Strategic cost management: Technological innovation, Operational efficiency, and differentiation strategies to stay competitive in today’s evolving market.
- Adopting latest strategic cost management instead of traditional cost management.
- To improve quality, efficiency, and functionality without compromising with the standards.
- Involving short-term cost cutting to strategic, value driven cost management.
- Creating unique value through – product features, brands, services, and distribution networks.
- Delivering characteristic offering at optimal cost, to ensure profitability.
The cost management for most SMEs is still in a traditional short-term profit focus. With the international development of the commodity economy. The market scope is expanding day by day, the competition is becoming increasingly fierce, and the cost management model that only focuses on short-term interests can no longer meet the needs of strategic management.
Combined with the business advantages of small and medium-sized enterprises. Strategic thinking on cost management can be carried out from the following aspects.
Promote cost management with technological innovation
Small and medium-sized enterprises have technological innovation advantages. It should establish the concept of continuously reducing product costs through technological innovation.
Promote cost management with technological innovation, continuously improve product quality, style, performance and process equipment through technological innovation. To meet the upgrading and change of consumer demand, and maintain the strategy of cost leadership.
Low cost does not equal low quality, low cost cannot come from cutting corners, nor does it equal reducing product functionality.
Only products with the same quality and the same function can the cost be compared. Promoting cost management with technological innovation, from the perspective of value chain analysis, products can be changed to eliminate redundant functions.
The manufacturing process can be changed to make the process more efficient.
Automate costly labor-intensive activities.
In the procurement process, value analysis is carried out, and the basic functions of all raw materials and spare parts are evaluated, and the lowest cost is sought.
So as to reduce procurement costs and raw material costs.
To promote cost management with technological innovation, in the short term, technological transformation requires investment, and the development of new products also requires investment, which are all factors that increase costs. However, in the long run and on the whole, it can not only obtain greater benefits, but also help to strive for the initiative of competition and establish the advantages of enterprises in competition.
Therefore, the current investment of enterprises for future efficiency is necessary because innovative products will increase sales and market share. Innovative products can appropriately increase the selling price.
The application of new technological achievements can improve efficiency, save energy and reduce consumption, reduce waste and loss.
Added value of products and services can be increased through technological innovation. The profit factors brought by technological innovation are greater than the cost factors of its input.
Implement the operation cost management
SMEs cannot reduce unit product costs and obtain economies of scale through mass production like large enterprises. The space for the survival of small and medium-sized enterprises lies precisely in those industries that lack economies of scale and adapt to decentralized operations, or small batches and multi-variety production fields that large enterprises are unwilling to get involved in according to customer requirements.
Therefore, in the calculation and management of costs.
it is necessary to adopt a “customer-centric” activity cost management method.
Activity cost management is an operation-based scientific information system. Which shifts from “product” to operation-centered, through the identification and measurement of operation costs.
As far as possible to eliminate “non-value-added operations”, improve “value-added operations”, and provide timely and useful information.
So as to minimize related losses and waste. This is the basic source of digging into the potential for cost reduction and achieving cost reduction. The most important point of activity cost management is that it does not talk about cost, but focuses on the causes and consequences of cost incurred, and effectively controls the operation cost incurred in the process of final product formation by tracking and reflecting all operation activities.
In the current fierce market competition, small and medium-sized enterprises must consider strategically in cost management, from the management of simply reducing the production process cost of the project to the cost management of the whole process starting from product design, including technology development, manufacturing, sales, marketing, service, and further deepening into the management of all operating costs incurred in the process of final product formation, so as to achieve the continuous dynamic cost management of the long-term goals of the enterprise.
Pay attention to the cost issue in the differentiation strategy
Small and medium-sized enterprises have the advantages of diversified and characteristic services in meeting consumer needs, and it is advisable to choose a differentiated strategy in market competition to form a strategy of “no one is unique”.
Differentiation strategy, also known as characteristic business strategy, its strategic theme is to strive to form something unique within the whole industry through the form of company image, product characteristics, product services, technical characteristics, distribution network, etc. So, that users can establish brand preference and loyalty. Implementing a differentiation strategy can lead to exceptional revenue.
For example,
Companies can effectively avoid price competition by taking advantage of customer loyalty to their brands. The characteristics of the product make the customer’s choice small, and its sensitivity to price is reduced. In the face of supply-side pressure and potential product threats, enterprises or products with characteristics are often more advantageous than other competitors.
There are many ways to achieve differentiation strategies, and through patented technology, companies can produce products that are superior in performance and quality to existing similar companies.
Strengthen advertising and promotion through market publicity. So that users have a different impression of the company’s products than the public, and their manifestations are differences in the functions of things, differences in service content, differences in market management methods, etc.
SMEs must focus on cost when implementing differentiation strategies. Because creating distinctive operations, and differentiation is bound to incur recurring costs. For example, providing users with products that last longer, generally requiring more and more expensive raw materials.
If the profits generated by the characteristic operation are offset by its corresponding costs. Then the differentiation strategy is meaningless and cannot bring benefits.
Therefore, in the implementation of differentiation strategies, small and medium-sized enterprises should not ignore their own cost position. So as to make the company’s products different from the public, but also reduce costs.