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:

  1.  Identify the appropriate value chain and assign costs and assets to it.
  2. Diagnose the cost drivers of each value activity and how they interact.
  3. Identify competitor value chains, and determine the relative cost of competitors and the sources of cost differences.
  4. Develop a strategy to lower relative cost position through controlling cost drivers or reconfiguring the value chain and/ or downstream value.
  5. Ensure that cost reduction efforts do not erode differentiation, or make a conscious choice to do so.
  6. Test the cost reduction strategy for sustainability.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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