Part 1: Suitability of Integrated Cost and Differentiation Competitive Strategy
In any industry, the attractiveness of a company serves as the basis of its profitability. Irrespective of whether an industry realizes below-average profitability, an optimally positioned company has the capacity of generating superior returns hence the need for strategic planning in business. For instance, competitive advantage serves as one area that allows companies to deliver optimal values to their clients. It facilitates in boosting value through offering increased benefits and services or lowering prices. Also, practicing cost leadership allows firms to compete effectively for the broader client base. Organizations might also provide distinct products and services that differentiate them from other firms in the industry. In the recent years however, companies are seeing a need for overcoming barriers that affect their strategic moves thus driving them to embark on integrated strategies. Hence, this section discusses the suitability of the integrated cost and differentiation competitive strategy to boost companies’ efforts in attaining dominance in the marketplace.
The adoption of an integrated cost and differentiation strategy has raised important concerns in the present business environment. Some believe that it can lead firms to realize increased competitive advantages while others argue that it might result in devastating effects. Experts argue that it is essential to pursue the earlier generic strategies separately and in a mutually exclusive manner. For any organization type that aims at realizing effective cost leadership, it portrays distinct traits while emphasizing on unique capabilities. Trying to undertake the two tasks leads a group incapable of achieving the two since it ends up being stuck in the middle (Ireland, et al., 2012).
On the integrated cost and differentiation competitive strategy, a company might adopt it in two distinct forms. Firstly, the integrated approach would provide customers with the opportunity for attaining a differentiated product given reduced prices while emphasizing on sustaining low costs. For instance, the activities by T.K. Maxx, which operates as a discount retail establishment, regularly stocks various designers labels, although it manages to sell them at low prices. It manages this because it manages its costs efficiently, hence a low-cost differentiation (Unit1, n.d).
Alternatively, Unit 1(n.d) stipulates “the option is available for organizations to differentiate products that have emerged from a low cost process,” such as the integrated approach by McDonald’s. The products by the company, including fast-food meals, follow a low price strategy that characterizes the entire cost-leadership tactic. However, the company's products are considerably differentiated from the goods that its rivals offer through developing various methods, including image licensing practices, branding, and other tactics. Such kind of an option is referred to as "differentiated low cost (Baroto, et al., 2012).” The interpretations in this sense reveal that if a highly competitive setting does not exist, T.K. Maxx will target a differentiation strategy whereas McDonald's would follow a cost-leadership tactic. The rivalry that prevails in the marketplace forces the firms to follow an integrated path, while to a particular degree compromising the ‘purity' of the techniques they develop. In doing so, the companies end up undermining the foundation that characterizes their competitive advantage. However, questions arise as to whether the interpretation is right. It has gained acceptance because it allows individuals to lay emphasis on additional explanation concerning the integrated strategic mechanism (Unit1, n.d). From this perspective, it becomes apparent that the growing sophistication of the diverse, competitive settings has led to the emergence of business approaches that focus on differentiating services or products simultaneously in the same manner as low costs. In ensuring that the strategy emerges successful, the contemporary approach that targets both cost advantages and differentiation should be managed in a stable manner (Hitt, et al., 2016). As Unit1 (n.d) suggests, “Pursuing both cost and differentiation advantage is dependent upon the organization’s ability to develop capabilities across all its functions.”
Regarding the case of Southwest Airlines, however, questions arise as to how the organization manages to differentiate its operations. For instance, Southwest Airlines does not apply most of the real differentiation tactics. The firm manages to separate itself from the organizational culture area, such as in the low-fare and full-service sectors. The reputation of the company is to lay emphasis on the needs of its clients as well as develop an attractive and fun environment for its customers. The flight attendants usually sing to the customers during flights, an act that motivates the staff while amusing the passengers, hence leading the company to be distinct. Since the company manages to combine low fares with high levels of service, it is capable of developing a unique competitive advantage basis (Unit1, n.d).
As Unit1 (n.d) reveals, “Acknowledging the potential to integrate both broad forms of generic competitive advantage represents a departure from Porter’s original analysis.” It supported the notion that companies should utilize a single approach strongly. Otherwise, they would remain stuck in the middle. In the perspective of Porter, he argued that a firm that is “stuck in the middle” ends up realizing reduced profitability while it lacks adequate preparations to allow it to compete effectively with companies that adopt a single strategy (Ireland, et al., 2012). Porter stipulated that each plan needs different operational emphasis as well as supporting cultures. For instance, by pursuing a cost-leadership tactic, a company should feature a cost-driven culture. Regarding a differentiation mechanism, the culture of a company should be driven by marketing and quality (Hitt, et al., 2016). Being “stuck in the middle” depicts a weak culture within an organization, lack of direction, as well as poor leadership. Additionally, Porter cautioned that in the case of the companies that refrain from taking an overall differentiation to cost-leadership strategy, or vice versa, or those that target following several approaches, they would end up being “stuck in the middle (Baroto, et al., 2012).”
Adopting an integrated strategy is challenging as well as ambitious. Nevertheless, a considerable number of firms presently stipulate that the strength associated with the competition prevailing in the markets offer them minimal or little alternatives, hence encouraging them to try out other strategies (Unit1, n.d). They have failed to realize the benefits they anticipate just by adopting the simple generic strategies, thereby encouraging them to seem other tactics that would lead them to grow their competitive advantages and excel in the presently competitive business landscape (Baroto, et al., 2012). Irrespective of the criticism raised by Porter, therefore, a considerable number of companies appear to be realizing competitive advantages by pursuing an integrated approach. In this sense, it seems that notion of pursuing an individual approach fails to dictate the benefits that an organization would realize. The process of adopting the different generic methods demands significant judgment, application, meticulous attention, and continual monitoring to succeed. They should also be ideal for the context as well as the environment that an organization is undertaking its operations. This case is truer in the event of an integrated approach as opposed to that of the simple generic strategies (Baroto, et al., 2012).
