Achieving simultaneous cost and differentiation competitive advantages through continuous improvement: world class manufacturing as a competitive strategy.

Since the early 1980s, the issue of the competitiveness of U.S. industry has been widely discussed because of an increased awareness of global competition and the appreciation that management approaches transcend national boundaries. This has resulted in what Hayes and Wheelwright (1984) described as the world class manufacturing (WCM) approach. WCM is based on creating and sustaining a manufacturing-based competitive advantage by using the best management practices, regardless of their national origin. It focuses on continuous improvement of all aspects of the firm, not just manufacturing, by emphasizing the integration of practices related to human resources management, product and process management, and organization characteristics, in order to develop manufacturing capability as a competitive weapon. By achieving continuous improvement throughout the firm, world class manufacturers can provide products that achieve economies of scope (cost reduction through the ability to share activities), as well as revised economies of scale (cost reduction through the efficiencies associated with high volume production) which result in products that can attain and sustain several competitive advantages simultaneously. This ability to achieve simultaneous competitive advantages enables WCM to be viewed in the context of strategic management, which is the goal of this article.

The most dominant strategic management paradigm in recent years is known as the competitive strategies model (Fredrickson, 1991; Hambrick, 1990). Exemplified by Porter's (1980, 1985, 1990) work, this approach addresses the issue of how firms compete within their product markets. Porter identified two competitive advantages that provide a firm with a defensible position: lower cost and differentiation. The lower cost advantage is defined as the ability to more efficiently design, manufacture, and distribute a comparable product than the competition. Products with unique and superior value--in terms of quality, features, and after-sales service--are examples of the differentiation competitive advantage. Pursuing one of these advantages will make a firm's product or service unique, and is strongly recommended so the firm is not "stuck in the middle" (Porter, 1991: 40), where, by pursuing both competitive advantages, neither is achieved.

Thus, there is an apparent contradiction between WCM and the competitive strategies paradigm. The competitive strategies approach identifies two competitive advantages, either of which can be successful, but only individually. Attempting to pursue simultaneous competitive advantages will result in "strategic mediocrity," except for firms in unusual industry niches (Porter, 1991: 40). This appears to contradict WCM's intentional goal of simultaneously achieving excellence on several product attributes, or potential competitive advantages, to create a position that is especially difficult to challenge.

This article attempts to reconcile these apparently disparate perspectives by synthesizing concepts from the literature of strategic management and operations management. It begins with brief overviews of the WCM and competitive advantages approaches. Although many of the individual practices included in WCM have been previously examined in the literature of diverse fields, including organization theory, human re. sources management, operations management, as well as other areas, the WCM approach brings these diverse practices and approaches together under a common umbrella. The article then examines the theoretical and empirical work that has challenged Porter's assertion that it is unlikely a firm's products can be both lower cost and differentiated, including drawing upon the WCM literature for support. It concludes by extracting a set of propositions to guide re. search related to attaining and sustaining competitive advantages.

World Class Manufacturing

It has been noted that corporate and business level strategy have often overlooked the manufacturing function (Kotha and Orne, 1989). Indeed, Skinner (1969) claimed the focus of corporate strategy on a firm's business mix and short-term profitability had eroded the manufacturing infrastructure and its potential link with long-term profitability. Meanwhile, business level strategy has focused primarily on product positioning (Mintzberg, 1988) and has generated only limited discussion on how to actually produce a product or service that fits the prescribed Position (i.e., Porter's value chain (1985) and Kotha and Orne (1989)).

Hayes and Wheelwright (1984) proposed that manufacturing's strategic role and integration with corporate and business strategy falls along a continuum that can be portrayed in four stages. In the tint stage, the manufacturing function is viewed as a potential detriment to the firm, or as neutral at best. Tight controls over all manufacturing functions are deemed essential. Stage two firms still view manufacturing as a detriment or as neutral, however, they have an external focus, looking to industry standards and the advice of consultants as guidelines in managing the manufacturing function. Stage three firms have developed their manufacturing functions and incorporate the capabilities of manufacturing into their strategic plans. Finally, the manufacturing function is the very strength of the firm in stage 4 firms and forms their basis for competition. Hayes and Wheelwright (1984) first used the term "world class manufacturing" to describe stage four firms, identifiable by their ability to develop and use their manufacturing capability as the key to attaining and sustaining a global competitive advantage. Since then, the concept has been elaborated by others, particularly Schonberger (1986, 1991), as attaining sustainable global competitive advantages through the continuous improvement of manufacturing capability.

