The sources of the cost advantage

The origins of an organization’s cost advantage:

The origins of an organization’s cost advantage include economies of scale, the availability of less expensive inputs, a talented and experienced personnel, the implementation of effective procedures that place a strong emphasis on reducing waste, and business models that make use of cutting-edge technology. The benefit a business receives from producing goods in big quantities so that the production costs are greatly reduced is known as economies of scale. A professional and knowledgeable workforce is essential for achieving cost advantage because timely and efficient production methods are executed. Adopting a business strategy that makes use of cutting-edge technology makes it possible for a company to deliver high-quality goods on schedule (Barney & Hesterly, 2015). Access to cheaper inputs and use of efficient production processes lowers the production cost and increases production of finished products due to a considerable reduction in waste product.

Impact of Cost Advantage on Company Strategies:

Cost advantage affects the company’s strategies in different ways. Firstly, the company has to invest in current and superior technology for it to maintain the cost advantage. Such investment will ensure all processes are efficient, production is timely, and products are of superior quality. Secondly, the management has to retain and hire the most skilled employees to ensure production of quality products continues. Experienced employees have to be retained understand the production dynamics of the company and therefore are more suited to assist the company to achieve its target goals. Further, having a cost advantage ensures the company leads in setting the product prices and therefore enjoy volume sales. However, cost advantage makes a company vulnerable to price fluctuations due to the effects of supply and demand (Dyer et al., 2016). The company has to, therefore, ensure its strategic management team monitor the aspects of supply and demand for products in the market to avoid incurring huge losses.

References

Barney, J. B., & Hesterly, W. (2015). Strategic management and competitive advantage concepts and cases. Pearson.

Dyer, J. H., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic management: Concepts and tools for creating real world strategy.