Competitive Strategy - Cost Leadership and Differentiation Strategies

Cost leadership and differentiation strategies are popular research topics within the field of

strategy and have been widely discussed, in particular since Michael Porter presented his model

of generic strategies in 1980. Some rearchers, in fact, refer to this model as being among the

most significant contributions to the strategic management literature. Whether cost leadership

and differentiation strategies are mutually exclusive is a far less discussed issue however, as

evidenced by the relatively scarce literature on the topic. During the end of the 1980s and the

beginning of the 1990s there was a debate going on regarding the existence of a trade-off but it

seem to have faded with the introduction of Japanese cost control methods, i.e. Total quality

management (TQM) and Just in time (JIT). Grant (2005) argues: "Common to the success of

Japanese companies in consumer goods industries such as cars, motorcycles, consumer

electronics, and musical instruments has been the ability to reconcile low cost with high quality

and technological progressiveness. The total quality managements methods that they adopted

exploded the myth that there is a trade-off between high quality and low cost."1 Thus while

adherents of Porter's theory argue that cost leadership and differentiation strategies are

irreconcilable, opponents advocate that a trade-off does not necessarily need to be, and refer to

companies i.e. IKEA, Southwest Airlines, Toyota, IBM, Caterpillar, Wal-Mart and McDonald's

as examples of firms that have successfully reconciled both strategies and thus enjoy "dual

competitive advantages".

1.1. Why is this topic of interest?

Considering the impact of Porter's theories, in particular on managers, it is of interest to make a

critical examination. Traditionally the belief that low cost and differentiation are mutually

exclusive has been strongly embraced by practitioners. As some researchers start to question the

inevitable trade-off, augmented attention and renewed debate on the topic is necessary.