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Middle-East Journal of Scientific Research 18 (10): 1411-1416, 2013
ISSN 1990-9233
© IDOSI Publications, 2013
DOI: 10.5829/idosi.mejsr.2013.18.10.12410
Corresponding Author: Narentheren Kaliappen, Othman Yeop Abdullah, Graduate School of Business,
Universiti Utara Malaysia.
1411
Enhancing Organizational Performance Through Strategic Alignment
of Cost Leadership Strategy and Competitor Orientation
Narentheren Kaliappen and Haim Hilman
12
Othman Yeop Abdullah, Graduate School of Business, Universiti Utara Malaysia
1
College of Business, Universiti Utara Malaysia
2
Abstract: This study adds the body of knowledge that relates Porter’s cost leadership strategy and competitor
orientation to organizational performance in context of hotel industry in Malaysia. The existing literatures show
that there were limited empirical studies, which considers the alignment between cost leadership and competitor
orientation and its impact on organizational performance. A total 475 sets of questionnaires distributed to three
to five star rating hotel’s managers in Malaysia and only 24% of it, which is 114 returned. Of these 114
respondents, only 54 hotels implementing cost leadership and the rest follows differentiation strategy. For this
paper, the researcher focused on those 54 hotels which implementing cost leadership strategy. The findings
show that cost leadership strategy has significant effect on organizational performance and competitor
orientation. In addition, competitor orientation has positive impact on performance. Present study found that
competitor orientation mediates the nexus of cost leadership and organizational performance. This study is
bridging the gap and presenting the significance of aligning cost leadership and competitor orientation in hotel
industry. It also provides some practical implications for the decision making process that relates with alignment
of cost leadership, competitor orientation and organizational performance nexus.
Key words: Cost Leadership Strategy Competitor Orientation Organizational Performance Hotel Industry
in Malaysia
INTRODUCTION this study is to examine the nexus of cost leadership
It has been reported in the literatures that performance. Specifically, this study examines the
hoteliers today face various challenges from internal strategic alignment between cost leadership strategy and
and external factors in a dynamic business environment competitor orientation in context of Malaysia hotel
that affect the organizational performance [1]. These industry.
challenges are alarming for hoteliers to consider
about alignment between strategies which can Review of Literature
produce better performance. Therefore, it is important Underpinning Theories: The issue of strategic alignment
for hoteliers to adopt the finest and specific business between organizational strategies is considered as major
strategy and functional strategy which can be the best factors for securing the organizational performance [2].
strategic fit for the hotel’s strategic direction and The literatures stated that strategic alignment as process
practices in order to achieve better performance and of coordination, co-alignment, fit and match various
competitive advantage. organizational strategic levels in order to create the
Hence, it is vital for the hoteliers to align the cost consistency [3-5]. There were several researchers
leadership strategy (business strategy) with examined the alignment of business strategy and
competitor orientation (functional strategy) that functional strategy and emphasize its importance in
could enhance the performance. Thus, the objective of enhancing organizational performance [6-8].
strategy, competitor orientation and organizational
Middle-East J. Sci. Res., 18 (10): 1411-1416, 2013
1412
It is expected that a cost leadership strategy Cost advantage and economies of scale which
(competitive strategy) that is well supported by
competitor orientation (market orientation) must lead to
enhanced performance. This is because marketing
decisions are organized in a way that competitive
objectives would be achieved. Inconsistency between
competitive strategy and market orientation will lead to
ineffectiveness in overall strategic direction. Thus, in
order to established strategic alignment between cost
leadership strategy and competitor orientation, the
researcher utilized several underpinning theories such as
dynamic capabilities, strategic implementation
perspectives and level of organizational strategies.
Briefly, dynamic capabilities explains the
responsiveness of organization by utilizing the firm’s
resources, skills and competences react towards the
external competitive environment [9]. By applying
dynamic capabilities perspective this study integrated and
reconfigured the strategy (cost leadership) and capability
(competitor orientation) of the organization. Furthermore,
this study used strategic implementation perspective
which explains the link of strategy (cost leadership)
influence structure (competitor orientation) on
performance [10-12]. Finally, the alignment established
through the level of organizational strategies where cost
leadership is a business level strategy while competitor
orientation is a functional level strategy [13-15].
Cost Leadership Strategy: Porter [4, 16] cost leadership
strategy is about organizing and managing business
activities in order to be the lowest cost producer of
products or service in the entire industry. Organizations
that pursue a cost leadership strategy are preferably
emphasis to implement competitor orientation as their
marketing strategy [10, 17, 18]. Even though, the objective
is to produce low cost products and services but the
organization still an emphasis on the quality and value as
well.
