The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. Cost Leadership and Competitive Advantage. However, a possible strategic direction for McDonald’s continued growth is to establish more locations in developing economies and in countries where the firm has no market presence. Cost strategy prerequisites normally relate to high technical capabilities and access to capital for the company to invest in technology and assure economies of scale. Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. Definition: Cost leadership is a term used when a company projects itself as the cheapest manufacturer or provider of a particular product or commodity in a competition.It is difficult to deploy the strategy because the management must constantly work on reducing cost at every level to remain competitive. A key problem with the model is that it actually only contains two factors, one of … To gain competitive advantage, small businesses can focus on different strategies, including leadership in cost, quality, innovation or customer service. The company’s broad differentiation strategy also helps. Generic strategies include ‘overall cost leadership’, ‘differentiation’, and ‘focus’. Cost leadership styles focus on resource organization. A cost leadership strategy therefore aims to exploit scale of production, well defined scope and other economies thus producing highly standardized McDonald’s generic strategy of cost leadership enables the company to sustain its market leadership. Cost leadership strives towards cutting costs to a minimum possible levels in order to provide customers with lower prices and thus boost their savings. The focus strategy has two variants, cost focus and differentiation focus. Cost leadership, in basic words, means the lowest cost of operation in the industry that is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). advantage. Generally firms pursue only one of the above generic strategies. Cost Leadership Strategy allows McDonald’s to keep production sots and customer prices low; meanwhile, Operational Excellence helps maximize the efficiency of the product development process to minimize costs, but creates a competitive advantage on operational excellence. Then, by achieving the lowest possible cost, the leader can place their team or organization into a position where the lowest price in the market is charged for needed goods or services. Cost Leadership 1. The Triple Constraint says that cost is a function of scope and time or that cost, time and scope are related so that if one changes, then another must also change in a defined and predictable way. The goal is to produce goods or services at the lowest possible cost by organizing every potential resource around the current production methods. https://opentextbc.ca/strategicmanagement/chapter/cost-leadership