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Strategy and Cost Management

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Presentation on theme: "Strategy and Cost Management"— Presentation transcript:

1 Strategy and Cost Management
Controlling costs by focusing on core competencies

2 The Role of Resource Information
Resource information is needed to support the four functions of management Strategic management Planning and decision making Management and operational control Preparation of financial statements

3 The Role of Resource Information
Strategic management Supports choice of products, manufacturing methods, marketing methods, etc. Planning and decision making Supports recurring decisions such as equipment replacement, production scheduling, pricing, purchasing, etc.

4 The Role of Resource Information
Management and operational control Provides feedback on operational efficiency, performance evaluations, etc. Preparation of financial statements Provides information on the value of inventory, cost of goods sold, etc.

5 Strategy Development Strategy determines the emphasis of cost management Strategy determines what you must do What you do determines the costs you must incur

6 Strategy Development Strategy should be built around the company’s core competencies What are we good at doing? Competitive advantages What are we not good at doing? Competitive disadvantages

7 Strategy Development SWOT analysis Strengths Weaknesses
Internal analysis Strengths Weaknesses Includes product lines, management, research and development, manufacturing, marketing, strategy, employees, brand recognition, etc.

8 Strategy Development Opportunities Threats External analysis
Includes barriers to entry, intensity of competition, substitute products, bargaining power of customers and suppliers, changing demographics, government regulation, technological change, world events, etc.

9 Strategy Development Basic strategies Cost leadership
Based on having lowest delivery costs in the industry Low production cost Essential product features Limited product or service selection Quality Low price for customers Large market share

10 Strategy Development Differentiation
Based on having unique product or service Emphasis on innovation Wide product variety with different features Differentiating features allow for premium price Narrow market share

11 Strategy Development Confronting competition
Developing a sustainable advantage is virtually impossible Rapid transfer of technology Changing consumer desires Actions of competitors Company and its strategy must be flexible to stay in the lead, if just temporarily

12 Strategy Development Areas of competition Cost leadership
Cost/price Differentiation Functionality Features Time Status Quality

13 Strategy Development “Survival triplet” is constantly changing
Must understand the customers’ desires for price, functionality and quality Position the company’s products or services within the survival zone Cost/price Quality Functionality

14 Strategy Development Shape of the survival zone is determined by many factors What determines the minimum and maximum values for Cost Price Quality Functionality

15 Strategy Development Value chain
Sequence of activities necessary to satisfy the customer Assemble materials into components Wholesaling warehousing distribution Design and engineering Material acquisition Final assembly Retail sales Customer service

16 Strategy Development Value chain analysis
Which activities present opportunities to add value or reduce costs? Activities where the company has strengths represent opportunities to add value Perform the activities internally Activities where the company is weak represent opportunities to reduce cost Outsource to more efficient providers

17 Strategy Development Analyze linkages in the value chain for opportunities How does one activity relate to preceding or succeeding activities? For example, does providing repair service to customers help improve product development activities?

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