The WCM approach is based upon the recognition that advanced manufacturing firms can overcome the trade-off between cost and quality, speed, and flexibility (DeMeyer et al., 1989; Ferdows and DeMeyer, 1990) through the continuous improvement of products and services. The ability to develop and exploit multiple capabilities is achieved through an integrated system of management practices that focus on: 1) getting operations and related processes under control; 2) designing processes to consistently produce the product correctly; 3) continuously improving product and manufacturing process management; and 4) ultimately, providing the basis for creating and sustaining a competitive advantage, WCM shifts the focus of the manufacturing function from simply reacting to the firm's strategic plan to being a vital participant in business level strategy formulation (Anderson et al., 1989). Thus, in a WCM firm, manufacturing is not simply helpful to business strategy, it becomes the catalyst of success (Vickery et al., 1993).

The integrative and, consequently, most powerful core component of WCM is its emphasis on continuous improvement in all areas that have an influence on manufacturing and, consequently, on competitive attributes. In addition to specific manufacturing processes and product improvements, continuous improvements are also made to the infrastructure which supports manufacturing operations. Because a product's features (including cost, quality, and delivery speed) are ultimately integrated in WCM, improvements in them become concurrent (Ferdows and DeMeyer, 1990), and thereby allow the firm to achieve economies of scope. A WCM firm can continuously improve simultaneous competitive attributes, creating a moving target on several dimensions that is very difficult for competitors to attack, especially if competitors focus on a simple dimension. D'Aveni (1994) described these types of firms as hypercompetitive firms. Thus, the competitive advantage of a World Class Manufacturer is built on outstanding performance on several competitive dimensions, as well as a continuous improvement among them, which gives it the ability to repeatedly gain temporary advantages which yield a sustainable competitive advantage (D'Aveni, 1994).

A general model of WCM is presented in Figure 1. The left-hand side of the figure identifies the types of practices typically used by world class manufacturers, although few firms have been seen incorporating all of them. The figure also highlights the integration of WCM practices throughout the firm (Flynn et al, 1989).

[ILLUSTRATION OMITTED]

The goal of WCM, achieving a global competitive position, is shown at the far right in Figure 1. It is attained through superior manufacturing system performance, as indicated by the five manufacturing performance measures, each of which directly reflects a competitive attribute. This goal can be achieved through the continuous improvement of manufacturing capability. Once this has been established, continuous improvement in these characteristics makes it difficult for competitors to catch up with or copy them, permitting superiority to be sustained by destroying a firm's own previous standards and advantage.

As identified in Figure 1, the performance characteristics of a World Class Manufacturer (simultaneous high quality, low costs, on time deliver), volume flexibility and product line flexibility) are its sources of competitive advantage. The ability to continuously improve manufacturing capabilities, through product cost, quality, dependability and flexibility, means that world class manufacturers can achieve simultaneous competitive advantages. For example, as manufacturing capability continuously improves, the need for rework of defective items is lessened, thereby lowering cost and improving quality, while simultaneously reducing delivery lead times. Thus, continuous improvement of manufacturing capability by a World Class Manufacturer is directly related to improving its competitive position, in terms of its product line flexibility, volume flexibility, quality, timeliness of delivery, and cost. In WCM, these competitive features are riot trade-offs, but are sequentially Connected like a sandhill, where the hill can only grow taller as its base expands (Ferdows and DeMeyer, 1990). Thus, the dimensions of manufacturing performance measures are inexorably linked among one another (are not trade-offs).

At the left of Figure 1 are various types of practices used by world class manufacturers, grouped into organizational characteristics, product and process management practices, and human resources management practices. The product and process management practices and approaches of world class manufacturers are associated with Total Quality Management (Schonberger, 1986), Just-in-Time (Hall, 1983), continuous improvement of process technology (Wheelwright and Hayes, 1985), preventive maintenance (Garvin, 1984), running machines at less than design capacity (Hayes, 1981), and concurrent engineering (Hartley, 1992).

Because these practices cut across functions and, representing potential coordination and linkage problems, there is a need for group problem solving and coordination of decision making between diverse functional areas (Ettlie and Reza, 1992: Kim et al., 1992; Parthasarthy and Sethi, 1992). The use of groups and coordinating mechanisms is enhanced by certain types of organizational characteristics and human resource management practices. Organizational characteristics typical of world class manufacturers include: decentralization of decision making(Collins et al., 1988); formalization of procedures in order to foster employee flexibility (Pugh et al., 1969); integrating mechanisms to ensure that decentralized decision making is not counterproductive (Galbraith, 1973; Lawrence and Lorsch, 1969; Hrebiniak and Joyce, 1984); and output control in the form of immediate feedback (Ouchi, 1980; Ashford and Cummings, 1984). These practices solve problems that hinder continuous improvement, as well as create the capability to allow variety in product design and volume, which are prerequisites to competing on flexibility. The effect of these characteristics enables the manufacturing system to respond quickly and accurately to problems, which creates economies of scope by sharing activities and transferring competencies among firm units (Porter, 1985; Prayeer and Kazanjian, 1995).