Porter [4] mentioned that, to achieve cost leadership
position an organization requires efficient scale facilities
and cost reduction through tight cost, overhead cost
control and cost minimization in several areas namely
service, sales, marketing and research and development
[19, 20]. Porter [4] suggested that the lowest cost position
in industry facilitates the organization to defend against
their competitors, powerful buyers and suppliers by
employ accurate demand forecasting, high capacity
utilization, economies of scale, technological advantages,
outsourcing and learning/ experience effects [21].
experience by organization will enhance the value of the
business and lessen the five forces threats [4, 19, 22].
Competitor Orientation: Competitor orientation
observes the competitors closely, recognizes short term
strength and weakness and long term competencies as
well as tactics of rivals [23, 24] competitor orientated
organization used the competitors as a reference to
identify their advantage and disadvantage to understand
the characteristic of competitive market [25]. Specifically,
competitor orientation needed sourcing information about
competitors, competitor’s activities, offerings and market
potentials [25]. Additionally, competitor orientated firms
emphasized on cost reduction by simply imitating their
competitors rather than developing innovative products
and services which could lead to industry equilibrium [24,
26]. The findings of Frambach et al. [17] showed there
were positive relationships between cost leadership and
competitor orientation. Thus, the researchers found
similarities in characteristics between cost leadership and
competitor orientation where these elements emphases on
cost reduction and greater efficiency than competitors.
Cost Leadership Strategy, Competitor Orientation and
Performance: Many studies were found significant
association between cost leadership strategy and
organizational performance[19, 22, 27, 28-30]. The concept
of competitor orientation effects on business performance
is a matter of extensive research and the association has
been well established [29, 30]. The literature review shows
that the cost leadership strategy is endeavoring to
achieve the above average return on investment than their
rivals and capitalize on economies of scale as well
experience curve effect [4, 5]. In order to achieve cost
leadership, organizations should focus on cost reduction
in all aspects in their business [4, 5].
For instance, an organization tends to probe for
outsourcing activities, controlling production cost,
increase asset capacity utilization, minimizing cost in R
and D and advertisement activities. Vitally, cost leaders
constantly yardstick against their rivals in the industry so
that needed high competitor orientation [10, 17, 18].
Particularly, cost leadership strategy enables to focus on
the supply side and assesses their relative cost position
in the industry [17]. Therefore, based on above
discussion, this study proposes that:
H1: Hotel pursuing cost leadership mediating by
competitor orientation produces better organizational
performance.
Cost
leadership
Competitor
orientation
Organizational
performance
Middle-East J. Sci. Res., 18 (10): 1411-1416, 2013
1413
Fig. 1: Research Model
Methodology: The sample was drawn from the three Goodness of Measures: Exploratory factor analysis and
to five star rating hotels which registered in directory reliability analysis were utilized. The findings of the factor
of the Ministry of Tourism and Culture, Malaysia. analysis and reliability tests indicated in Table 1. All
Top and Middle management of the hotels which individual loadings were above the minimum of 0.50
represent the whole hotels or strategic business suggested by Hair et al. [34]. The reliability values were
unit of the organizations was chosen as the unit of all exceeding 0.9. Hence, the measures used in this study
analysis of the study. Data was collected using mail were valid and reliable.
questionnaire.
A total of 475 questionnaires were distributed and RESULTS AND DISCUSSION
only 24% of it, which is 114 returned. Of these 114
respondents, only 54 hotels implementing cost leadership To accomplish the objective developed, the Preacher
the rest follows differentiation strategy. For this paper, the and Hayes [35] simple mediation procedure (SOBEL) were
researcher focused on those 54 hotels which used. The findings were presented in following tables.
implementing cost leadership strategy.Questions for cost Table 2 presents the mean and standard deviation of all
leadership strategy were adopted from Auzair [31] which variables and the inter-correlations.
consist of four items. Questions for competitor orientation It can be observed from the table 3 that cost
were adopted from Grawe, Chen and Daugherty [32] which leadership strategy has significant impact on
consists of five items. While, organizational performance organizational performance (B = 1.245, p < 0.01). Besides,
measured through balanced scorecard setting which cost leadership has a significant impact on competitor
consist of six items adapted from Hilman [19] and Kaplan orientation (B = 1.009, p < 0.01). The finding also indicated
and Norton [33]. All items assessed using a seven point that competitor orientation has a significant impact
scale. on organizational performance (B = 0.643, p < 0.01).
