1. Cost Leadership and
Economic Uncertainty
With the global economic crisis showing few signs of dissipating, effective cost
transformation is increasingly important for businesses looking to do well.
Cost Leadership model at the right time and taken advantage of the
In his 1985 book, “Competitive Advantage: Creating current demand for less expensive hotel and dining
and Sustaining Superior Performance”, Michael Porter experiences. In order to provide these services in a cost
identifies three generic business strategies. These effective manner, Whitbread has focused on
approaches can be applied to products or services improving procurement practices, menu management
across all industries, and in companies of varying sizes. and labour scheduling.
One of these, “Cost Leadership”, is a strategy based
on being the lowest cost producer in an industry, for a A key element of this strategy was the launch of
certain quality of product. several ‘Skill Academies’, which provide training for
managers and team members in improving
A leading company will either sell products at average operational and cost efficiencies. Another example of
industry prices to earn more margin than its Whitbread’s cost leadership approach is the company’s
competitors or sell at below industry prices to gain use of e-auctions to minimise the impact of rising
more market share. A cost effective business should commodity prices. The process allowed Whitbread to
also be able to weather any resulting price war whilst avoid paying a 16 per cent price hike for a key
remaining profitable. commodity – potatoes. This approach saves the
company an estimated £400,000 per year.
Businesses Doing it Right
A number of companies have been able to grow their Successful Cost Leadership Initiatives
margins despite the economic climate. One example is 4C Associates is currently driving a variety of
Whitbread. The UK based organisation, which owns innovative cost transformation projects for several
popular brands such as Costa Coffee and Premier Inn, clients. The most recent is Project Flow, a Network
has demonstrated that there is potential to do well Optimisation initiative being carried out to reduce
during a recession. By offering relatively inexpensive empty miles and increase efficiency within the clients’
food and hotel prices, the group has managed to supply chain. CAST modelling tool was used to gather
continue its expansion and raise its share value by all relevant data on ingoing and outgoing transport
more than a quarter in the past year. flows from client factories and distribution centres.
Geo-mapping techniques were then used to match
Whitbread has effectively implemented the right outbound customer deliveries with inbound raw
Release cash Reduce cost Manage risk Improve ROI
T: +44 (0)20 7605 1600 E: info@4cassociates.com W: www.4cassociates.com

2. material deliveries in order to leverage the benefits of
Ryanair has introduced a number of measures which
round trip pricing. Initial savings of 18 per cent were
helped the business to a profit of €503m in the past
achieved on transportation costs.
financial year. These include, being the first airline to
implement baggage charges, working to eliminate the
Another 4C project, “Bondi”, is a broad brush cost
need for check in desks and cutting the weight of its
reduction and cash release exercise across all
aircrafts. Most recently the company announced it was
categories, all geographies and all suppliers with
examining the possibility of larger aircraft doors, to
spend over £100k. Suppliers were further segmented
speed up boarding. In a similar vein, rival airline
by their effective impact to business in case of non-
Easyjet, is to introduce allocated seating in an attempt
supply. Different negotiation strategies were then
to secure revenue from having passengers pay to
adopted for each different segment. The project
choose their seats. This consistent search for new ways
entailed requesting a 4.7 per cent price decrease and
to transform costs, is the essence of the cost
harmonisation of payment terms towards the 75 days
leadership strategy.
standard (excluding small businesses).
Driving Innovation
One of the key elements behind a successful cost
leadership strategy is fostering a mentality which
encourages innovation. The best way to reduce
expenditure is to look at cost from a different angle.
An example of this is a driving school which employs
one brand of car. By supplying cars to the motoring
school, the vehicle manufacturer is effectively
advertising its products to every learner driver using
the school. In this situation which party should be
compensating the other?
CRH PLT Whitbread Hargreaves Babcock Aberdeen Asset Next Rangold POLYMETAL Sainsbury (J) Standard Life
PLC Lansdown INTL GR Management PLC Resources INTL PLC PLC
The airline industry has long been striking profitable PLC PLC PLC LTD
deals with airports to keep certain routes open.
Ryanair in particular has championed the notion of Seeking out Opportunity
looking at costs in an innovative manner. The Irish Despite the lack of optimism surrounding the current
airline’s business strategy was pioneered by Southwest financial climate, several of the world’s leading
Airlines and made up of four guiding principles: businesses have been able to thrive. The difficult
employ a single type of plane to keep costs down, environment, in which many companies are evolving,
constantly review overheads, turn aircrafts around as represents a great opportunity to review, improve and
quickly as possible and abandon point’s schemes. revolutionise established industry practices. By
adopting a new way of approaching cost, businesses
can leverage innovative cost leadership practices to
drive growth.
4C Associates has the insight, technology and
experience to drive rapid profit improvement.
We offer specialist consulting, technology and
managed services to transform your costs. We
apply industry and functional expertise to deliver
exceptional benefits.
Our team works with leading organisations across a
range of cost categories including Direct Materials,
Services, Marketing, IT, HR, Logistics, Supply
Chain, Property and FM. We apply deep practical
knowledge, combined with process and change
skills, to deliver reduced costs and increased profits.
In 2002, Ryanair secured a significant discount on the To discuss how we can transform your costs please
purchase of 100 Boeing 737-800 jets with the option
contact us at:
to buy a further 50. With newer, more fuel efficient
planes than many of its rivals, Ryanair was able to
Tel: 0207 605 1600
charge lower fares and fill planes with passengers,
who might not spend a huge amount on tickets but Web: www.4cassociates.com
spend profitable sums on food and hotel reservations. Email: Petra.urhofer@4cassociates.com
Release cash Reduce cost Manage risk Improve ROI
T: +44 (0)20 7605 1600 E: info@4cassociates.com W: www.4cassociates.com