The human resource management practices typical of world class manufacturers include egalitarian approaches that minimize the distance between levels in the organizational hierarchy (Ziskin, 1986) and facilitate both decentralized decision making and integration across functional areas, resulting in improved economies of scope. In addition, egalitarian practices seek to create a high degree of cohesiveness (Ouchi, 1980), encouraging the development of group values and norms and providing a strong sense of community (Gordon, 1985). Other common practices include extensive training in both specific job skills and in skills that enhance decentralized and integrated decision making, such as small group problem solving, communication, and statistical process control (Garvin, 1984). Compensation approaches which reward group problem solving and multiskill expertise, including group compensation plans (Suzawa, 1985) and pay-for-skill approaches (Lawier and Ledford, 1985), are frequently used by world class manufacturers.

The organizational characteristics and human resource practices provide linkages and coordination across the firm, thereby forming the infrastructure among diverse pans of the firm that support improvements in manufacturing processes and products, is well as economies of scope (Powell, 1995: Miller and Shamsie, 1996). Likewise, manufacturing processes and product improvements also influence organizational characteristics and human resources management practices. As Porter noted, "careful management of linkages can be a decisive source of competitive advantage" (1990: 42). A world class manufacturer creates its advantage by effectively managing its linkages.

Competitive Strategies Model

Strategic management's most dominant paradigm is Porter's (1980, 1985, 1990) competitive strategies model (Fredrickson, 1990; Hambrick, 1990; Hill, 1988), which addresses how a firm competes within its product markets to gain and sustain a Competitive advantage. A competitive advantage is achieved when a firm's product is viewed by its customers as having a higher value than the product of its competitors (Porter, 1985).

Porter (1980, 1985, 1990) identified two types of competitive advantage which help a firm create a defensible position and thus outperform its competition: A lower cost competitive advantage occurs when a firm designs, produces and markets its product more efficiently than its competitors (Porter, 1990). In contrast, a differentiation competitive advantage exists when a firm can make its product unique from its competitors. In either case, the firm produces a product that has a value to the customer. Porter defines lower cost as providing comparable value more efficiently, and differentiation as providing a product whose attributes create more value than its competitors create in their products.

A firm that pursues a lower cost competitive advantage strives to improve its profitability by having lower costs, relative to its industry (Porter, 1980, 1985, 1990). When product value is at or near the competitors', lower cost translates into superior returns. Thus, lower cost products derive their advantage from the fact that customers purchase them because they get a comparably valued product for less cost. These superior returns then can be reinvested in new manufacturing equipment and facilities that promote maintenance of the cost leadership position (Phillips et al., 1985). Thus, firms which pursue a lower cost competitive advantage focus their efforts on asset use, employee productivity, discretionary expenses (Hambrick, 1983; Segev, 1989), efficiency, experience curve policies, overhead control, and other cost reductions (Galbraith and Schendel, 1983). They also often rely on economies of scale. Of course, a firm cannot neglect quality, service, and other important areas if it expects to sustain its competitive advantage; however, these are not the primary components of a lower cost competitive advantage.

A differentiation competitive advantage prescribes that a firm achieve and maintain a means of making its product unique from its competitors' products (Galbraith and Schendel, 1983; Kotha and Orne, 1989). The advantage of differentiation is based on the additional value the product possesses, for which the customer will pay a premium. While additional value may be created through a variety of means, such as quality, service, brand image, or distribution (Dess and Davits, 1984), superior quality is the means of differentiation which is most often used (Galbraith and Schendel, 1983). Thus, successful differentiation permits a firm to command premium prices (Porter, 1990) for this additional value. A differentiated product engenders customer loyalty, reducing customer sensitivity to price and protecting the business from other competitive forces which could reduce price-cost margins (Phillips et al., 1983). While a firm that pursues a differentiation competitive advantage should not ignore costs, they are not the key ingredient in its strategy.

Porter advocates that ever)' firm must make a choice about which competitive advantage it will pursue:

It is difficult, though not impossible, to be

both lower cost and differentiated relative

to competitors. Achieving both is difficult,

became providing unique performance,

quality or service ia inherently costly

... (1991:38).

