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 the sources of cost differences.
- Develop a strategy to lower relative cost position through controlling cost drivers or reconfiguring the value chain and/ or downstream value.
- Ensure that cost reduction efforts do not erode differentiation, or make a conscious choice to do so.
- Test the cost reduction strategy for sustainability.
Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.