Monday, March 22, 2010

MBA: Cost Structure/Leadership

Cost Structure and Cost Leadership Organizations often consider changes in cost strategy to enhance profitability or other dimensions of performance. Please assess your organization's cost leadership strategy.

How comprehensive is your organization's cost leadership strategy;

Why has the organization adopted this particular strategy?

What is strategy's impact on profitability (or organizational sustainability)?

Our group within ESPN positioned itself to be cost leaders within the enterprise-level social networking and sports media industries.

We have accomplished this by:

· Outsourcing product development

· Relying on open source technologies and communities

· Adopting hosting innovations

My boss and I adopted this strategy because of shared experiences, necessity and freedom.

My boss knew the value of outsourcing, and, as a developer, I knew the cost benefits of not having to spend money on licensing fees and product support. Because we are both on top of the industry, we recognized virtual hosting as a viable and cheaper option and jumped on it.

Additionally, we founded our group less than a year ago, and because we didn’t have profit-generating products, we were given a small budget to work with, so we had to find a way to cut costs.

That coincided with our desire to have freedom from some large company bureaucracy. We basically traded headcount and involvement in broader areas for control over our budget and a bit more money.

By implementing this strategy, we are able to experiment on a lot of projects and fail quickly without incurring a pile of expenditures. A “failure” costs us very little because we can pay a company for just a prototype, host it for essentially nothing and not have to pay any fees for the technology used to build it.

That obviously increases our profitability because we are able to focus attention on “successful” products. It also scales because we don’t have to worry about managing an increase in employees or worrying about technology suppliers increasing their prices.
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