Clearly, this is incompatible with the tenet of WCM that it costs less to make the product correctly the first time (Schonberger, 1986). World class manufacturers link lower cost and increased value by producing products that feature differentiation (high quality, on-time delivery, product flexibility and volume flexibility) at lower Cost for that value. The popular press has reported anecdotal evidence Of this occurring, with some Japanese manufacturing firms (e.g., Toyota, Kawasaki, Sony) becoming almost mythical in their reputation for producing extremely high quality products at a very low cost (Phillips et al., 1983: White, 1986; Schonberger, 1986). This evidence raises the question of whether Porter was incorrect in his assertion, whether this evidence represents the exception, rather than the norm, or whether WCM may have created new dynamics which supersede those discussed by Porter.

The Relationship Between Competitive Strategies and WCM

In spite of the apparent incompatibility between the competitive strategies model and the WCM model, the competitive strategies model offers a great deal of potential for interpreting WCM. Conversely, WCM generates unique insights into the nature and evolution of competitive advantages.

The competitive strategies model identifies the ways in which firms successfully compete, as well as providing general guidance in determining how those strategies can be implemented. Like the competitive advantages approach, WCM represents a set of choices about managing and configuring the firm; however, it does so in more detail and with a continuous focus on increasing a product's value on several dimensions while lowering cost. In doing so, it provides a means for simultaneously achieving lower cost and differentiation competitive advantages, which as noted earlier, Porter (1980, 1985, 1991) claims only can happen under unusual circumstances. Similar to the WCM approach, Porter emphasizes that a firm should be managed as an entire system, rather than as a collection of separate parts, in creating value in a product. Coordination between a firm's activities (the value chain) is vital because it allows the substitution of a less costly operation in one area for a more expensive operation in another (Porter, 1990). WCM expands on this by incorporating both coordination and development of less costly operations processes and procedures.

However, there is some question whether the competitive strategies model adequately explains the strategic importance of world class manufacturing. This is based on the issue of whether differentiation is both inherently more expensive and, ultimately, in direct competition with lower cost. In 1980, Porter described lower cost and differentiation as incompatible and mutually exclusive, or as endpoints on a unidimensional continuum (Hambrick, 1983). Since then he has stated,

Each ... involves a fundamentally different

route to competitive advantage. Achieving

a competitive advantage requires a firm to

make a choice (1985:11).

The worst strategic error is to be stuck in the

middle, or to try simultaneously to pursue all

the strategies. This is a recipe for strategic

mediocrity and below average performance,

because pursuing all strategies simultaneously

means that a finn cannot achieve

any of there'?because of their inherent contradictions

(1990: 40).

However, Porter acknowledged that a firm may be successful in pursuing both a lower cost and a differentiation competitive advantage simultaneously:

Reducing cots does not always involve a sacrifice

in differentiation. Many firms have

discovered ways to reduce cost, not only

without hurting their differentiation, but

while actually raising it, by ming practices

that are both more efficient and effective or

by employing a different technology (1985:

18).

Indeed, Porter (1985) stated that in what were the rare occasions when firms were successful at simultaneously pursuing both competitive advantages they reaped even greater benefits than firms which pursue only one competitive advantage:

If a firm can achieve cost leadership and

differentiation simultaneously, the rewards

are great became the benefits are additive--differentiation

leach to premium

prices when cost leadership implies lower

costs (1985: 18).

While Porter describes performance similar to that achieved by world class manufacturers, he severely limits the set of situations in which it may be achieved. The simultaneous pursuit of both competitive advantages will be successful in one of only three situations: 1) in a market where all competitors fail to consistently pursue one competitive advantage or the other (all are "stuck in the middle"; thus, the firm that is best at pursuing both will be the most successful); 2) where cost is strongly affected by market share or the interrelationships between industries; or S) where a firm pioneers a major product or process innovation.

At first glance, it appears that the third situation could describe WCM. While world class manufacturers are innovative, the goal in WCM is not the rare and infrequent major innovation, but rather the continuous, incremental improvements that constantly advance a firm's competitive advantages (Hartley, 1992). Thus, continuously improving product designs, manufacturing processes, and associated supportive infrastructure rather than major innovations produces a regular series of incremental improvements. For example, evidence from Japanese manufacturers in recent decades has shown that product enhancement ia better managed as a series of small improvements rather than large major enhancements, such as new "model years" for automobiles (Maskill, 1991). The cutting edge in any particular technology represents the accumulation of incremental improvements (Weiss and Birnbaum, 1989). Thus, a goal of WCM ia to continuously work on developing product features or neW products, while improving existing products and processes (Gomory, 1989) to increase their value to customers.

