Activity Four:
Manage the Company’s cost structure to create Economies of Scale while offering good value to Core customers.

Step 27: Create countable measures of Productivity.


This step creates physical counts of costs and customer benefits. The measures of cost include measures of Inputs of basic Building Block Costs (i.e., People, Purchases and Capital) and Intermediate Cost Drivers (ICDs), which are the activities of the functional cost organizations. These Inputs and Intermediate Cost Drivers produce the Outputs of the organization. The basic measure of Output for the customer is a customer order.


These physical Productivity measures complement the Company’s management cost information system. They establish a physical link between Input costs, the activities of the functional cost organizations and the final Outputs. By measuring these physical units of cost, the Company is able to measure its Economies of Scale and manage Productivity.

Economies of Scale improve when the Productivity of costs increases. The improvement in Productivity, through an improvement of either Efficiency or Effectiveness, reduces costs that do not help the customer.

What to Watch For:


Measure the Productivity and its two major components as deeply as possible within each functional cost organization. Use these measures to improve Productivity.

More Information on Creating Countable Measures of Productivity on the Advanced Site>>

For helpful context on this step:



Symptoms and Implications:

Guide IndexNEXT: Basic Strategy Guide Step 28