New Leader Focus Area — Costs and Pricing

Per an earlier post (here), I’ve been thinking a lot about what goes into taking over a new organization.  Considering the economy these days, this may happen to more of us!   

Anyway, the principle that costs and prices almost always decline over time is a reasonable foundation for looking at one’s competitive and operations health.   Below are six questions from the HBR New Leader article I originally referenced which help to focus the analysis:

  • How does your cost slope compare with your competitors? In other words, are your costs lowering or rising more or less quickly than your competitors?
  • What is the slope of price change in your industry right now, and how does your cost curve compare?
  • What are your costs compared with competitors?  I’d also look at prices as well… competitors with prices eroding faster/slower than me should tell me something about the sweet spots in the value chain, offerings most valued by the market, etc.
  • Who is most efficient and effective in priority areas?  A pretty generic suggestion.  Looking at relative pricing and what that tells you about the market should give hints about “priority areas.”
  • Where can you improve most, relative to others?  Look hard at the capabilities you actually have or could build quickly.  Avoid immediate focus on topics that you can’t change.
  • Which of your products or services are making money (or not) and why?  Don’t automatically trust the received wisdom on who makes and loses money.  Invest some time and money is getting REAL numbers and answers.

2 Responses

  1. Focusing on numbers (costs, profits) only is almost as bad as not looking at them at all. If my competitors squeeze their employees they’ll have better cost slope but I’ll have better employees. As far as my profit is positive (and healthy) I’d choose the latter.

    Most of the time prices of market leaders won’t be similar to prices of challengers. That’s even more vivid when you work on vertical markets (e.g. solutions for mobile operators).

    Simple financial analysis is great when you sell boxes from the shelf or yet another simple project managment software in SaaS model. When you go look at markets where you need some integration or implementation work to do before application is working it becomes tricky. One of these markets is ERP and being a rasonably small comapny working on a local market I wouldn’t compare my costs/prices/revenues to SAP. Would you?

  2. Hi Pawel,
    Agreed… I didn’t mean to leave the impression that this is only area. The authors of the article suggested three other focus areas — I’ll blog on those as I get time.

    Best, Paul

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