Running head: COMMENTARY 2
Commentary2, Chapter 5: Competitive Strategy
Titleof article: Entrepreneurial orientation, firm strategy and small firmperformance
Intheir article Lechner, & Gudmundsson, (2014), they discuss howthe firm can attain a competitive advantage over other firms usingdifferentiation and cost focus strategies.
According to Lechner & Gudmundsson (2014), there is a clearconnection between the performance of the firm, strategy, and thecompetitive advantage to produce above-average outputs. There aremore frameworks used to classify the firm`s strategies, but the mostrecommended one is the Porter`s model. This model proposes fourstrategies that the firms should use to obtain a competitiveadvantage over others namely: broad differentiation, cost focus,broad cost leadership and differentiation focus. Differentiation andcost leadership illustrates the prevailing logic of a competitivestrategy. This implies that they are strategic tools used by the firmwhile focus illustrates the market or the product scope. Focusstrategy cannot offer the firm competitive advantage because it isnot a standalone strategy. Therefore, the strategies used by the firmto gain a competitive advantage over other firms are thedifferentiation and cost leadership strategies.
Lechner, & Gudmundsson (2014), state that differentiation impliesthe efforts by the firm to satisfy the customer needs in a morestrange way than the competitors do. To offer the customers superiorvalues, the firm should include product quality, range, design andmake after sale follow-ups. They argue that differentiation is anoption that allows firms to compete especially if based on customerservice, speed, and flexibility. It is argued that differentiationmatches the innovative approaches and characteristics of the firms.On the other hand, cost leadership requires considerable financialresources it is based on the innovation process, economies of scale,design for manufacturing and learning curve benefits. It is thereforeargued that both generic strategies enhance the performance of thefirm.
Innovation can be used to provide differentiation advantage throughthe creation of unique products (Lechner, & Gudmundsson, 2014).While the application of low-cost designs by the firm for theexisting products requires some form kind of innovation, costleadership focuses on process innovation. Lechner & Gudmundssonstate that cost leaders in any firm are characterized by a lowerexpenditure on research and development. This means that costleadership involve minimization of costs in research and development.This, therefore, implies that cost leadership eliminates research anddevelopment expenditure that are the indicators of innovation in thefirm. No firm can produce innovative products when it does not investin research and development. While the higher investment research anddevelopment does not necessarily implies higher level of innovation,it is very clear that firms that spend more in research anddevelopment are more likely to have competitive advantage over thecompetitors Lechner, C., & Gudmundsson, S. (2014).
According to Lechner, & Gudmundsson (2014), competitiveaggressiveness implies to push the competitors out of the market.This involves ambitious, aggressive actions like price cutting,building larger production capacity and outspending the competitorsin the field of marketing. The authors illustrate how a high marketshare is an important factor for attaining a cost leadershipstrategy. However, owning a great market share according to Lechner,& Gudmundsson does not necessarily create more profitability forthe firm`s differentiation strategy (Lechner, & Gudmundsson,2014). The purpose of differentiation is to prevent competition byformulating small monopolies through the creation of products thatare unique from those of the competitors. The key drivers of costleadership are economies of scale (Lechner, & Gudmundsson, 2014).
Lechner,C., & Gudmundsson, S. (2014). Entrepreneurialorientation, firm strategy and small firm performance.International Small Business Journal, 32(1), 36-60.