Posts Tagged ‘cost cutting’

Stretching an advantage further

May 5, 2009

cutting_costsLow cost is a common option in the business strategy literature. Often we assume that a firm that dominates market share, has substantial economies of scale, and offers a very price competitive product relative to its main rivals most be pursuing such a strategy to a greater extent than differentiation. The recent acquisition of Anheuser-Busch by InBev demonstrates that such assumptions should be tested.

As reported in the Wall Street Journal, the Brazilian-run, Belgian-headquartered InBev has certainly made some sweeping changes in taking over the US brewing rival.

The new owner has cut jobs, revamped the compensation system and dropped perks that had made Anheuser-Busch workers the envy of others in St. Louis. Managers accustomed to flying first class or on company planes now fly coach. Freebies like tickets to St. Louis Cardinals games are suddenly scarce.

InBev eschews fancy offices and company cars, and groups of its executives share a single secretary. It uses zero-based budgeting — meaning all expenses must be justified each year, not just increases. The company says it saved €250,000 ($325,000) by telling employees in the U.K. to use double-sided black-and-white printing, spending the money to hire more salespeople.

The story also reports extensions in payment terms to suppliers and cuts in advertising spend and format.

InBev clearly saw a lot of fat in this business despite (or perhaps because of) its 48.9% domestic market share. And it seems to be working thus far, with retail share up almost another 1% in the last quarter. Presumably margins are increasing even more.

I guess this could also be dropped in the benefits of multinationality box, with an MNE prepared to make the tougher decisions and to transfer capabilities into a new environment.

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