The Cost of Purchased Inputs in firm

Procurement  has strategic significance in almost  every industry, but rarely has sufficient stature in firms. Every value activity employs purchased inputs of some kind, ranging from raw materials used in component fabrication to professional services, office space, and capital goods. Purchased inputs divide into purchased operating inputs and purchased  assets. The  total cost of

Segment Cost Behavior of the firm

Thus  far I   have described   how   to   analyze  the cost behavior  of a business unit as a whole. In practice, however, a business unit usually produces a number of different product varieties and sells them to a number of different buyers. It may also employ a number of different distribution channels. For example, a

Cost Dynamics in firm

In addition to analyzing cost behavior at a point in time, a firm must consider how   the   absolute   and   relative cost of value   activities will change over time independent of its strategy. I term this cost dynamics.   An   analysis of cost dynamics  enables a firm   to   forecast how the cost drivers of value activities

Determining the Relative Cost of Competitors

The value chain is the basic tool for determining competitor costs. The first step in determining competitor costs is to identify competitor value chains and  how activities are   performed  by   them.   The   process is the same as that employed by a firm to analyze its own value chain. In practice it is often extremely

Gaining Cost Advantage

There are two m ajor ways that a firm can gain a cost advantage: Control cost drivers. A firm can gain an advantage with respect to the cost drivers of value activities representing a significant proportion of total costs. Reconfigure the value A firm can adopt a different and more efficient way to design,  

Sustainability of Cost Advantage

Cost advantage  will result in above-average performance only if the firm can sustain it. Improving relative cost position in unsustainable ways may allow a firm to   maintain  cost parity   or   proximity, but a firm attempting to achieve cost leadership strategy must also develop sustainable sources of cost advantage. Cost advantage is sustainable if there

Implementation and Cost Advantage

This chapter has focused on how to achieve a cost advantage through changes in strategy and the way activities are performed. However, the success of cost leadership hinges on a firm’s skills in actually implementing it on a day to day basis. Costs do not go down automatically or by accident but rather as

Pitfalls in Cost Leadership Strategies

Many firms do not  fully understand  the behavior of their costs from a strategic perspective and fail to exploit opportunities to improve their relative cost position.   Some of  the   most  common  errors  made by firms in assessing and acting upon cost position include: Exclusive Focus on the Cost o f Manufacturing Activities.    When one

Steps in strategic cost analysis in firm

The techniques described in this chapter can be summarized by outlining the steps required in strategic cost analysis: Identify the appropriate value chain and assign costs and assets to it. Diagnose the cost drivers of each value activity and   how they interact. Identify competitor value chains, and determine the relative cost of competitors and

Sources of differentiation Advantage of the firm

A firm differentiates itself from its competitors when it provides something   unique  that  is valuable   to   buyers  beyond  simply   offering a low price. Differentiation allows the firm to command  a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical

The cost of differentiation infirm

Differentiation   is usually   costly.   A   firm   must  often   incur  costs to be unique because uniqueness requires that it perform value activities better than competitors. Providing superior applications engineering support usually requires additional  engineers, for example, while   a highly skilled sales force typically costs more than a less skilled one. Achieving greater product durability than

Buyer value and differentiation of the firm

Uniqueness does   not  lead   to   differentiation   unless   it   is valuable to the buyer.   A successful differentiator  finds ways of creating value for buyers that  yield a price   premium  in   excess of the extra  cost. The  starting point  for   understanding  what  is valuable   to   the   buyer is the   buyer’s   value   chain.   Buyers   have   value   chains  

Buyer Purchase Criteria for the firm

Applying these fundamentals of buyer value to a particular indus­ try results in the identification of buyer purchase criteria— specific attributes of a firm that create actual or perceived value for the buyer. Buyer purchase criteria can be divided into two types: Use criteria. Purchase criteria that stem from the way in which a

Differentiation strategy of the firm

Differentiation stems from uniquely  creating buyer  value. It can result through meeting use or signaling criteria, though in its most sustainable form it comes from both.  Sustainable   differentiation   re­ quires that a firm perform  a range  of value activities uniquely that impact those purchase criteria. Meeting some purchase criteria requires that a firm perform

Steps in differentiation of the firm

The concepts  in this chapter  can   be summarized  by   outlining the analytical steps necessary for determining  the bases for differentia­ tion and selecting a differentiation strategy. Determine who the real buyer is. The first step in differentiation analysis is to identify the real The firm, institution, or household is not the real buyer, but

Technology and competition

Any firm involves a large num ber  of technologies. Everything a firm does involves technology  of some  sort, despite the fact that  one or more technologies may appear to dominate the product or the production  process.   The  significance of  a technology  for competition is not a function of its scientific merit or its prominence

Technology strategy: The Choice of Technologies to Develop

At the core of a technology strategy is the type of competitive advantage a   firm   is trying   to   achieve.   The  technologies   that  should be developed are those that would most contribute to a firm’s generic strategy, balanced against the probability of success in developing them. Technology strategy  is a potentially  powerful   vehicle with   which

Technology strategy: Technological Leadership or Followership

The second broad  issue a firm must address in technology strategy is whether to seek technological leadership. The notion of technological leadership is relatively clear— a firm seeks to be the first to introduce technological changes   that  support   its   generic   strategy.   Sometimes all firms that are not leaders are viewed as technological  followers, including

Technology strategy: Licensing of Technology

The third broad  issue in technology strategy is technology licens­ ing, a form of coalition with other firms.6 Firms with a unique technol­ ogy are often asked for licenses, or are forced to license by government regulations. Licensing is also a way to gain access to technology. Where technology is an important source of

Technological evolution

Since technological change has such a powerful role in competi­ tion, forecasting the path  of technological evolution is extremely impor­ tant to allow a firm to anticipate technological changes and thereby improve   its   position.   Most  research  on   how   technology  evolves in an industry  has grown out of the product  life cycle concept. According to