Striving for major breakthroughs is actively discouraged by world class manufacturers, because it leaves most firms in a situation of constantly trying to "catch up" (Stalk and Hour, 1990). Firms that seek only breakthroughs in product and process development are often surprised by changes in the market and their competitors' approaches. This leaves them with two distasteful choices: 1) to proceed as planned, introducing a product design breakthrough conceived to meet a market need that no longer exists, or 2) to stop the development effort, redirecting and restarting it, which causes further delays and risks exposure to additional market and competitive change.

The incremental product improvement strategy of world class manufacturers is effective because their production processes are under control, and production personnel can be rapidly trained to effectively manage pilot production, as well as possessing the flexibility to slot improvements into production schedules with a minimum of disruption. On the other hand, breakthroughs are traditionally preferred by companies that do not have effective control of production processes and cannot effectively manage many small changes (Maskill, 1991). These firms compete solely on the basis of innovation, which means that cost, quality, and delivery are not managed effectively. This is a problematic strategy, because once an innovation has been copied, the innovating firm no longer has a competitive advantage.

Porter states that, as competitors begin to imitate a successful firm, it will ultimately be forced to make a choice between lower cost and differentiation:

Firms can improve technology, and methods

in ways that simultaneously reduce cost and

improve differentiation. In the long run,

however, competitors will imitate and force

a choice of which type of advantage to emphasize

(1990: 38).

This conclusion fails to recognize that continuous improvement can make successful imitation extremely unlikely because it creates a moving target; the imitating firm is attempting to duplicate a performance level the target firm will soon surpass. Continuous improvement is based upon the consistent and additive advantages of many changes that complicate a firms' processes and systems, thereby making it difficult for other firms to imitate them (Barney, 1991).

Researchers in operations management (Ferdows and DeMeyer, 1990; Hall, 1983; Schonberger, 1986) have documented how pursuing high quality can lead to lower costs in the long mn, than will the pursuit of lesser quality for the sake of obtaining a lower cost competitive advantage. A classic book on quality management, entitled Quality is Free (Crosby, 1979), professes that, although increased inspection and quality training can be costly initially, the benefit comes from the lowered cost of not having to build, maintain, and operate the "hidden plant" (the additional space, machines, material, and people required to correct defects), which averages 30% of manufacturing costs (Grant, 1992).

Ferdows and DeMeyer (1990) note that a firm's performance capabilities are cumulative and sequential and must be managed as such for them to be achieved. Specifically, quality provides the foundation for dependability, which leads to production flexibility, and only then can cost be fully addressed. As these capabilities evolve, World Class Manufacturers destroy their own competitive advantages and continuously generate new advantages, which D'Aveni (1994) described as hypercompetition. On the other hand, the competitive strategies model views the cost of implementing quality management as inherently continuous and, therefore, detrimental to a lower cost position. Thus, the competitive strategies model suggests that firms have to manage competitive attributes as contradictory, while WCM is based on the belief that they are complementary.

WCM extends the logic of continuous improvement to all areas of the business unit. For example, WCM's use of Just-in-Time (JIT), which focuses on improving material flows through the production system by exposing problems in the manufacturing process and solving them, ultimately has benefits beyond the production system. When material flows are improved, inventories are reduced. Both outcomes reduce lead time and costs. In order to improve material flows, efforts must be undertaken to coordinate, decentralize, and integrate decision making throughout the company, which requires improved information flows (Galbraith, 1973). These improved information flows facilitate joint product and process engineering (traditionally discrete activities), emphasizing "getting the bugs out" before production rather than rushing a questionable product to the market or delaying product introduction until the problems are corrected (Hartley, 1992). This leads to improved product line flexibility and faster innovation. The synthesis of WCM practices results in successfully sharing activities, creating economies of scope that complement new smaller volume economies of scale (Jones and Buffer, 1988; Sriram and Gupta, 1991), rather than requiting manufacturing based on large volumes. The combination of economies of scope and scale results in products which are less costly, higher quality, more rapidly developed and delivered, and more customized. Such a product is one that few customers can resist and one which other firms will have great difficulty competing with.

The strategic importance of continuous improvement and the comprehensive nature of WCM are indicated in a set of recent studies. Vickery et al. (1993) showed that production competence is related to business performance and that it may have increased importance if competition shifts to quality, customization, service and/or speed. Ward et al. (1994) reported that manufacturing proactiveness is related to higher performance. Product development competence, which is a heavily cross-functional competence, was shown to be the key variable in six measures of business performance (Droge et al., 1994). The behavioral characteristics of total quality management, firm culture empowerment, and managerial commitment have been reported to produce economic benefits to the firm (Powell, 1995). Recently, Miller and Shamsie (1996) reported that in more uncertain industries, skills which promote the ability to adapt, which they refer to as knowledge-based assets, are more useful than property-based assets.

