The document discusses strategies that firms use to achieve overall cost leadership. It provides examples of how WellPoint and General Mills reduced costs. WellPoint asked for a drug to be available over-the-counter, which would lower expenses. General Mills technicians observed NASCAR pit crews to learn how to cut the time needed to switch a production line from 5 hours to 20 minutes. Firms can gain insights from benchmarking best practices in other industries.

1. 144 PART 2 Strategic Formulation
Few management layers to Standardized accounting
Firm
reduce overhead costs. practices to minimize
infrastructure
personnel required.
Minimize costs associated with Effective orientation and
Human resource employee turnover through training programs to maximize
management effective policies. employee productivity.
Effective use of automated Expertise in process engineering ~
Technology ~.
technology to reduce scrappage to reduce manufacturing costs. "?
development rates.
Effective policy guidelines to ensure Shared purchasing operations with
Procurement low-cost raw materials (with other business units.
acceptable quality levels).
Effective Effective Effective Purchase of Thorough
layout of use of utilization media in large service repair
receiving quality of delivery blocks. guidelines to
dock control fleets. minimize
operations. inspectors Sales force repeat maintenance
to minimize utilization is calis. $
rework on maximized by
ci3
5·
the final territory Use of single
product. management. type of repair
vehicle to
minimize
costs.
Inbound Operations Outbound Marketing Service
logistics logistics and sales
I Value-Chain Activities: Examples of Overall Cost Leadership
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive
Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by Michael
E. Porter.
Below, we will discuss some examples of how firms enhance cost leadership
in their industries.
While other managed care providers had a string of weak years, WellPoint, b
Thousand Oaks, California, has had a number of banner years and recently enjoyed
growth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD
company's focus on innovation for both expanding revenues and cutting costs. R,
for example, WellPoint asked the Food and Drug Administration (FDA) to make :
lergy drug Claritin available over the counter. Surprisingly, this may be the first .
an insurer has approached the FDA with this type of request. Schaeffer claimed.
were kind of stunned," but the FDA agreed to consider it. It was a smart move f
Point. If approved as an over-the-counter drug, Claritin would reduce patient visit
doctor and eliminate the need for prescriptions-two reimbursable expenses for
WellPoint would otherwise be responsible.
Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,
firm cut costs.? To improve productivity, he sent technicians to watch pit crew
NASCAR race. That experience inspired the techies to figure out how to reduce
it takes to switch a plant line from five hours to 20 minutes. An important lesson: •
teresting benchmarking examples can take place far outside of one's industry. 0
novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~

2. 144 PART 2 Strategic Formulation
Few management layers to Standardized accounting
Firm
reduce overhead costs. practices to minimize
infrastructure
personnel required.
Minimize costs associated with Effective orientation and
Human resource employee turnover through training programs to maximize
management effective policies. employee productivity.
Effective use of automated Expertise in process engineering ~
Technology ~.
technology to reduce scrappage to reduce manufacturing costs. "?
development rates.
Effective policy guidelines to ensure Shared purchasing operations with
Procurement low-cost raw materials (with other business units.
acceptable quality levels).
Effective Effective Effective Purchase of Thorough
layout of use of utilization media in large service repair
receiving quality of delivery blocks. guidelines to
dock control fleets. minimize
operations. inspectors Sales force repeat maintenance
to minimize utilization is calis. $
rework on maximized by
ci3
5·
the final territory Use of single
product. management. type of repair
vehicle to
minimize
costs.
Inbound Operations Outbound Marketing Service
logistics logistics and sales
I Value-Chain Activities: Examples of Overall Cost Leadership
Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive
Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by Michael
E. Porter.
Below, we will discuss some examples of how firms enhance cost leadership
in their industries.
While other managed care providers had a string of weak years, WellPoint, b
Thousand Oaks, California, has had a number of banner years and recently enjoyed
growth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD
company's focus on innovation for both expanding revenues and cutting costs. R,
for example, WellPoint asked the Food and Drug Administration (FDA) to make :
lergy drug Claritin available over the counter. Surprisingly, this may be the first .
an insurer has approached the FDA with this type of request. Schaeffer claimed.
were kind of stunned," but the FDA agreed to consider it. It was a smart move f
Point. If approved as an over-the-counter drug, Claritin would reduce patient visit
doctor and eliminate the need for prescriptions-two reimbursable expenses for
WellPoint would otherwise be responsible.
Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,
firm cut costs.? To improve productivity, he sent technicians to watch pit crew
NASCAR race. That experience inspired the techies to figure out how to reduce
it takes to switch a plant line from five hours to 20 minutes. An important lesson: •
teresting benchmarking examples can take place far outside of one's industry. 0
novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~