>O2 STRATEGY > Customer focused low cost leadership strategy

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Promoting Thought Leadership…  A company having low cost leadership when extends its thinking to the value its customers expect, can further strengthen its strategic position in the marketplace.  Source: Alagse Articles >> Customer focused low cost leadership strategy Low cost strategy is centered on the capability of the company to produce and deliver products of competitive quality at lower costs. Cost leadership strategy is much more than cost reduction initiatives that get lot of prominence in strategic planning and review session of any company as a means to improve the bottom line of a company by improving its efficiency. Some companies use their efficient cost structures to protect their markets from the competitors by responding to competitors’ move of making in-roads in the market space by reducing prices. Such reactive response may make a company predominantly inward focused… Positioning – low cost strategy Better way to strategically position a company on the advantage of cost is to increase market share by transforming from lowest cost producer to lowest cost supplier of products. This way the company translates its cost advantage into price advantage for its customers and thereby improves the market share. The prospect of increasing the market share provides a great opportunity for the company to leverage the economies of scale coupled with the ruthless cost cutting measures it plans to execute. More the competitive space it occupies – which also means that more competitors eliminated – more effective are economies of scale and as a result the costs are driven still lower. When a company is able to transform the efforts of cost reduction into cost advantage for customers the company can be said to be successfully pursuing low cost leadership strategy. Wal-Mart is one company that continuously strives to reduce costs and in the market place it has got the image of supplier of products at the lowest prices. This is how Wal-Mart captures the markets and eliminates the competitors and improves revenues and market share. Economies of scale and efficiency form the core around which Wal-Mart executes its strategy. Companies pursuing cost leadership strategy compare each and every activity along their value chain with competitors and are committed to surpass them. Innovation in such companies is focused on process improvements (both incremental and quantum) rather than on products (new product development). In fact companies pursuing cost leadership strategy target mass markets with proven products. Supplier and partner relationships drive low cost strategy A common theme across the companies that base their strategy around low cost leadership is supplier relationships. In other words they have sufficient control over in-bound supplies and logistics. Their cost effectiveness starts from the premises of their suppliers. This is very important as major costs are incurred in the inbound supply chain. Take Wal-Mart, who with its economies of scale exercises lot of bargaining power over suppliers. An important aspect of the unique Toyota Production System is strong supplier relationships and their development. Know your customers The cost leaders today generally miss out on one important aspect. They typically concentrate on delivering a product of competitive quality at the lowest cost and pass on part of the savings to customers. They are so obsessed with costs and pricing that rarely do they dissect the customer value proposition. This is a prospective area that may provide yet another cost reduction opportunity and at the same time attract potential customers from a niche segment. A company when it compares the value proposition that it offers against the attributes that customers really value, new insights and opportunities may open up. Such a study may reveal some factors on which the company may be incurring substantial expenditure and yet the customers do not care about the particular feature or facility. Cutting on such frills may help in improving the bottom line. But cuts on frills accompanied by thrust on factors where company’s offering is below the customers’ expectations provides an excellent opportunity for cost cutting and serving enhanced value to the customers, which may draw customers from outside the current market space, just on the boundary of niche segments. Most popular no frills strategy is pursued by Southwest Airlines which based its strategy on clear understanding of the segment of customers it was going to serve by operating the flight services at lowest fares and prompt schedules. The clear understanding of expectations of the segment it was going to serve and competitive value proposition that this segment was being offered by the aviation industry opened up the real opportunity of lowering its costs and yet maximizing the value of low fares and adherence to schedules for its customers by keeping clear of facilities like baggage transfers, meals, seat arrangement etc., which any way the customers were not bothered about.  Related articles Role of operation management in strategic management (wiki.answers.com) Wal-Mart’s ready to do battle (money.cnn.com) Wal-Mart’s negative impacts on the world’s economy (macnomics.wordpress.com) Can Wal-Mart Turn the Tide? (fool.com) Wal-Mart plans new competitive measures (marketwatch.com)

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>Strategic Cost Management

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In times of uncertainty, organizations are examining ways to enhance cost efficiencies, by focusing on cost analysis and profitability analysis. The Key is…. The key is to identify a handful of activities of sufficient size and significance to justify separate treatment and for which a single cost driver can be identified. Identifying costs that can be influenced is key to cost streamlining. Refocus resources on really profitable products, customers and channels. NOTE : When using an integrated approach, such as Activity Based Costing  that works on causal relations to allocate costs, changes in the level of activity will not lead to a proportionate change in total costs.This in turn calls for the need to analyze costs according to a cost hierarchy, focusing at four levels: unit, batch, product, company:     * Unit: Unit level costs increase in proportion to the number of units produced (e.g. labour hours)     * Batch: Costs increase in relation to the batch of units being produced (e.g. set-up or purchasing costs)     * Product: Costs at this level are incurred irrespective of the volume of products or batches produced and might include costs like technical support, etc.     * Company: Costs at the company level are incurred and cannot be assigned to products directly (admin and management) Finally, is worth noting that Kaplan differentiates between the cost of resources supplied and the cost of resources used >> (the cost of resources supplied = the cost of resources used + the cost of unused capacity.)   And unused capacity is not entertained in a  Strategic Cost Management framework. O2ibm

