Low cost of production as a key element of strategy

Posted: 5 November 2025

Aspiring to be the lowest-cost producer makes strategic sense. Achieving this does not of course mean that the business is second-rate to buy from, work for or invest in, as Thomas Hout’s 2025 research suggests.* Quite the reverse.

The strategy of being the lowest-cost producer, and how it is pursued, stands in stark contrast to a cost-reduction strategy that hollows out the business by reducing product or service quality, technical capability, people development, management capability and improvement capability.

Being the lowest-cost competitor, Hout discovered, is a deeply embedded cultural capability, built over time by continually finding more cost-effective ways to keep customers happy. This is mainly about people and creativity, and thus relies on strong colleague trust and engagement.

This is achieved by:

  • Studying how every customer group is served and looking at those interactions from every angle
  • An obsession with operational excellence, process excellence, workflow, logistics efficiency, and keeping overheads low
  • Developing, over time, a rich understanding of the processes, obsessive attention to detail, reliable real-time operating data for decision-making, the development of in-house standards and process specifications, and rigorous hiring and training practices
  • Distributing intelligence and improvement capability throughout the organisation, to enable the people doing the work, at every level, to solve the problems they confront

Being the lowest-cost competitor is a deeply embedded cultural capability, built over time by continually finding more cost-effective ways to keep customers happy

As Hout argues, the difference between a business that can turn out twice as much as another is often the intelligence and discipline applied to each of hundreds of tasks in the long chain of work over time.

*Thomas Hout, The Secrets of Extraordinary Low-Cost Operators, Harvard Business Review, April 2025

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