Companies that develop competencies or capabilities consistent with the chosen strategy tend to perform better than the companies where this fit is not as strong. When the required competencies or capabilities needed to support the strategy are not developed, the execution and performance suffers.

“Low-cost producer” and “differentiation” are the two most popularly used approaches to competitive strategy, but both demand a very different set of skills and competencies for them to be successful.

For example, an enterprise deploying the low-cost producer strategy might want to invest heavily in high productivity, superior technology plant and machinery with high automation levels with a view to reduce variable and labour costs. They might focus on high volume, standardized and repetitive production ( narrow product line ) with an objective of  high inventory turns and low inventory levels. They might focus on economies of scale, create organization structures favoring efficiencies and deploy incentive systems that encourage cost reduction.

On the other hand, an enterprise deploying differentiation strategy might focus on product engineering, research and development and quality assurance. It might lay heavy emphasis on branding and building stronger relationships with customers. It might promote organization structures favoring speed-to-market or customer centricity and incentive systems that encourage developing high performance, innovative and advanced products.

10 years back, when we choose to use differentiation as the strategy for our engineering division, we spent the next few years dramatically strengthening our capabilities in product design, ensuring superior product performance at customer sites, building very strong one-on-one customer relationships, repositioning the brand as “best-in-class products, best-in-class services”, improving our ability to attract and retain best engineering & design talent and building a culture of innovation.

Business leaders, specially of mid-sized organizations, now looking to scale up substantially, should therefore not only make a clear choice w.r.t to their strategy ( low cost vs differentiation ) but also then look to develop appropriate and complimentary competencies.