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>Strategic Cost Management

>

In times of uncertainty, organizations are examining ways to enhance cost efficiencies, by focusing on cost analysis and profitability analysis. The Key is…. The key is to identify a handful of activities of sufficient size and significance to justify separate treatment and for which a single cost driver can be identified. Identifying costs that can be influenced is key to cost streamlining. Refocus resources on really profitable products, customers and channels. NOTE : When using an integrated approach, such as Activity Based Costing  that works on causal relations to allocate costs, changes in the level of activity will not lead to a proportionate change in total costs.This in turn calls for the need to analyze costs according to a cost hierarchy, focusing at four levels: unit, batch, product, company:     * Unit: Unit level costs increase in proportion to the number of units produced (e.g. labour hours)     * Batch: Costs increase in relation to the batch of units being produced (e.g. set-up or purchasing costs)     * Product: Costs at this level are incurred irrespective of the volume of products or batches produced and might include costs like technical support, etc.     * Company: Costs at the company level are incurred and cannot be assigned to products directly (admin and management) Finally, is worth noting that Kaplan differentiates between the cost of resources supplied and the cost of resources used >> (the cost of resources supplied = the cost of resources used + the cost of unused capacity.)   And unused capacity is not entertained in a  Strategic Cost Management framework. O2ibm

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>Two Best Practice Approaches to Cost Streamlining

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In times of uncertainty, organizations irrespective of size, are faced with the challenge to improve or maintain their margins, by focusing on operational cost efficiencies. They are using different approaches to ride the economic downturn and come out even stronger. Akzo Nobel’s margin management programs were implemented throughout the company with a strong focus on cost management, and cash management, by closely monitoring working capital and be prudent in capital deployment. Besides managing costs and working capital, the company also wants to come out of the recession stronger and serve their customers better. Therefore the company focuses on continuous innovation and development of emerging markets. Akzo Nobel uses technology and innovation as key differentiators. The results of the cost management program are being monitored closely, to ensure full benefit realization. Oskomera, a steel fabricator,  worked on redesigning their business processes using lean production principles.  The result: a reduction of work in progress by 85%, a reduction in cycle time by 65%, an improvement of quality levels by 41% and an increase of productivity by 67%. The lean principles that Oskomera applied were: Quality is integrated in business flows People are an integral part of the business process Stocks are streamlined an waste eliminated. O2ibm

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>Two Best Practice Approaches to Cost Streamlining

>

In times of uncertainty, organizations irrespective of size, are faced with the challenge to improve or maintain their margins, by focusing on operational cost efficiencies. They are using different approaches to ride the economic downturn and come out even stronger. Akzo Nobel’s margin management programs were implemented throughout the company with a strong focus on cost management, and cash management, by closely monitoring working capital and be prudent in capital deployment. Besides managing costs and working capital, the company also wants to come out of the recession stronger and serve their customers better. Therefore the company focuses on continuous innovation and development of emerging markets. Akzo Nobel uses technology and innovation as key differentiators. The results of the cost management program are being monitored closely, to ensure full benefit realization. Oskomera, a steel fabricator,  worked on redesigning their business processes using lean production principles.  The result: a reduction of work in progress by 85%, a reduction in cycle time by 65%, an improvement of quality levels by 41% and an increase of productivity by 67%. The lean principles that Oskomera applied were: Quality is integrated in business flows People are an integral part of the business process Stocks are streamlined an waste eliminated. O2ibm

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ACTIONABLE INSIGHTS >>> KNOWLEDGE YOU CAN TRUST >>> ENJOY IT!

>Two Best Practice Approaches to Cost Streamlining

>

In times of uncertainty, organizations irrespective of size, are faced with the challenge to improve or maintain their margins, by focusing on operational cost efficiencies. They are using different approaches to ride the economic downturn and come out even stronger. Akzo Nobel’s margin management programs were implemented throughout the company with a strong focus on cost management, and cash management, by closely monitoring working capital and be prudent in capital deployment. Besides managing costs and working capital, the company also wants to come out of the recession stronger and serve their customers better. Therefore the company focuses on continuous innovation and development of emerging markets. Akzo Nobel uses technology and innovation as key differentiators. The results of the cost management program are being monitored closely, to ensure full benefit realization. Oskomera, a steel fabricator,  worked on redesigning their business processes using lean production principles.  The result: a reduction of work in progress by 85%, a reduction in cycle time by 65%, an improvement of quality levels by 41% and an increase of productivity by 67%. The lean principles that Oskomera applied were: Quality is integrated in business flows People are an integral part of the business process Stocks are streamlined an waste eliminated. O2ibm

Visit this group

HEALTHY BUSINESS STRATEGY
DRIVING REVENUE STREAMS

ACTIONABLE INSIGHTS
KNOWLEDGE YOU CAN TRUST