Activity 4: Manage Costs
This activity assumes that the Company has created a good value proposition for its target customers. You cannot reduce your costs to increase your profits unless you have customers buying your product. Before you can reduce your costs, then, you first have to find customers and offer them a good value, in the form of unique products and services at an attractive price compared to competition. You do this with the first three activities of the Basic Strategy Guide.
This fourth activity reduces the cost per unit of product you sell. It begins by helping you set reasonable targets for yourself. Some markets are simply more profitable than others and some companies are better positioned in their markets than others. This activity helps you set the right targets for your profitability compared to competition. The most effective way for you to reach your profit targets is to be sure that your organization is reducing its cost per unit of product sold as the business grows. This creates better Productivity and Economies of Scale. This return management activity centers on helping you create these Economies of Scale so that no comparably sized competitor will be able to match your Return on Investment.
|Identify current shortfalls in financial results.
|Evaluate the Company’s advantages or disadvantages in visible costs compared to low-cost competitors.
|Identify the profit increase from the improvement in the mix of customers that the Company serves.
|Create countable measures of Productivity.
|Evaluate Economies of Scale in each functional cost department.
|Measure Economies of Scale by type of employee.
|Develop new ideas to improve the Productivity and Economies of Scale in each organizational unit.
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