The competitive strategies model is based on larger volume, standardized products, which require economies of scale as a major driver of lower cost advantages. This is because traditional manufacturing technology, processes, and management achieve low cost in mass produced standardized products. The technology and processes further encourage mass production because changeover time (a linkage) is extensive. In contrast, WCM, with its focus on integration and coordination, reduces changeover time tremendously, as well as emphasizing manufacturing technologies and processes that lower average total cost over smaller volumes than a mass production system. As a result, WCM achieves both economies of scope and economies of scale and their resulting benefits.

Theoretical Support for Simultaneous Competitive Advantages

Several strategic management researchers have also questioned the competitive strategy model's assertion that differentiation (particularly on high quality) and low cost should not be pursued simultaneously. Hambrick (1983) stated that each genetic strategy, is composed of three dimensions. These are efficiency (the degree to which inputs per unit of output are low); differentiation (the degree to which the product or its enhancements are perceived as unique); and scale/scope (the relative size and range of activities of the business within its industry). Hambrick also argued that, although efficiency and differentiation may be generally incompatible, they do not represent opposite ends of a single continuum. Because each genetic strategy is a combination of efficiency, differentiation, and scale/ scope, it is possible to excel at several strategies, especially as they focus on the scale/scope dimensions. Further support for this notion was provided by Jones and Buffer (1988), who noted that both competitive advantages are subject to the same underlying cost trade-offs rather than representing a trade-off. Therefore, they are not at opposite ends of the strategy continuum. Thus, according to both Hambrick (1983) and Jones and Buffer (1988), the differences between the competitive advantages are in the degree to which they are pursued, not a discrete choice of one over the other.

Continuing the argument that strategy is multidimensional, Murray (1088) noted there are certain preconditions necessary for a firm to pursue each competitive advantage. The preconditions for cost leadership stem principally from the industry's structural characteristics, while the preconditions for differentiation stem primarily from customer tastes. Clearly, the two sets of preconditions are not mutually exclusive. WCM, with its reduced changeover and lead times, facilitates customization of products thereby enabling firms to take advantage of these conditions.

Hill (1988) observed two weaknesses in the competitive strategies model. First, many industries do not have a unique low cost position. This is particularly true of mature industries, where most firms have already achieved minimum-cost structures. In these industries, firms which also differentiate are rewarded by superior economic performance because their products will have more value. Thus, establishing a sustained competitive advantage in these industries may require a firm to simultaneously pursue both low cost and differentiation competitive advantages. Second, Hill demonstrated that differentiation can be a means to achieve an overall low cost, position. Although the immediate effect of differentiation may be to increase unit costs, there is frequently a long-run reduction of cost as demand for a more valuable product increases, due to learning effects and economies of scale and scope. The ability of differentiation to help achieve a low cost position depends on two additional factors: 1) the extent to which differentiation significantly increases demand, shifting the demand curve to the tight; and 2) the extent to Which significant reductions in unit costs arise from the increasing volume, which generally occurs for any type of manufacturing. Thus, when a firm follows a differentiation strategy, it may often also achieve a lower cost position.

While Hill's explanation has profound implications because it includes discussion of a manufacturing-based competitive advantage, it is incomplete because it focuses solely on an economics-based interpretation of the relationship between cost and differentiation. WCM is more complete because it is based on the thesis that not only does the demand curve move to the fight with improved product features (quality, speed, flexibility, customization), but that it also costs less to continuously expose and eliminate problems, which subsequently reduces costs, rather than work around them. By controlling manufacturing processes, output is virtually defect free, on time, and flexible, and thus eliminates the need for inspection, rework, expediting, "fire fighting" (Schonberger, 1986), or the "hidden plant" (Grant, 1992). Thus, WCM is not based solely on the achievement of economies of scale, nor does it require that capital investment in state-of-the-art machinery is necessary to achieve low cost. It is based on controlling the manufacturing system in its broadest definition, thereby controlling more drivers of cost and quality, creating a product of greater value.

Mintzberg (1988) claimed that there are actually seven generic approaches to differentiating a product, each making a different strategy possible. The seven differentiators are: cost, image, support, design, quality, functional and undifferentiated (generic). Firms will alter whichever of the seven differentiators they can to achieve a competitive position. For example, Mintzberg specifically stated the competitive advantage of lower cost does not occur until the cost is translated into price. Thus, if the lower cost is used in a strategy, the firm is a price differentiator, because it is the product's price, not the cost to produce it, on which it competes in the marketplace. More importantly, Mintzberg (1988) also stated the seven forms of differentiation are on equal footing, competing against each other, not that cost is a distinct competitive advantage against which all other types of competitive advantage must compete, as stated by Porter (1980).

