator strategy one has to loosen its pocket for intensive research and innovations in order to provide finished products and services at lower cost, which will ultimately increase the cost and it may no longer be a COST LEAD.

After the past 30 years the scenerio has changed, in the present world of globalization the access to new technology and innovation has totally revamped the production process. Increasing competion and demand of labour forces has also opened up new venues for the cheap skilled labour. In this dynamic scenerio the startegy which is of the utmost importance for any business to survive is "BEST COST STRATEGY" which emphasize on providing quality products and services at the optimum cost.

Companies like Apple uses the best cost strategy by outsourcing there assembly function to other countries wher the availabilty of cheap and skilled labour is in abundent. It help them to lower there cost of production, and divert there resources towards intensive research and innovation.