Managing with Dual Strategies by Derek F. Abell

Author:Derek F. Abell
Language: eng
Format: epub
Publisher: Free Press

Figure 9–6. High Fixed Cost Business

Competitors may have different costs simply because they are operating at different points on the capacity utilization curve, and these differences may be large in high fixed cost industries—as shown in Figure 9–8 (p. 146).

Competitor A, for example, may be a new entrant in the market; lacking market share and volume, it may be operating at the lowest capacity utilization with the highest unit costs. Competitors B and D may have similar unit costs but for different reasons—B operating somewhat below full capacity, while D is operating above full capacity. Competitor C, in this example, exhibits the best cost position—in manufacturing at least. It should not be forgotten that having the best capacity utilization in the manufacturing plant may not ensure the best cost position overall. Competitor C may have just built a new warehouse, and, anticipating substantial future growth, may be operating it at only 50 percent of capacity initially. This puts competitor C in competitor A’s position with respect to unit distribution costs. Thus having low unit costs overall means keeping capacity utilization in balance for each and every functional resource in the internal value-added chain.

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