The secret to cost leadership: culture, creativity and relentless execution
Serving a fragmenting scientific market is expensive. Companies not in a cost leadership position will struggle because when money gets tight, everyone starts looking for cheaper alternatives.
So should companies that compete by differentiating switch strategies and become cost leaders? The data suggests that this approach seldom works.
Why? Because cost leaders are structurally different. They’ve spent years building deep capabilities that enable them to be low-cost. In a downturn, their operations are already designed for low-margin environments.
For differentiators, the smarter strategy is:
Play to your strengths.
Reduce costs quickly but carefully.
Preserve the ability to deliver a differentiated product or service and even enhance it if possible.
But what if you do want to move toward cost leadership?
You’ll need more than just scale or efficiency. According to a recent Harvard Business Review*, the secret is culture, creativity and relentless execution rather than typical efficiency improvement programs or waste reduction.
Here’s what extraordinary low-cost operators have in common:
Creativity:
Industry redefining ideas: they challenge industry conventions to remove cost without losing value. For example, SpaceX has focused on reusable rockets and vertically integrated manufacturing, which drastically reduce launch costs, challenging industry norms.
Culture:
Customer focus: They consistently find more cost-effective ways to deliver what customers really want.
Unusual leaders: Hands-on, unconventional thinkers who decentralise decision-making and empower people at every level in the organisation. They question norms and take risks to test ideas and learn from.
Bigger roles at every level: Smart recruitment, broader responsibilities and longer retention create a skilled workforce that outperforms the average. Intelligence is shared and distributed across the organisation so that everyone can benefit.
Execution:
Focus on the basics: cost excellence starts with a mindset that values deep process knowledge, real-time data, and in-house innovation through ongoing experimentation.
Seamless integration of product design and process design so that they reinforce each other, leading to lower complexity and costs and smoother operations.
Multipurpose tech: Create original, flexible tools that cut cost and complexity while improving customer experience. For example, 7-Eleven Japan uses AI and customer data to track fresh food buying patterns and place real-time orders three times a day to keep shelves stocked with what people want, while reducing waste.
Cost leadership is a mindset and a system that takes decades to build.
But in a downturn, it’s a competitive advantage that pays off. Cost leadership is about being smart, strategic and deeply committed to doing more with less. Companies will need to ask themselves whether they are well enough differentiated to survive or whether they need to adopt some of the practices of cost leaders.
*The Secrets of Extraordinary Low-Cost Operators by Thomas Hout, Harvard Business Review, March–April 2025.