Cost leadership is characterized by four primary criteria: (1) recognition as the lowest cost producer in one’s industry, without compromise in quality or customer focus; (2) realization of a long-term cost-centric culture where cost consciousness is a across functional lines and independent of the vagaries of financial markets; (3) dissemination of cost information with regard to customer, product, distribution channel, and the like that is timely, understandable, credible, and actionable and is made available to decision makers to fuel continuous improvement; and (4) aggressive and balanced performance targets are established across the value chain.
Achievement of these targets is recognized, rewarded, shared, and celebrated.
In Table 1 we’ve summarized these important initiative killers, show stoppers, and red flags that a company should consider before embarking on a cost leadership initiative.
The business process has changed radically over the last 20 years, but the good news is that business-process based tools are still useful.
(For more information on the relationship between cost leadership and improved customer focus, see the article by Joe and Catherine Stenzel, “Employee Access to Cost and Financial Information,” in the January/February 2002 issue of These practice illustrations are representative of the ongoing commitment to low cost, customer focus, and process improvement required to sustain profitability and grow market share.
The nature of cost leadership reflects a cultural understanding that focusing on lower-profile “base hits” is more critical to long-term success than a rare, non-sustainable “grand slam” in improved performance or the appearance of such in the context of short-term financial reporting.
Their blend of cost consciousness and customer focus across their value chain, including key suppliers, is part of what’s sustaining them as a leader in this challenging economy, especially for retailers.
Note that Wal-Mart’s cost leadership achievement was built, established, and embedded in their culture during the “good times” that proceeded the current recession and not as a reaction to it.
You can see this by the number of global financial institutions that have been affected by the subprime mortgage debacle.
Compared to the “S&L crisis” of the 1980s in which the same industry was affected—and for many of the same reasons, including lax controls surrounding approval of high-risk loans—our current crisis dwarfs that debacle in magnitude, reach, and complexity.