Developing a cost-leadership mindset

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What is a cost-leadership mindset

A cost-leadership mindset is associated with the mentality that companies can have towards cost-saving – continually looking for ways of reducing the costs of the firm and streamline operations to in turn allow the company to be able to provide the lower cost price to customers, while still make a profit in the process.

The importance of a cost-leadership mindset

Having a cost-leadership mindset is important for success as a cost-leader. While there are many possible niche strategies, the firm that wins in cost leadership is the one that is able to provide the goods at the lowest price (which in the long-run requires also having the lowest cost setup). Streamlining the organization to strip cost from all areas of operation is important with success ultimately going to the firm that is best positioned to remove cost. Small wastage throughout the firm add up, and it is important to have a mindset geared to eradicating all forms of cost, even if each individually does not seem that significant.

Ways of developing a cost-leadership mindset in your firm

A cost-leadership mindset requires both the top management as well as lower employees to be focused on cost in all business decisions. With changes to operations, a driving consideration should be whether the change is likely to impact the firm’s cost position. To truly win at cost leadership, accepting certain tradeoffs in terms of the features included and other service components is important – if you are unable to accept such tradeoffs, then it is unlikely that the firm will succeed against more dedicated firms.

Creating a cost-leadership mindset among top management

It is important that there is alignment among top management regarding the importance of the cost-leadership strategy. While consistency is important in all strategies, the focus on cost-leadership throughout the company is particularly important when taking a cost-leadership approach. If one area of the firm takes it less seriously, then it risks undermining the whole approach. 

Creating a cost-leadership mindset among lower-employees

Given that many day-to-day decisions that ultimately influence the cost structure of the company are made by lower employees, it is important that the importance of cost considerations is conveyed throughout the company.

One approach to highlight the importance of cost in decision-making is to make it very symbolic. A policy such as all purchases above a small amount (e.g., $100) requiring approval can send a message that a cost-focus is important. Implementing such a policy sends a clear signal that cost should be taken seriously, and can help discourage more wasteful items from being raised. 

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