Strategic Management - Ikea

According to Porter (1985), firms can achieve competitive advantage using focusing on only one approach of the generic strategies: Cost Leadership, Differentiation and Focus. Cost leadership refers to setting lower price than competitors that targets towards a broad market. Cost can be reduced through building efficient facilities, tightening control of production and overhead costs, reducing costs of research and development, sales and services and simplifying the operation procedures. Moreover, the learning curve is one factor that allow firms to set lower price as firms gain experience with production process. This means that as firms continue to produce goods/ services, the efficiency and effectiveness of the operation can be achieved due to continually improvisation of processes. For example, Toyota went to US and learn how their automobile manufacturing sector operates and from there, Toyota can move down the learning curve and add value to its current existing process with the knowledge attained.

One example that uses the cost leadership strategy and achieve competitive advantage is Wal-Mart stores inc. It is an American Multinational Retail Corporations that establishes huge amount of outlets (11,000 stores) over 27 countries. Wal-Mart is able to achieve success using this strategy of setting low prices everyday to attract customers. They offer products at a cheaper rate than competitors on a consistent basis, and not rely on sales. Besides, Wal-Mart has a large scale and efficient supply chain network that allows it to supply goods at a lower price and it is able to source for cheaper products from cheap domestic suppliers and low wage foreign markets. In addition, Wal-Mart also imposed strict control on its overhead costs whereby stores are set up in large buildings and maintaining low rental price with simple interior design. Therefore, the involvement of each aspects enables Wal-Mart to sell their goods at a lower price and to gain profit at a high volume.

However, there is certain risks in adapting this approach because competitors can imitate the organization and setting the price even lower with undifferentiated goods. In addition, as information is available to customers regarding the price and possibly origins of the product, it reduces the cost advantages as customers are allowed to compare and make decisions, especially with price sensitive customers, this will allow bargaining power of buyers to increase.

Differentiation strategy also aims at broad target market with unique products/ services offer to customers and price are usually set higher. This can be develop by adapting new development systems and processes, always focusing on the quality aspects and increase competencies in the research & development area. Starbucks is one instance that uses differentiation strategy and is able to attain competitive advantage due to the value they were able to create. Starbucks offer premium coffee at convenient locations with excellent customer service that provides them an edge against other competitors. This also creates a distinct brand value that is hard and costly for competitors to imitate. Moreover, the aesthetic appeal and concept of stores offers a sense of home to customers which further appeals customers to return back for more. This entire experience is also