Steps In Strategic Cost Analysis
There are the following steps required in strategic cost analysis:
- Identify the appropriate value chain and assign costs and assets to it.
- Diagnose the costs 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.
Differentiation involves achieving competitive advantage through pinpointing product or service attributes that customers perceive as valuable and positioning the firm to meet those demands better than the competition.