Cost efficiency
Strategic capability
Managers often refer to the management of costs as a key strategic capability. So it is. Moreover, understanding the management of cost efficiency as a strategic capability illustrates some of the points made.
Who benefits
Customers can benefit from cost efficiencies in terms of lower prices or more products features the same price. The management of the cost base of an organisation could also be a basis for acheiving competitive advantages. However, for many organisations the management of costs is becomming a threshold stratigic capability for two reasons.
Customers
Customers do not value product features at any price. So the challenge isto ensure that an appropriate level of value is offered at an acceptable price. This means that everyone is forced to keep costs as low as possible, consists with the value to be provided. Not to do so invites customers to switch products or invites competition.
Rivalry
Competitive rivalry will continually require the driving down of costs because competitores will be trying to reduce their cost so as to underprice their rivals while offering similar value. If costs are to be managed efficiently, attention has to be paid to key cost drivers.