Why are not all companies low cost companies?

All of us know the famous examples of successful low cost companies such as Ryan Air, Easyjet, IKEA, and Aldi. What is the secret of their success? It's simple: they focus their business operations – and thus, their business processes – on maximal performance. In other words, they concentrate on the highest efficiency levels, excellent effectiveness, clear value for the customers and appropriate quality. 1

These four ingredients of high business performance sound like common business goals for each excellent organization, don’t they? So my question is: why don’t all organisations act as low cost companies in terms of performance? Why do other companies (even those in the luxury segment) act as if they had money to waste? Why don’t they focus on trimming their operations to be the best performing in the world?

My observations show what the reasons can be: an unclear strategy, a culture of resource abundance, misleading motivators for managers and employees, arrogance, a money surplus to waste and–most importantly–a lack of focus on operational performance. In other words: their strategy, business model, operational execution and people motivation are not consistent.

If you work for such an organisation (and I guess 90% of my readers are doing so), then what could you do to improve the situation? Here is my advice:

1. Adjust your strategy and consistently break it down into business operations: low cost is NEVER in contradiction to any market positioning or branding. Since this statement might be counterintuitive I will come back to the topic in one of my next position papers.
2. Focus your structures and operations on low costs and efficiency, no matter what you deliver. That includes revision of overloaded IT and the reskilling of people. Concentrate on the performance of your business processes.
   Note: I am talking about a sustainable and proactive approach to manage your operations what makes a remarkable difference to simple cost cutting activities. The latter is by nature reactive and short-term.
3. Ensure real, daily execution of your business processes by your staff, locally and globally. Implement consistent motivators and reward systems. Remove burdens that are preventing your people from investing their full energy in productive work.

Here is how to start: tear down the paradigms and get the commitment of your management team to focus on operational performance. Identify business units where you can achieve a quick and significant impact by a shift towards lower costs. And then go for it!

External consulting support might significantly accelerate the change by helping a company prioritize impact areas and by refining its processes consistently with its low-cost strategy. In fact, my experience shows that, although it is possible to start a new business with excellent operational processes from scratch, it is more than challenging to trim an established organisation towards low costs without external help.

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1 Appropriate quality is an essential aspect of the value proposition. E.g., RyanAir flies only with the newest airplanes and has a comprehensive maintenance program. Ironically, low cost companies cannot afford to deliver bad quality if they want to stay in the market longer than one year.