Reinforcing Mintzberg's (1988) thesis of several dimensions of differentiation are the multi-attribute models of consumer behavior (Ahtola, 1975; Hughes, 1974; Ginter, 1974). Consumer purchasing decisions are complex activities involving concurrent evaluation of multiple attributes with the goal of maximizing their match with consumer preferences. Ahtola (1975) proposed there are several concepts contained in any one dimension. When consumers make buying decisions based on multiple attributes, a simple attribute advantage may not be sufficient. Even when other attributes are equal, superiority on a single attribute may not be sufficient because that attribute may not be critical to the buyer's decision, or other products may have a pattern of attribute strengths which more closely matches the multi-attribute criteria of the customer, resulting in a competitive advantage position.

More recently, D'Aveni (1994) presented a harsh criticism of Porter's model for being static, rather than dynamic, and being "a simple accounting-based view of where profits come from" (1994: 3). He notes that a dynamic strategy model would incorporate how competitors would react and maneuver the four bases of competition: 1) cost and quality, 2) timing and knowhow, 3) strongholds, and 4) deep pockets. This has resulted in hypercompetition, where the goal of strategy is to achieve a temporary advantage and continuously disrupt the market, in order to destroy the advantage of competitors. This is very consistent with WCM's emphasis on continuous improvement of manufacturing capability to simultaneously improve the five dimensions of manufacturing performance and competitive advantage.

Thus, there are several authors, representing a variety of academic fields (consumer behavior, operations management and strategic management), who conclude that the ability to link multiple competitive advantages is not as constrained as Porter (1985) claims. They claim it is possible, and some claim it is even common, to simultaneously pursue multiple attributes or competitive advantages. Their conclusions are based on different theses: strategy is multidimensional; shifting demand curves achieve new economies of Kale; the removal of the "hidden plant" reduces costs and improves quality; and consumer behavior as a multiattribute-based decision. Collectively, they reveal that not only does WCM improve manufacturing capability and performance, but it can also change the competitive dynamics by simultaneously lowering costs, and improving speed, quality and customization, all of which may be important to customers. When a continuous improvement focus is used, it creates a moving target on all these dimensions, resulting in a continuously improving competitive advantage which is even more difficult to duplicate.

Empirical Support: Observations of Simultaneous Competitive Advantages

The empirical research supporting the achievement of simultaneous competitive advantages is intriguing because in each case the intent of the study was not to refute Porter's assertation that it is unusual to achieve them. Phillips et al. (1984) found that quality was positively associated with increased market share and negatively associated with relative direct costa, indicating that high quality was less costly. These findings supported the earlier work of Fine (1083), who found that costs declined more rapidly for firms that produced higher quality products. Almost one-third of the 69 business units studied by White (1986) successfully combined both competitive advantages and had an average return on investment that was higher than the return of business units which were the most successful at creating a single competitive advantage.

In addition, Ferdows and DeMeyer (1990) observed the "sandcone" model, in which cost reduction is achieved only after other manufacturing competencies are developed. This suggests that true control of manufacturing and its related processes is the ultimate source of a lower cost advantage. The sandcone model has the additional benefit of showing the development of advantages in other sources of differentiation, including quality, speed, and product flexibility.

Motorola's "Six Sigma Program" refutes the traditional assumption that there is a critical point after which both costs and quality increase. Its success with this program illustrates the significance of the "hidden plant," and how gaining control of manufacturing processes yields more competitive benefits than a program designed to control costs or increase differentiation (Grant, 1992).

In a study of Mintzberg's (1988) typology discussed above, Kotha and Vadlamani (1995) found strong support for the typology. They concluded that WCM technologies and practices may have increased the complexity of competition, which calls for more fine-grained strategies, as is indicated in Mintzberg's typology.

There is diverse theoretical, empirical, and anecdotal support in both the operations management and strategic management literatures that it is possible to simultaneously achieve lower cost and differentiation competitive advantages. However, these literatures have not acknowledged the contributions of each other. For example, the strategic management critics of Porter who have described simultaneous competitive advantages have not incorporated the contributions from the WCM approach. Also, the proponents of WCM have focused on operations issues and seldom described their advantages in a directly competitive context. Combined, these literature streams integrate knowledge of firm skills and practices with how the product competes, making a compelling argument for combining them in theory, teaching, and practice.

