On Strategy: Debt - And Low Cost Leadership
By Jack Mixner 714 449 1040 www.mixnerstrategy.com
Henderson makes it clear that there is only one way to retain low cost leadership in your niche, namely, having more debt than the competition. If not, you give up growth, don't ever really win, or go bankrupt (Henderson, page 29).
Strategic Implication
Henderson makes a case that Michael Porter picked up upon later. Strategically, you choose to be low cost leader. Alternatives include some sort of niche production, or specialization.
Need more debt? Work with your CFO to verify that you can hold low cost leadership (today, that is harder and harder). Put your plans in writing. Then, get to know your banker very well.
If growth slows, look again at costs. If you haven't already looked at off-shore production, it might be time to have a look. However, continue to retain those banker relationships. You'll still need them.
Turnaround too slow off-shore? Consider costs of local production. There may still be a way to retain leadership. Technology may be part of it.
References
Stern, Carl W. and Michael S. Deimler. The Boston Consulting Group on Strategy. Wiley. 2006. [Henderson, Bruce D. More Debt or None? Page 29.]