I analyze asymmetric cost behavior from the perspective of resource commitment made to support strategic positions. Previous studies of asymmetric cost behavior consider how managers’ expectations about future demand in relation to costs of adjusting resources affect cost stickiness. My studies focus on how managers’ resource commitments made for strategic reasons affect cost behavior, and how cost stickiness as evidence of commitment to strategy is associated with firm performance. My first study investigates how resource commitment or resource flexibility reflected in cost stickiness is related to firm performance under different generic strategies. I interpret higher cost stickiness as evidence of commitment to a differentiation strategy and find that intangible value (measured by Tobin’s Q) associated with differentiation increases with cost stickiness. I also find that the persistence of return on assets (ROA) increases with cost stickiness for differentiators.
My second study examines stickiness of SG&A costs as a consequence of resource commitments made to support a customer-focused strategy reflected in higher customer satisfaction. I find that customer satisfaction increases with both the intensity and stickiness of SG&A costs. I also document that the positive relation between intangible value and customer satisfaction increases with cost stickiness.
My third study focuses on the airline industry in order to gain further insights about the roles of strategy and operations in determining cost behavior. In the airline industry, full service carriers (FSCs) employ clearly distinctive operating strategies from low cost carriers (LCCs). Resource complementarity is important to FSCs whose strategy depends on combinations of resources that enable high levels of service but resource flexibility is important to LCCs whose strategic goals are to minimize costs in both up and down markets. I use revenue passenger miles (RPMs) flown as the primary cost driver to separate the influence of volume changes from price changes on the empirical analysis. I find that operating costs, number of employees, and number of flights all exhibit stickiness for FSCs but not for LCCs.