Cost Efficiency as a Strategy
Cost efficiency is the strategic choice for many construction companies. When clients are well aware of what they want, and when there are many rules and regulations guiding the buyer and the seller, competition on price prevails. What strategies are feasible when it comes to price competition?
Cost efficiency as a strategic choice
Companies have several choices for their main strategic driver. They can be customer-oriented, competition-oriented, or resource and skills-oriented. Most construction firms are competition-oriented. As such, they can choose one of four competition-oriented drivers:
Most companies in the same market choose cost efficiency as their main strategic driver. This is based on their view of the client’s priorities. The contractor who gets the job is among the two to three cheapest bidders.
How to be profitably cost efficient
Cost efficiency is one aspect of financial management?and business that can become quite confusing. The following simplified diagram demonstrates three positions in the quality/price matrix.
Quality, in this context, denotes the benefits that the customer gets when buying from a company. Higher quality usually means a higher price. The dotted line on the chart is the “industry profitability line.” Companies positioned under that line are not operating profitably in the long run.
When analyzing your company’s performance in relation to the competition, you could, for example, come to the conclusion that you are at mark A on the chart. B and C are your two main competitors. What choices do you have to improve your situation? Your main choices are:
Paths to cost efficiency
There are many ways to improve cost efficiency. Systematization, lean construction, employee empowerment, partnership development, and the use of digital technologies for automation are among them.
There is no silver bullet that alone will make a contractor cost-efficient. You’ll need a well-managed combination of tools and techniques. Technology alone will not solve anything. Having the right people doing the things that they love and are enthusiastic about is the secret sauce that will make all the difference.
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Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer
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