Which Of The Following Is A Controllable Environmental Factor That Can Affect An Organization?

Which Of The Following Is A Controllable Environmental Factor That Can Affect An Organization? A. Economic recession B. Contamination of raw material sources C. Government interference D. Demographic changes in the labor force E. Cost leadership strategy

Answer of MCQ | What Is Cost Leadership Strategy

The correct option of this multiple choice question (mcq) is E, as in Cost Leadership Strategy, the Management of the company uses the cost control system to lower the cost of production and operations to cut cost and control it in order to offer lower prices of products or services to customers to gain competitive advantage / edge over its competitors. The management can adopt this strategy internally and control it with cost control system, so this is a controllable environmental factor which can significantly affect the organization. For example, if the manufacturing company wants to increase the sales of cars and gain competitive advantage over its competitors in the market, then it should lower the prices of cars by cutting costs of its production i.e., by utilizing the efficient use of resources without losing the quality of car.

How To Reduce Cost:

1. Efficient Use of Resources

A company can minimize the cost of production and productions by avoiding wastage of resources. This can be done by hiring skillful and professional workers and employees who show efficiency in producing and buying & selling of goods or services i.e., during manufacturing process, he can avoid wastage of resources by operating the machine accurately and effectively. These skillful people work can completely the work to save time while at the same, maintaining the quality.

2. Economies of Scale

It means producing products or services at a large scale while average per unit cost keeps on lowering and at the same time, units of production keep producing on i.e., output increases, otherwise, diseconomies of scale occur. For example, if company A produced 100 bags within a week with the total cost of $50, but company B produced 500 bags within a week with the total cost of $10, the company B has better economies of scale than company A and, therefore, is more capable to offer lower prices to customers without losing quality.

Economies of scale occurs due to efficiency in production process and operational activities due to skillful labor force, advanced technology tools, purchase of goods in bulk with lower per unit costs, etc., and as a result, the company can gain competitive edge by offering lowering prices than its competitors to customers in the market.

Cost Leadership Strategy Advantages And Disadvantages\

Advantages:

1. Increase In Profits

The company lowers the prices of goods or services than its competitors allowing it to attract more customers to buy from such company with better quality. This increases its sales volumes and it earns huge profits.

2. Increase In Productivity

As the company lowers the price, so it needs to produce goods or services at large scale to earn convert minimum profits on each sale into huge profits and hence as a result, the productivity level increases which makes its possible for company, adopting cost leadership strategy, to gain competitive advantage over its competitors.

3. Improvements In Working Performance

As the productivity increases, so it is the result of efficient use of resources and effectiveness in the task performance implemented by effective management system. So, the desired end results i.e., lower prices, increase profitability, etc., are achieved with minimum cost at maximum out without losing quality of products or services.

Disadvantages:

1.Less Investments on Marketing and Research And Advertising

The main focus of management is on cost reduction, so the company comes to know about markets trends and buyer new needs lately, which can costly for the business in the long run as the company less spend on marketing & research and advertising campaigns.

2. Can Be Risky

If the company fails to reduce costs or unable to maintain lower cost than its competitors then the company faces heavy losses due to heavy cost of production and unable to offer lower prices of products or services to customers, who are willing to buy the products or services due to lower prices, resulted in a decrease in sales.

The options (A, B, C and D) of this mcq are incorrect choices here as these are uncontrollable external macroenvironmental factors.

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