Even companies that have partial implementation of target costing report benefits such as improved profits, more customer focus, better cost planning and control and better teamwork in their value chain. Our research shows that target costing is still relatively new to U.S. industry, even among companies that have expressed some interest in the practice. Yet, target costing is well established in Japan and its application is spreading there. Both Japanese and American companies seriously consider a target costing approach only in situations where there is extreme pressure on product margins. None of the best practice sites admitted implementing target costing as a non-mandated initiative.
Target costing is part of a company's culture within our best practice sites.
The exception to this was at Boeing where it was part of the project team's culture, but not the overall company culture. When target costing is part of the company's culture, it becomes the dominant profit planning and control mechanism. It ties directly to strategic objectives, it provides the assumptions and plans for product planning and delivery and establishes a cohesive product realization process throughout the organization. In companies where target costing is part of the culture, the process is second nature and guides the organization from product development to delivery and support. It is extremely difficult to integrate target costing into corporate culture from the bottom of the organization.