Cost driver analysis is the basis of linking resource utilization to competitive advantages. One of the key aspects of value chain analysis is the recognition that organizations are much more than just a random collection of resources. These resources are of no value unless organized in such a way that produces products or services which are valued by the final consumer. In other words, it is value activities and linkages between them which are the source of competitive advantage for the organization.

The approach can be described as follows:

  • The organization should be aggregated into the various value activities which underpin the production and delivery of its products or services.

  • Identify those value activities which critically underpin the organization`s competitive position. These are the critical success factors.

  • The concept of value must be assessed from the view-point of the final consumer of the product or services.

  • Identify those factors which sustain the competitive position through each of the critical factors. These are the value drivers or cost drivers.

  • Competitive advantage is likely to be sustained by the linkages which have been made between value activities and also within the wider value system of suppliers, channels or customers. It is the planning of these linkages which can either provide distinctive cost advantages or become the basis on which the organization`s products or services are differentiated from the competitors`.

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