Member Article

Cost Leadership. It costs, a lot.

It’s an outdated approach. With all due respect to Mr. Porter.

If you want to know the basic answer, read the wikipedia entry.

If you want a better approach, think about how you create intrinsic value in the supply chain, not destroy it with a cost leadership approach.

But, let’s look at why you might consider a different approach.

Will a cost leadership strategy work?

Maybe, if you have substantial control of markets and scale. Is it inherently good? No, because you are executing a strategy based solely on the cost of production and this diminishes your long-term results and potential positive impact, while increasing the negative consequences (environmental, social and economic).

Many will argue that you can lower costs and still avoid negative impacts. I am not arguing that lower cost of production is terrible goal. They are correct, but a full blown strategy based on cost invites negative impacts and is, in a word, myopic — despite being called a strategy.

The problem with Cost Leadership Strategy and it’s Genre.

The problem with this approach, is that it assumes value is derived solely from monetary/cost advantage. This is never a good idea for you or us in the long term. I suspect Mr. Porter may agree that his idea is now considered part of a dark period in business pioneered by Milton Friedman in 1970 (another brilliant mind!) moving all strategy to “exploit” (not my word, see wiki) systems and resources to increase shareholder value at the expense of other goals.

It should be noted, Mr. Porter appears to be moving away from some of the bad ideas of the 1980s and 1990s. Why business can be good at solving social problems And indeed, the Harvard Business Review finally called shareholder value a “dumb idea” here: The Age of Customer Capitalism

Wait. What?

No. I am not smarter than Mr. Porter, who is actually a brilliant strategic thinker. Lots of smart people got on the shareholder value zeitgeist bus, but that still doesn’t/didn’t make it a good idea. In fact, it was an idea that flew in the face of 100 years of capitalist learning (1870–1970) as outlined by Hopper and Hopper in The Puritan Gift. (Reclaiming the American Dream Amidst Global Financial Chaos)

Although I’m not smarter (do I have to be?), I do disagree with the Cost Leadership Strategy and propose that the negative consequences of such a strategy make it untenable if we desire a future based on sustainable harmony instead of one based on unending growth.

Don’t misunderstand: I believe Capitalism holds the key, but like any system, it can be perverted — it’s our job to manage out the perversions.

This was posted in Bdaily's Members' News section by Todd Hannula .