An Empirical Study of Strategic Positioning and Production Efficiency

Abstract

We examine the relationship between strategic positioning of firms and their production efficiency. Firms with competitive advantages based on either cost leadership or differentiation are able to outperform their competitors. Firms pursuing a cost leadership strategy seek to be the lowest cost producer, primarily by minimizing inputs for a given level of output, thus concentrating on increasing the efficiency of their production processes. On the other hand, firms that pursue a differentiation strategy rely on innovation, brand development, marketing, and so forth to achieve competitive advantages; therefore such firms do not place high emphasis on production efficiency. Thus the importance of production efficiency for the success of a firm depends on the strategic positioning of the firm. We apply DEA to an archival data for a large sample of publicly listed firms to investigate the importance of production efficiency for firms based on their strategic positioning. We provide empirical evidence that firms pursuing a cost leadership strategy attribute higher importance to production efficiency, while firms pursuing differentiation strategy attribute less importance to production efficiency.