In conclusion, it is apparent that the adoption of integrated differentiation and cost leadership strategy is proving successful for firms. Although Porter initially opposed merging of two generic strategies, the companies that have managed to do so have emerged successful in the marketplace. Companies are identifying their weak and strong areas thereby leading them to understand the generic strategies they should merge to allow them boost their competitive advantage. However, they should exercise caution since ineffective adoption of the integrated strategy would lead them to be “stuck in the middle” and lose out on the diverse opportunities prevalent in the marketplace.
Part 2: Comparing and Contrasting Strengths and Weaknesses of two Strategic Decision Making Models
When talking of behavior inside an organization, it is crucial to note that managers are responsible for supporting the decision making process. They serve as change agents as opposed to just decision makers. Therefore, the processes before as well as after a particular decision are vital to foster any action. Organizational managers therefore need to understand the positions of the different constituencies and develop the ideal support for a particular action. The major decision models they can follow comprise of the rational and political decision making models. Therefore, the section will compare and contrast the strengths and weaknesses of the rational and political decision making models in terms of their idealness in supporting effective decisions within companies.
The rational and the political decision-making models serve as major strategic decision making frameworks within organizations. Understanding their strengths and weaknesses would play a critical role in understanding which model is ideal for a given organizational situation. To begin with, the rational strategic decision model revolves around the capacity of leaders in analyzing a particular situation is a disproportionate manner. Sound decisions are better, desirable, and more efficient as opposed to wrong ones (Unit2, n.d). Irrationality entails the decisions individuals make instantaneously mostly out of emotions as opposed to sober judgment. As Unit2 (n.d) stipulates, “The underlying principle here being that a rational decision is always more effective than one that fails to meet this demand.” As such, the notion appears appealing, since rational decisions result to well-considered and well-reasoned choices, which people perceive as ideal in the decision-making process.
The rational decision making model is perfect in cases where the outcomes of the decisions might be immense, such as it is the case with an acquisition or a merger (Eisenhardt, 1999). However, Unit2 (n.d) questions, “but how rational was the process of leading to the decision you selected as one of the best you have ever made?” Here, many managers opt for making decisions guided by individual elements of rationality, although they might follow other motivations, such as instinct and emotion (Papadakis & Barwise, 2012).
The rational approach overall offers a framework and guidance for making decisions in a strategic manner. By following the model, it might result in an effective decision-making process. The structure also makes it possible to incorporate analytic tools to the broader process of making decisions. Nevertheless, it is vital to consider whether other human life and organizational features fit in, such as the role of instinct, creativity, intuition, chance, and power. The rational model, in this case, appears to downplay the role that these features play hence raising questions as to whether it is realistic (Unit2, n.d). However, it is not clear as to whether the successful teams follow the logical, sequential process or they follow distinct paths. Indeed, an interesting debate surrounds the link that prevails between performance and strategic decisions (Nutt & Wilson, 2010). Nevertheless, even though individual studies have portrayed the relationship that exists between effective decisions and the rational approach, evidence concerning the relationship rationality and the effectiveness of the strategic decision is incomplete. Also, even though the establishment of the analytical model has played an essential role in resolving certain issues affiliated with the economic rationality model, which is deemed unrealistic, it cannot be ascertained that a rational approach would result in automatic success. Certain elements might not be incorporated in the sound model hence a need for developing alternative methods to avail a fresh perspective concerning the process of making strategic decisions (Sykianakis, 2012).
In contrast, a political decision-making model is an alternative approach when it comes to strategic decision making. The political model perceives organizations as a social system that comprises of individuals with unequal power distribution, different organizational perceptions concerning its desired future, and networks that characterize relationships. In this case, the relationships have subtle or do not entirely have subtle influence forms that manifest themselves (Goold, et al., 1998). According to the approach, the process of making decisions is not rational regarding choice, alternative generation, or problem recognition. Rather it is a mental process that targets influence, coalition building, influence, as well as lobbying to facilitate in bringing people toward a general preference. Indeed, efficient deployment of politics might target avoiding conflict hence realize a consensus through other means, including doing other people favors (Hammond, et al., 2006). Through reconstructing the process of making decisions, it becomes possible to witness the consensus that underlies the vast political network. Regarding the analytical model, the process of developing preferences via selection and process revolves around evidence. In the case of the political models, the preferences are usually set in advance and are frequently in conflict. The process lays emphasis on choosing a particular choice (Papadakis & Barwise, 2012).
The political model has several contrasts with the rational approach. According to Unit2 (n.d.), “Most important is that within the political model there seems to be a radically different conceptualization of groups and group decision making.” For the rational model, the information gathered when evaluating the alternatives serves as the determining force when making judgments in a group. The team is responsible for selecting the outcome that would be ideal for the organization. The group might also focus on expanding alternatives and refine the analysis process, although the study results determine the option to be selected. In contrast, a political model perceives analysis as well as information as a political player's tool. They might opt to limit access to particular information, seek to conceal certain information to ensure it does not back their conclusion, or reveal certain information to facilitate in selecting or rejecting an option (Unit2, n.d).
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