Answer to Question #262628 in Management for Paia

Question

One way of thinking about organizing to implement cost leadership strategies is that firms that pursue this strategy should be highly centralized, have high levels of direct supervision, and keep employee wages to an absolute minimum. Another approach is to decentralize decision-making authority – to ensure that individuals who know the most about reducing costs make decisions about how to reduce costs. This, in turn, implies less direct supervision and somewhat higher levels of employees’ wages (why?). Which of these two approaches seems more reasonable? Under what conditions would these different approaches make more or less sense?

Answer 1

The best cost leader strategy is the method of producing high-quality products and services to certify customers' needs at the low cost of production. Therefore the centralized method is reasonable because it provides high supervision to ensure quality products and services at a minimal Labor cost.

The centralized strategy is used when the company focuses on profit-making and customer satisfaction while the decentralized method is applied when the on gaining market competitive advantage.