Table 1: Result of factor analysis and reliability
Variables Factor loadings KMO Eigenvalue Variance Reliability
Cost leadership .884 3.674 91.861 0.97
CS1 .958
CS2 .956
CS3 .963
CS4 .957
Competitor Orientation .867 4.585 91.695 0.97
COMO1 .930
COMO2 .970
COMO3 .952
COMO4 .968
COMO5 .968
Organizational Performance .890 5.927 98.779 0.99
OP1 .992
OP2 .994
OP3 .995
OP4 .996
OP5 .992
OP6 .994
Middle-East J. Sci. Res., 18 (10): 1411-1416, 2013
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Table 2: Descriptive statistics and inter-correlation
Variables Mean SD OP CS COMO
OP 3.503 2.690 1.000
CS 2.965 2.127 0.984* 1.000
COMO 3.032 2.184 0.985* 0.982* 1.000
Note: Significant at: * p < 0.01
Table 3: Direct and total effects
Coefficient S.E t Sig
B (YX) 1.245 0.021 59.068 0.000
B (MX) 1.009 0.018 55.440 0.000
B (YM.X) 0.643 0.092 7.025 0.000
B (YX.M) 0.597 0.094 6.352 0.000
Table 4: Indirect effect and sig using normal distribution
Value S.E LL95 CI UL95 CI Z Sig
Effect 0.648 0.093 0.466 0.830 6.97 0.000
Table 5: Bootstrap results for indirect effect (1000 resamples)
Data Mean S.E LL95 CI UL95 CI
Effect 0.648 0.647 0.117 0.408 0.870
Finally, the association between cost leadership and From the results, cost leadership strategy has a
organizational performance is significant after the direct significant effect on organizational performance. This
effect of competitor orientation on organizational study has provided enough evidence to support the
performance was controlled (B = 0.597, p < 0.01). Cost hypothesis that cost leadership strategy provide better
leadership strategy still has a significant effect on organizational performance as agreed by [4, 19, 2].
organizational performance although it has reduced from However, this study contradicted with recent findings by
B = 1.245 to 0.597). So, this shows partial mediation. [21] where they found that hotels not implementing cost
Furthermore, Table 4 shows the result of Z score = leadership strategy.
6.97, p < 0.01 and the indirect effect was 0.648. Finally, the Further, this study found positive and significant
Table 5 shows findings of bootstrap for indirect effect impact on cost leadership strategy and competitor
using 1000 resamples. The result indicated above orientation where cost leadership strategy would
relationship lied within 0.408 and 0.870. The zero is not in encourage the hoteliers to implement competitor
the range of 95% confidence interval; the decision is that orientation as their functional level strategy [10, 17].
the mediation effect of competitor orientation is Additionally, both strategies have similar characteristics
significant. such as focusing on internal efficiency, monitoring the
DISCUSSION market share. This result provided evidence to support
This paper investigated the strategic alignment of competitor orientation.
cost leadership strategy, competitor orientation and Moreover, this study revealed that the competitor
organizational performance of hotels in Malaysia. The orientation has significant impact on organizational
overall implication for the hoteliers was that both cost performance which supported that better competitor
leadership strategy and competitor orientation have orientation implemented by hoteliers will give better
provided foundation for improving organizational organizational performance [36]. This is because
performance. Data were collected from the hotel industry competitor orientation can be considered as an important
ever since it is the area newly experienced swift changeas factor that allows hoteliers to outperform than rivals and
a result of Malaysia government’s agenda namely gain competitive advantage. The findings from mediation
National Keys Economic Area (NKEA). analysis provided a clear picture on how the strategic
competitors, making cost reduction and acquiring larger
the strategic alignment of cost leadership strategy and
Middle-East J. Sci. Res., 18 (10): 1411-1416, 2013
1415
alignment model is interconnected. This study has 3. Rashidirad, M., J. Syed and E. Soltani, 2012.
revealed that competitor orientation plays a partial
mediator role in the relationship between cost leadership
strategy and organizational performance.
Practical Implications: this study provides several
implications for practice. This empirical study
presented an insight for managers about the role of
organizational structure / capabilities / functional
competencies in the business strategy and performance
nexus. This provided a path for strategic alignment
between cost leadership strategy and competitor
orientation to improve the organizational performance.
The development of competitor orientation is essential for
effectiveness of cost leadership strategy which enhances
the performance.
Therefore, managers must simultaneously implement
right strategy with right capability / functional activity
that act as potential mediator. This approach encourages
hoteliers to align the best strategies which generate better
outcome. This finding has suggested that competitor
orientation should be incorporated as a tool to assess
cost leadership strategy effort in hotel industry that in
turn can be used to achieve higher performance.
CONCLUSION
This study provides significant information for the
decision making process to the hotel managers in order to
attain greater performance by strategically align the cost
leadership (business strategy), competitor orientation
(functional strategy) towards performance. Furthermore,
this analysis would strengthen hotel’s competitiveness
and performance in current dynamic environment.
Importantly, present study identified the implication of
competitor orientation (marketing activity) in supporting
the execution of cost leadership (business strategy) to
achieve superior performance.
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