Cost Leader

7/29/2019 Cost Leader

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CORPORATE STRATEGY

Is concerned with what industries the

organisation wants to compete in.

COMPETITIVE STRATEGY

Is concerned with the basis on which an

organisation will compete in its chosen

markets.


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RESOURCE BASED VIEW

emphasises the internal capabilities of theorganisation in formulating strategy to

achieve sustainable competitive

advantage in its markets and industries.


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COST LEADEROne firm within an industry that has a

consistent cost advantage over its

competitors. This is usually achieved by a

widespread shaving of costs in all areas of

production and distribution.It does not often come from some single

dramatic cost advantage, for example, from

finding a source of cheap new materials. Costadvantages like that are rarely enjoyed alone

for long.


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Any cost leader will owe its position in part

to its exploitation of ECONOMIES OF

SCALE. Hence it needs to guard against

competitors gaining substantial MARKET

SHARE. This will allow them to gain neweconomies of scale, and to threaten the

cost leaders position.


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STRATEGIC INTENT

A term introduced by Gary Hamel and CK

Prahalad in article of the same name

published in the Harvard Business Review. It

refers to those overwhelming corporate

goals that are designed to inspire a companyand its employees over a period of at least a

decade. Examples include Coca-Colas aim

to put Coke within arms reach of everyconsumer in the world.


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KEY AREA EVALUATIONA framework for evaluating businesses evolved from

the work of Peter Drucker who maintained thatcompanies need to have OBJECTIVES in eightareas.

1. Market standing

2. Productivity

3. Profitability

4. Physical and financial resources

5. Innovation6. Manager performance and development

7. Employee performance and attitudes

8. Public and social responsibility


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EMERGENT INDUSTRY A new industry that has just emerged because of

changing technology (wireless telephony, for example)or changing consumer habits (healthy eating).

Steering a young growing company in an emergent

industry needs special skills. Some of the particular

problems to be faced include: Uncertainty as to the eventual market size;

Shortage of special skills needed for the industry

The absence of widely agreed standards Lack of faith in the long term viability of the industry

among suppliers, investors, bankers, and so on.


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MATURE INDUSTRYAn industry which relies on repeat buyers rather than

first time buyers, and where rivals market shares donot change much over time. A classic case is the carindustry in North America, Europe and Japan.

Some think that the next step for a mature industry is to

become a DECLINING INDUSTRY. But companieshave shown again and again that there are manyways to develop profitably within mature industries.

One is to concentrate less on product development

and more on process development, aiming to becomethe lowest cost producer in an industry.


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In other areas (such as photography)

companies have been highly successful in

a mature industry by introducing byintroducing technological improvements

(like automatic focusing, for example).

These have persuaded consumers toabandon still-working old cameras and to

buy new ones.


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OUTSOURCINGThe handing over of the running of a fundamentalcorporate process to another organisation; forexample, the management of a companysInformation Technology systems, or of its car-fleet management, or of its health-insurancescheme.

There are some who see the recentextraordinary rapid growth in the outsourcing ofall sorts of processes as a basic abrogation ofmanagements corporate responsibility.

Others see it as a shrewd way of turning (high)fixed costs into (lower) variable costs, ofimproving service and of gaining COMPETITIVE

ADVANTAGE.


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DELIBERATE STRATEGY

A strategy conceived by senior managers

as a planned response to the challenges

confronting an organisation. Often the

result of a systematic analysis of theorganisations environment analysis and

resources.


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EMERGENT STRATEGY

A strategy that emerges from lower down

the organisation without direct senior

management intervention. Managers use

their learning and experience to develop astrategy that meets the needs of an

external environment.


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IMPOSED STRATEGY

A strategy that an organisations

managers would not otherwise have

chosen, but is forced on them.

REALISED STRATEGY

The strategy that an organisation actually

ends up implementing. It may be

deliberate, emergent or imposed.


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ORGANISATIONAL CULTURE

Culture is how things are done around

here. It is what is typical of the

organisation, the habits the prevailing

attitudes, the grown-up pattern of

accepted and expected behavior.


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FIRST MOVER ADVANTAGE

The advantages the first major entrant to a

new industry/market can obtain, e.g. by

appropriating locations, obtaining patents

and reputational resources, and moulding

customers processes to suit its value

chain.


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VISION

A description of what an organisations leaders

aspire to achieve over the medium/long term,

and of how it will feel to work in or with the

organisation once this has taken effect.

MISSION

The set of goals and purposes that anorganisations members and other major

stakeholders agree that it exists to achieve. It is

often expressed in a formal, public mission

statement. Mission seeks to answer the question

why an organisation exists.


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JOINT VENTURE

When two organisations form a separateindependent company in which they own

shares equally or in a certain proportion.

STRATEGIC ALLIANCES

When two or more separate organisations

share some of their resources andcapabilities but stop short of forming a

separate organisation.


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EMPOWERMENT

Empowerment refers to the distribution of

AUTHORITY (particularly via the distribution of

information) to all levels of an organisation. That

distribution is made much easier by informationtechnology.

Empowering people gives them the power to do

something, making them more responsible and

more cooperative. Managers become partnersrather than bosses


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EXPERIENCE CURVE

Something that causes unit costs to decline ascumulative production increases. This happens becauseworkers get better at their jobs, manufacturing processesare improved, and support services begin to function

smoothly. As a result, according to the theory, thecompetitor that expands production capacity faster willachieve a cost advantage that leads to industrydominance.

Relentless pursuit of cost leadership, however, can lead

a company to ignore other important dimensions ofcompetitive advantage such as quality and service.


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SEVEN Ss A framework for thinking about the

structure of organisations, first developedwithin MCKINSEY, the managementconsultancy, and then popularised in anumber of books written by ex-McKinsey

consultants such as Richard Pascale. The Seven S framework maintains that

there are seven interrelated factors that

determine the effectiveness of anorganisation: the classic pair structureand strategy and five others that allhappen to begin with the letter S.


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Structure. How the firm is organised

Strategy. The route an organisation decides tofollow to achieve its goals

Systems. The formal and informal proceduresthat govern everyday activity

Skill. The unique competencies of anorganisation

Style. How the management presents itself toother employees, and how the whole workforcepresents itself to the outside world.

Superordinate goals. The fundamental

philosophy that underlies an organisation (Latertitled Shared values)

Staff.The quality of a firms human resources.

Cost Leader

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