Cost Dynamics

Definition: Cost Dynamics is is a term used by Michael Porter to indicate that in addition to Analyzing Cost behavior at a point in time (using cost drivers), a firm must also consider how the absolute and relative cost of Value Activities will change over time independent of its strategy.

A firm with insight into cost dynamics may be able to position itself to gain a Cost Advantage by anticipating these changes and moving quickly to respond to them.

A number sources of cost dynamics can be distinguished, like Industry Real Growth and Differential Scale Sensitivity.

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