The cost-leadership challenge

Cost Leadership is one Porter’s Generic Strategies and businesses following this strategy use techniques including economies of scale, negotiating preferential supplier deals and attracting low cost labour to sustain cost-advantage.

This article challenges the idea of following a cost-leadership strategy

Sustaining cost-advantage is challenging and it can lead short-sighted cost-cutting and shameless abuse of human resources. In 2016, the media reported that ASOS staff were “unable to take toilet breaks, being fired for having panic attacks, searched upon entering the toilets” (Independent, 2016), Sports Direct “are paying below the minimum wage” (The Guardian, 2016), and Unite union members “dressing up as Dickension outfits protesting that Sports Direct is a ‘Workhouse’ not a ‘Workplace’” (The Guardian, 2016), “Tesco delayed payments to suppliers to boost profits, watchdog finds” (The Guardian, 2016),

Not to mention in previous years: Ryan Air cabin crew “only being paid nine months a year and having to pay £360 for their own uniform” (Independent, 2013), Amazon’s “pace of work and atmosphere were unbearable” (Consumerist.com) and “Amazon Forced Warehouse Employees To Work In Suffocating 110 Degree Heat” (Businessinsider.com).

How does a cost-leadership focused business keep low-cost labour feeling valued?

One could say that Ikea is cost-focused, however, it also follows a differentiation strategy. Ikea keeps its costs down by providing most products in flat-pack form, allowing customers co-create their products. Therefore, Ikea is able to offer attractive staff benefits including healthcare.

Ikea is recognised in the Fortune Top 20 Best Workplaces in Retail. IKEA co-workers ranked their employer using the Great Place to Work Trust Index© employee survey; employees say they feel valued because of Ikea’s pay and benefits and management support co-workers’ personal lives – “the management are ethical and show day-to-day respect for staff”.

It was a struggle to find a second example of an organisation following a Cost-Leadership businesses with happy, engaged staff.

What do you think? Is Cost Leadership sustainable?

I question whether a leader who is fixated on cost alone, also has the mind-set to care about suppliers, creating a positive culture and employee engagement? I cannot find a cost-leadership focused business which is listed in the Great Place to Work or the Sunday Times Best Companies to work for. The number one business on the list is Simply Business; Stewart Duncan, director of data science says “… You can’t force people who hate their environment to do a good job … Customers only come first if our employees are happy and doing a good job.” 

What can businesses learn from from the Best Companies to Work for?

I urge businesses tempted to follow a Cost Leadership strategy to read the profiles and benefits on offer from companies within the “Sunday Times Best Companies to work for”.

If businesses are carrying on as per the newspaper reports above, then it will be a matter of time before an employee becomes so stressed that they have a meltdown and will whistle-blow, slaughtering share prices. The proof is in the pudding – take a look at Sports Direct shares which are worth £2.81 per share now (11/1/17) compared to £7.57 per share this time last year.

It is a proven fact that happy staff boost your productivity and deliver improved customer service. Customer service is a pretty good indicator of corporate culture and staff morale and trust is a key driver of employee engagement.

Conclusion

In my view, following a cost #leadership #strategy ‘alone’ no longer has a place because people prefer to work for #brands which #showthelove.

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Vicky Vaughan is a Chartered Marketer and Executive Coach specialising in transforming brands through leadership development. Contact Vicky via our contact page or call 07909 693172.

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