Cost Leadership Strategies

Cost Leadership Criteria

Because of Medtronic’s size, it is able to operate as an economy of scale. As a global operation with high sales, it has an advantage of product volume and specialized machines. With such a high volume of production, employees are able to have more specialized jobs. Therefore, the learning curve for each employee allows them to do their job more efficiently, giving Medtronic an advantage in employee productivity. Medtronic may also have an issue with diseconomies of scales due to the expanse of products and locations. There may be managerial diseconomies due to the complexity of the organization. Medtronic also experiences technological advantages due to the sophistication of the products. No other company develops quite the same products as Medtronic, meaning their machinery has to be sophisticated and specific enough to handle advanced production. In addition, Medtronic also has advantages in policy decisions. It has strategically built several arms of the company specializing in different medical issues; each has a designated portion of the projected revenue for the company. Other positive policy decisions describe company culture and employee benefits, such as volunteer opportunities and matched employee giving. Medtronic employees enjoy working there; employee retention is an advantageous strategy.

Porter’s Five Forces as Related to Cost Leadership

Threat of Entry: Other firms would find it expensive to enter the market because of the size of Medtronic and its volume of production.

Threat of Rivalry: Because Medtronic has cost advantages, their profit margins will be higher than competitors who have higher operating costs.

Threat of Substitutes: There are not many options for substitutes because of the production differentiation advantages Medtronic has. The threat of substitutes is low due to costs of production and technology required to create the medical devices.

Threat of Suppliers: The threat of suppliers is low because of the volume of production. Medtronic has such a high volume that suppliers will want to keep the relationship with such a big client.

Threat of Buyers: The threat of buyers is low. Due to the nature of the medical devices and the customers Medtronic has, buyers are not likely wielding their power by demanding lower prices or higher quality materials.