JP Morgan Chase and Company is an investment banking company with its headquarters in New York, United States. The article “In this corner! The contender” about Jamie Dimon, the new chief executive officer of JP Morgan Chase describes operations at JP Morgan Chase. There are multiple ways that companies can exploit in their pursuit to lower their operations costs, including capitalizing on the cost drivers as well as re-examining the value chain. This paper describes how the costs of operations at JP Morgan Chase were or could have been reduced by either exploiting the cost drivers or reconfiguring the value chain.
A company’s relative position in the industry within which it operates dictates whether its profitability is either above or below the field’s average. The primary foundation of an above-normal success in the long-run is known as the competitive advantage. An organization can possess one of the two competitive benefits that include low cost and differentiation (Porter, 1985). When combined with the scope, the two can result in three generic strategies that can be applied to attain performance that surpasses the usual within a given industry. The approaches include differentiation, cost leadership, and focus which can further be categorized into two variants: differentiation and cost focus.
Under cost leadership, a company seeks to be a low-cost producer within its industry of operation. The basis of cost advantage differs from one industry to another and may include propriety technology, aim for economies of scale as well as access to raw materials. To be a low-cost producer, a company needs to exploit every source of cost advantage (Porter, 1985). If an organization can realize and withstand the general cost leadership, then it becomes an above-regular performer in its respective industry, as long as it can command charges either near or at the sector typical.
When Dimon joined JP Morgan Chase, he had the idea of having a mix of businesses since he believed that it would be suitable for the company. Therefore, soon after, he started encouraging the broadening of the organization’s business. He came up with stricter controls that were meant to diversify risks by expanding the firm’s fixed incomes and derivate into both mortgages and energy. Jamie Dimon suggests that companies need to keep their cost line flat and possess the discipline to increase their revenues quicker than their competitors. However, attaining this objective requires one to understand the value chain and the relevant cost drivers. Porter notes that the cost drivers include linkages, timing, economies of scale, location, patterns of utilization as well as patterns of capacity utilization.
Exploiting all JP Morgan Chase’s cost drivers as well as restructuring the firm’s value chain served as the most effective means of cutting the banking company’s operating costs. In this regard, the main goal that Dimon had in mind was to have asset diversification increase with the expansion of JP Morgan Chase. His practical business ideas are further supported by Porter in his chapter entitled “Competitive advantage.” The broadening of assets helps to spread risk and, in turn, minimizes the marginal costs incurred in risk management in general. The decrease in expenses involved in risk management leads to reduced operating costs for companies. Further, the strategy can help to focus the limited resources from the risk management platform to higher-yield assets, thus, increasing the income of JP Morgan Chase.
Reference
Porter, E. M. (1985). Competitive advantage: Creating and sustaining superior performance, The Free Press.