Academic journal article Management International Review

Product Quality and Cost Leadership: Compatible Strategies?

Academic journal article Management International Review

Product Quality and Cost Leadership: Compatible Strategies?

Article excerpt

Introduction

Generic strategy models are perhaps the most prevalent conceptual approach to competitive strategy today (Porter 1980, 1985; Miles and Snow 1978; Miller 1986). These models suggest that all industries and contexts can be addressed by a limited number of strategic configurations. In terms of a manufacturing strategy, a generic approach would require a focus on either quality or cost reduction, and would predict the impossibility of succeeding with a combined strategy. This orientation fits nicely with the traditional manufacturing notion that "quality is expensive", which assumes that improving product quality must raise the costs of the manufacturing process.

However, generic models do not answer every concern about the meaning and application of business strategy. New directions in the theoretical strategy literature include business strategy models (Rumelt 1984), contingency models (Cool and Schendel 1987), and resource based models (Wernerfelt 1984). These models generally share the characteristic of treating strategy as a situational response to a particular array of firm-specific resources and a set of environmental conditions. Business strategy becomes a complex phenomenon involving the interaction of a variety of external and internal demands, capabilities, and skills. Interaction is also addressed in manufacturing strategies. An expanding literature and increasing number of producers are becoming part of the Total Quality Management movement. At its essence, the quality movement states that improved product quality and reduced production costs are positively related. Improved quality reduces costs.

This article addresses an international data set with a model of strategy that attempts to bridge the gap between generic and situational models of strategy by assessing relative commitment to quality and to cost control in manufacturing and comparing levels of manufacturing performance. It opens with a discussion of generic models and situational models of strategy and their relationship to manufacturing strategies. Then, a proposed model which would permit interaction of quality and cost concerns is developed and its implications for manufacturing strategy are tested on a group of Japanese electronics firms. The strength of the quality movement in Japanese industry and the important role of the electronics industry make this a particularly relevant sample (Reitsperger and Daniel 1990).

Strategy Concepts

Porter and the Generic Perspective on Strategy

Perhaps the most widely used model of competitive strategy is the generic strategy model developed by Porter (1980). As a commonly recognized example of the generic strategy school, it will be used to illustrate this approach to business strategy and its impact on manufacturing strategy. Porter's model has the primary virtue of being easy to understand, but it does not fully reflect the complexity of strategic behavior among real organizations. Porter states that there exist two alternative strategic positions, common to all industries, which will provide competitive advantage and supernormal rates of return. These are Product Differentiation and Cost Leadership. Porter proposes that successful firms must follow one of these inherently incompatible strategies, and that firms cannot achieve above normal performance if they attempt to pursue a balanced strategy. An "in between" strategy forces the firm to compromise in making critical strategic choices and therefore creates a disadvantage in comparison to the firm which is dedicated to a single objective. These strategic positions are modelled as opposite ends of a single strategic dimension. Performance levels are highest at either end of the continuum, lowest in the middle.

Product Differentiation provides excess returns by permitting higher prices for a unique product offering. Although differentiation may have many sources, it is most often characterized by superior quality of the product (Phillips et al. …

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