Detection of cost leaders using non-central principal component analysis and data envelopment analysis
Authors: Sarkar Subhadip 
Published: January 2019

Purpose

The purpose of this paper is to express the strategic positioning of a firm among its rivals based on an overall analysis. The proposed model uses data envelopment analysis (DEA) to determine the indexes due to cost leadership and differentiation. The model can be useful to identify the true cost leaders and those who are stuck in the middle. This work suggests the way how the strategic position can be explored from the consumption of resources (unlike the prevalent models like Banker et al., 2014).

Design/methodology/approach

Depending on the previous surveys, two inputs (spending per student and percentage of non-poor income group) and two outputs (average scores attained by students in science group and in language group in six private schools, located within the outskirt of Durgapur) were analyzed.

Findings

The classification made on the basis of the result of the proposed model reveals that out of the six schools (A, B, C, D, E and F), A, E and F occupy a strong position in this context, whereas B can be an example of stuck in the middle scenario. It not only has to reduce cost by 30 percent but also improve the differentiation index by 140 percent. C and D are lagging behind as they do not have enough differentiating qualities.

Research limitations/implications

Only six schools were taken for the analysis. Second, the input and output vectors had to be non-negative. In case of a negative input (output) set, separate treatment must be applied to them before the application of non-central PCA. Any decision-making unit producing an output of 0 will prohibit the use of the non-central PCA.

Practical implications

The extant study provides the indices to measure cost leadership and differentiation strategies for the classification as per the generic strategies. A firm which is lagging behind can adjust its consumption to remain successful.

Social implications

According to Hillman and Jenkner (2002), the developing countries lack the willingness of a primary school to impart education to children. The current study is used to explore whether any private primary school has the same goal or not. They also pointed out the possible future consequences while stating that the cost of educating children from the poorer section might be outweighed by the cost of not educating them and adults lacking basic skills had greater difficulty in finding well-paying jobs to escape poverty. So it is important to understand the role of a private primary school to offer seats to underprivileged students for educating them. The intention of six private primary schools toward educating the population of the small area within Durgapur is analyzed in this study, The study revealed that few schools spend more to serve the students belonging to upper classes to remain successful, whereas few schools as a differentiator make conscious attempts for providing services to poorer sections in an economical manner like a cost leader.

Originality/value

The extant research aims to formulate the determining methods of identifying strategic groups (proposed by Hunt, 1983) to make a parity between business definition view and strategic type concepts. The model can assess the rivals within an industry to explore the true cost leaders and those who are stuck in the middle using DEA. There are not enough kinds of literature which could effectively measure them.