Case Analysis: Cost Economics
Republic of the Philippines
University of Southeastern Philippines
COLLEGE OF GOVERNANCE AND BUSINESS
Department of Business Administration
Bo. Obrero, Davao City
CASE ANALYSIS 4
Cost Economics
To Reduce Costs, Firms Often Look Far Afield
In order to increase productivity and cut costs to better compete, firms often seek creative insights in industries far afield from their own. Of course, in a time of increased global competition, firms routinely scrutinize competitors’ practices in their quest for innovative products and processes. But seeking inspiration only in one’s own industry has limitations, and so more and more firms are increasingly looking in other industries and fields, “from outside the box” to come up with new products and better ways of doing things. For example, when Southwest Airlines wanted to improve the turnaround of its aircraft at airports, it did not examine other airline’s practices but went to the Indianapolis 500 to watch how pit crews fuel and service race cars in a matter of seconds. The result was that Southwest was able to cut its turnaround time by 50 percent. Such a drastic increase in productivity could hardly be accomplished by observing other airline’s practices. It is, of course, much more difficult to adapt techniques from other industries, but when it is accomplished, the potential rewards in terms of increased efficiency can be very great.
The key to finding useful insights in seemingly unrelated fields is to focus on processes. After all, all firms do basically the same things: hire employees, buy from suppliers, carry on production processes, sell to customers, and collect payments. For example, a firm seeking to speed its production process might look at Domino’s Pizza, an outfit that takes an order, produces the pizza, delivers it, and collects the money – all in less than 30 minutes. A major gas utility firm discovered ways to greatly speed the delivery of its fuel to customers by observing how Federal
University of Southeastern Philippines
COLLEGE OF GOVERNANCE AND BUSINESS
Department of Business Administration
Bo. Obrero, Davao City
CASE ANALYSIS 4
Cost Economics
To Reduce Costs, Firms Often Look Far Afield
In order to increase productivity and cut costs to better compete, firms often seek creative insights in industries far afield from their own. Of course, in a time of increased global competition, firms routinely scrutinize competitors’ practices in their quest for innovative products and processes. But seeking inspiration only in one’s own industry has limitations, and so more and more firms are increasingly looking in other industries and fields, “from outside the box” to come up with new products and better ways of doing things. For example, when Southwest Airlines wanted to improve the turnaround of its aircraft at airports, it did not examine other airline’s practices but went to the Indianapolis 500 to watch how pit crews fuel and service race cars in a matter of seconds. The result was that Southwest was able to cut its turnaround time by 50 percent. Such a drastic increase in productivity could hardly be accomplished by observing other airline’s practices. It is, of course, much more difficult to adapt techniques from other industries, but when it is accomplished, the potential rewards in terms of increased efficiency can be very great.
The key to finding useful insights in seemingly unrelated fields is to focus on processes. After all, all firms do basically the same things: hire employees, buy from suppliers, carry on production processes, sell to customers, and collect payments. For example, a firm seeking to speed its production process might look at Domino’s Pizza, an outfit that takes an order, produces the pizza, delivers it, and collects the money – all in less than 30 minutes. A major gas utility firm discovered ways to greatly speed the delivery of its fuel to customers by observing how Federal