1. Strategic Analysis and Strategic Cost Management1 1

2. How A Firm Succeeds: The Competitive Strategy
Mission Statements of Selected Firms
Ford Motor Company (
To be a low-cost producer of the highest quality products and services that provide the best customer value.

3. How A Firm Succeeds: The Competitive Strategy
General Electric (
To become the most competitive enterprise in the world by being number one or number two in market share in every business the company is in.
International Business Machines (
To be the most successful information-technology company in the world.

4. How A Firm Succeeds: The Competitive Strategy
Motorola (
To complete the picture at home – integrating broadband with wireless services.
Johnson & Johnson (
To alleviate pain and disease.
United Parcel Service (
To move at the speed of business.

5. How A Firm Succeeds: The Competitive Strategy
Walt Disney (
To make people happy.
Merck (
To preserve and improve human life.

6. The Prior Business Environment The Contemporary Business Environment
Cost Management Focus
The Prior Business Environment
The Contemporary Business Environment
Financial reporting focus
Common emphasis on standardization and standard costs
The accountant as functional expert and financial scorekeeper
View of cost accounting as a tool for the development and implementation of business strategy
The accountant as a business partner

7. Financial Measures of Success
Sales growth
Earnings growth
Dividend growth
Bond and credit ratings
Cash flow
Increase in stock price

8. Nonfinancial Measures of Success
Customer Measures
Market share, and growth in market share
Customer service
On-time delivery
Customer satisfaction
Brand recognition
Positions in favorable markets

9. Nonfinancial Measures of Success
Internal Business Processes
High product quality
Manufacturing innovation
High manufacturing productivity
Cycle time
Yield, reduction in waste

10. Nonfinancial Measures of Success
Learning and Innovation
Competence and integrity of managers
Morale and firm-wide culture
Education and training
Innovation

11. Consequences of Lack of Strategic Information
Decision making based on guess and intuition only
Lack of clarity about direction and goals
Lack of a clear and favorable perception of the firm by customers and suppliers
Incorrect investment decisions; choosing products, markets, or manufacturing processes inconsistent with strategic goals
Inability to effectively benchmark competitors
Failure to identify more profitable products, customers, and markets

12. Developing a Competitive Strategy
Cost leadership – outperform competitors by producing at the lowest cost.
Differentiation – creating a perception among consumers that your products or services are unique in some important way, usually related to quality.

13. Aspects of the Two Competitive Strategies

14. Critical Success Factors
Step 1: Obtain a strategic competitive analysis of the firm using SWOT analysis. What are its strengths and weaknesses, opportunities and threats? Determine the firm’s overall strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

15. Strengths and Weaknesses
Product lines
Are the firm’s products innovative?
Are the product offerings too wide or too narrow?
Are there important and distinctive technological advances?

16. Strengths and Weaknesses
Management
What is the level of experience and competence?

17. Strengths and Weaknesses
Research and Development
Is the firm ahead or behind competitors?
What is the outlook for important new products and services?

18. Strengths and Weaknesses
Manufacturing
How competitive, flexible, productive, and technologically advanced are the current manufacturing processes?
What plans are there for improvement in facilities and processes?

19. Strengths and Weaknesses
Marketing
How effective is the overall marketing approach, including promotion, advertising, and selling?

20. Strengths and Weaknesses
Strategy
How clearly defined, communicated and
effectively implemented is corporate strategy?

21. Opportunities and Threats
Barriers to entry
Intensity of rivalry among competitors
Pressure from substitute products
Bargaining power of customers
Bargaining power of suppliers

22. Critical Success Factors
Step 1: Obtain a strategic competitive analysis of the firm using SWOT analysis. What are its strengths and weaknesses, opportunities and threats? Determine the firm’s overall strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

23. Measures for Critical Success Factors
Financial Factors
Profitability
Liquidity
Sales
Market value
Customer Factors
Customer satisfaction
Dealer and distributor
Marketing and selling
Timeliness of delivery
Quality
Learning and Innovation
Product innovation
Timeliness of new product
Skill development
Employee morale
Competence
Internal Business Procedures
Quality
Productivity
Flexibility
Equipment readiness
Safety

24. Critical Success Factors
Step 1: Obtain a strategic competitive analysis of the firm using SWOT analysis. What are its strengths and weaknesses, opportunities and threats? Determine the firm’s overall strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

25. Information Systems for Critical Success Factors
Corporate Level
Vice President Manufacturing

26. Information Systems for Critical Success Factors
Vice President Manufacturing
Plant Manager

27. Information Systems for Critical Success Factors
Plant Manager
Department Manager

28. The Balanced Scorecard
Customer Satisfaction
Has the percentage of on-
time deliveries improved?
Financial Measures
Did earnings increase?
COMPETITIVE
SUCCESS
Learning and Innovation
How many new patents this year?
Internal Operations
Has profitability improved?

29. Value Chain of the Manufacturing Industry
Design
Flow of Product Development
Acquisition of Raw Materials
Manufacturing: Assembling, testing, and packaging
Warehousing and Distribution
Retail Sales
Customer Service

30. Value-Chain Analysis Identify the value-chain activities.
Identify the cost driver(s) at each value activity.
Develop a competitive advantage by reducing cost or adding value.
Identify competitive advantage (cost leadership or differentiation).
Identify opportunities for added value.
Identify opportunities for reduced cost.
Exploit linkages among activities in the value chain.

31. Value Chain for the Computer-Manufacturing Industry

32. Linking Strategic Resources
Strategic Positioning
Value Chain Analysis
Balanced Scorecard

33. End of Chapter 2