Corporate strategy: The fatal bias: How cost competition harms performance

Jules Goddard
London Business School

In this edited prizewinning article, Jules Goddard marshals impressive evidence to argue that the prevailing managerial bias towards cost efficiency is seriously harmful to corporate performance.

Overall cost leadership is not a viable strategy. This is the key discovery to have come out of the most extensive and thorough study of corporate performance ever conducted. Michael Raynor and Mumtaz Ahmed, both with Deloitte, examined the performance of more than 25,000 US companies over a 40-year period. Their aim was to identify companies with sustained levels of high returns on assets and to find an explanation in terms of the strategies pursued by these companies.

In a recent paper in Harvard Business Review (April 2013), they report on their groundbreaking findings, the most provocative of which challenges Michael Porter's assumption that overall cost leadership is one of three generically viable competitive strategies. Of the 25,000 companies in their sample, only a handful achieved strong and sustained success with this strategy.