World Class Manufacturing as a Research Paradigm: Implications for Competitive Advantage

As noted earlier, WCM is built upon the premise that continuous improvement of product and process management, including organizational characteristics and human resource management practices, may result in products with several competitive advantages. These characteristics are at the upper end of Porter's (1990) hierarchy of the sources of competitive advantage. Porter notes that success at this end of the hierarchy is difficult for other firms to compete with. Thus, the following research proposition can be stated.

Proposition 1: Firms that are world class

manufacturers will have higher-order

sources of competitive advantage than their

competition.

Higher-order advantages are more durable and less vulnerable to competitor duplication. Achieving these advantages requires more advanced skills, including highly trained personnel, internal technical capability, and linkages among different parts of the firm. World class manufacturers effectively develop and implement an integrated system of management, based on organizational characteristics, human resource practices and advanced skills for interfunctional cooperation, teamwork, a flexible work force and decentralization. The final result is extremely high value products which are outstanding on several dimensions. These characteristics are very difficult to duplicate and in themselves become a source of competitive advantage (Barney, 1991). This leads to the conclusion:

Proposition 2: Firms with a more thorough

and better integrated system of firm characteristics,

manufacturing process, and

product management, and human resource

management are more likely to achieve simultaneous

competitive advantages.

The key component of world class manufacturing is its focus on continuous improvement of its manufacturing capability, and product characteristics. Even Porter states that the most important reason that a competitive advantage is sustained is continuous improvement and upgrading.

Virtually any advantage can be replicated

sooner or later if a leader rests on its laurels.

In order to sustain advantage, a firm mint

become a moving target, creating new advantages

as fast as competitors can replicate 

old ones (1991: 51).

Thus,

Proposition 3: The stronger a firm's commitment

to continuous improvement of its

processes and products, the higher the order

of its competitive advantages.

Further, Porter (1991) noted that constant manufacturing process and product upgrading and improvement increase the sustainability of a competitive advantage. Thus, two corollaries of Proposition 3 can be stated,

Corollary 1: If a firm embraces continuous

improvement, it will sustain its competitive

advantage.

Corollary 2: Competitive advantages based

on continuous improvement will be difficult

to match.

When a firm is successful in developing continuous improvement capabilities, it has the ability to destroy existing competitive advantages, including its own. This makes it possible for a firm to rapidly escalate the competition in its own industry. In other words, the use of continuous improvement will be emphasized by hypercompetitive firms (D'Aveni, 1994). This leads to the fourth proposition:

Proposition 4: The greater a firm's ability to

continuously improve, the greater the likelihood

it is a hypercompetitive firm.

Conclusions

This article has attempted to integrate Porter's competitive strategy model and world class manufacturing by focusing on the linkages between them. While Porter claims it is very difficult and unlikely for a firm to achieve simultaneous lower cost and differentiation competitive advantages, world class manufacturing prescribes a general model in which it is likely that simultaneous competitive advantages can be achieved. WCM, which draws on the set Of best manufacturing practices from throughout the world, contends that by gaming control over the entire production system and related systemic issues (e.g., maintenance, training, decentralization) a product can achieve a high competitive profile on cost, quality, deliverability and customization, the latter three comprising differentiation in Porter's model. Porter's model claims that it is almost universally impossible to simultaneously achieve both competitive advantages. Ironically, much of the criticism of Porter's model is in the strategic management literature, both theoretical and empirical.

WCM focuses on the linkages, or coordination between activities, which results in economies of scope, as well as technological processes which reduce the time needed to make change occur. This pattern is consistent with the "sandcone" model in which true cost reduction only occurs after the accumulation of other competencies. The ability to share activities and consequent cost reduction is referred to as economies of scope. Porter's model relies heavily on the assumption that economies of scale, based on large volumes, are the basis of minimizing costs. Thus, Porter believes there is an inherent tradeoff betWeen any attempt to add product features (various forms of features and quality) once a lower cost competitive advantage has been created, while WCM does not accept this as inevitable.

Despite these differences, the models share many features. These include managing the value chain as the means to competitive advantage, continuously improving the value chain, and ensuring that a product has more value that its competition. These commonalities enable the models to be used together to create competitive advantages based upon higher order, more difficult to imitate competitive advantages. Porter described a general model of competition, while WCM prescribes many of the specific characteristics necessary to simultaneously achieve competitive advantages. The benefit to a firm which successfully incorporates WCM is that it is much more likely to excel on several competitive dimensions. The product will be outstanding on several dimensions of what Porter classifies as differentiation, as well as being at least competitive on cost. Firms with these characteristics are not only able to effectively compete against the best firms in the world, but they are also able to continuously increase the standards of competition in the dimensions of competition.

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E. James Flynn Associate Professor of Management Iowa State University 

Barbara B. Flynn Associate Professor of Management Iowa State University