144 PART 2 Strategic Formulation

Below, we will discuss some examples of how firms enhance cost leadershipin their industries.

While other managed care providers had a string of weak years, WellPoint, bThousand Oaks, California, has had a number of banner years and recently enjoyedgrowth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD

company's focus on innovation for both expanding revenues and cutting costs. R,for example, WellPoint asked the Food and Drug Administration (FDA) to make :lergy drug Claritin available over the counter. Surprisingly, this may be the first .an insurer has approached the FDA with this type of request. Schaeffer claimed.were kind of stunned," but the FDA agreed to consider it. It was a smart move fPoint. If approved as an over-the-counter drug, Claritin would reduce patient visitdoctor and eliminate the need for prescriptions-two reimbursable expenses forWellPoint would otherwise be responsible.

Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,firm cut costs.? To improve productivity, he sent technicians to watch pit crewNASCAR race. That experience inspired the techies to figure out how to reduceit takes to switch a plant line from five hours to 20 minutes. An important lesson: •teresting benchmarking examples can take place far outside of one's industry. 0novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~

Firminfrastructure

Few management layers toreduce overhead costs.

Standardized accountingpractices to minimizepersonnel required.

Effective orientation andtraining programs to maximizeemployee productivity.

Expertise in process engineeringto reduce manufacturing costs.

~~.

"?

Human resourcemanagement

Minimize costs associated withemployee turnover througheffective policies.

Effective use of automatedtechnology to reduce scrappagerates.

Technologydevelopment

Effective policy guidelines to ensure Shared purchasing operations withProcurement low-cost raw materials (with other business units.

acceptable quality levels).

Effective Effective Effective Purchase of Thoroughlayout of use of utilization media in large service repairreceiving quality of delivery blocks. guidelines todock control fleets. minimizeoperations. inspectors Sales force repeat maintenance

$to minimize utilization is calis.rework on maximized by ci3the final 5·

territory Use of singleproduct. management. type of repair

vehicle tominimizecosts.

Inbound Operations Outbound Marketing Servicelogistics logistics and sales

I Value-Chain Activities: Examples of Overall Cost LeadershipSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from CompetitiveAdvantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by MichaelE. Porter.

144 PART 2 Strategic Formulation

Below, we will discuss some examples of how firms enhance cost leadershipin their industries.

While other managed care providers had a string of weak years, WellPoint, bThousand Oaks, California, has had a number of banner years and recently enjoyedgrowth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD

company's focus on innovation for both expanding revenues and cutting costs. R,for example, WellPoint asked the Food and Drug Administration (FDA) to make :lergy drug Claritin available over the counter. Surprisingly, this may be the first .an insurer has approached the FDA with this type of request. Schaeffer claimed.were kind of stunned," but the FDA agreed to consider it. It was a smart move fPoint. If approved as an over-the-counter drug, Claritin would reduce patient visitdoctor and eliminate the need for prescriptions-two reimbursable expenses forWellPoint would otherwise be responsible.

Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,firm cut costs.? To improve productivity, he sent technicians to watch pit crewNASCAR race. That experience inspired the techies to figure out how to reduceit takes to switch a plant line from five hours to 20 minutes. An important lesson: •teresting benchmarking examples can take place far outside of one's industry. 0novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~

Firminfrastructure

Few management layers toreduce overhead costs.

Standardized accountingpractices to minimizepersonnel required.

Effective orientation andtraining programs to maximizeemployee productivity.

Expertise in process engineeringto reduce manufacturing costs.

~~.

"?

Human resourcemanagement

Minimize costs associated withemployee turnover througheffective policies.

Effective use of automatedtechnology to reduce scrappagerates.

Technologydevelopment

Effective policy guidelines to ensure Shared purchasing operations withProcurement low-cost raw materials (with other business units.

acceptable quality levels).

Effective Effective Effective Purchase of Thoroughlayout of use of utilization media in large service repairreceiving quality of delivery blocks. guidelines todock control fleets. minimizeoperations. inspectors Sales force repeat maintenance

$to minimize utilization is calis.rework on maximized by ci3the final 5·

territory Use of singleproduct. management. type of repair

vehicle tominimizecosts.

Inbound Operations Outbound Marketing Servicelogistics logistics and sales

I Value-Chain Activities: Examples of Overall Cost LeadershipSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from CompetitiveAdvantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by MichaelE. Porter.