1. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management © The McGraw-Hill Companies, Inc., 1999 Part One Introduction to Cost Management

2. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  Explain competitive strategy and show strategy is influenced by the contemporary business environment.  Identify three principal types of competitive strategy.  Demonstrate how a firm identifies its own competitive strategy, including determining its critical success factors, and how it designs a strategic cost information system.  Explain competitive strategy and show strategy is influenced by the contemporary business environment.  Identify three principal types of competitive strategy.  Demonstrate how a firm identifies its own competitive strategy, including determining its critical success factors, and how it designs a strategic cost information system. After studying this chapter, you should be able to: Learning Objectives 2 Strategic Analysis and Strategic Cost Management Slide 2-1

3. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  Explain competitive strategy and show strategy is influenced by the contemporary business environment.  Identify three principal types of competitive strategy.  Demonstrate how a firm identifies its own competitive strategy, including determining its critical success factors, and how it designs a strategic cost information system.  Explain competitive strategy and show strategy is influenced by the contemporary business environment.  Identify three principal types of competitive strategy.  Demonstrate how a firm identifies its own competitive strategy, including determining its critical success factors, and how it designs a strategic cost information system. After studying this chapter, you should be able to: Learning Objectives 2 Strategic Analysis and Strategic Cost Management Slide 2-1 Click again!

4. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  Explain how the Balanced Scorecard is used to help the firm achieve its strategic goals.  Explain value chain analysis and show how it is used to better understand a firm’s strategic advantage. ‘ Understand the implications of strategic analysis for cost management.  Explain how the Balanced Scorecard is used to help the firm achieve its strategic goals.  Explain value chain analysis and show how it is used to better understand a firm’s strategic advantage. ‘ Understand the implications of strategic analysis for cost management. After studying this chapter, you should be able to: Learning Objectives 2 Strategic Analysis and Strategic Cost Management Slide 2-2 After studying this chapter, you should be able to: Learning Objectives 2 Strategic Analysis and Strategic Cost Management Slide 2-2

5. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-3

6. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Ford Motor Company To be a low-cost producer of the highest quality products and services that provide the best customer value. To be a low-cost producer of the highest quality products and services that provide the best customer value. Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-4 Strategic Analysis and Strategic Cost Management

7. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Apple Computer To offer the best possible personal computing technology, and to put that technology in the hands of as many people as possible. To offer the best possible personal computing technology, and to put that technology in the hands of as many people as possible. Mission Statements of Selected Firms 2 2 Strategic Analysis and Strategic Cost Management Slide 2-5 Strategic Analysis and Strategic Cost Management

8. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 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. 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. Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-6 Strategic Analysis and Strategic Cost Management

9. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Quaker Oats To achieve return on equity at 20 percent or above, “real” earnings growth averaging 5 percent or better over time, be a leading marketer of strong con- sumer brands, and improve the profita- bility of low-return businesses. To achieve return on equity at 20 percent or above, “real” earnings growth averaging 5 percent or better over time, be a leading marketer of strong con- sumer brands, and improve the profita- bility of low-return businesses. 2 Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-7 Strategic Analysis and Strategic Cost Management

10. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Eastman Kodak To be the world’s best in chemical and electronic imaging. To be the world’s best in chemical and electronic imaging. 2 Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-8

11. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Federal Express To continue the expansion of Federal Express’s global network linking key markets around the world. To continue the expansion of Federal Express’s global network linking key markets around the world. 2 Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-9

12. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 IBM To be the most successful information-technology company in the world. To be the most successful information-technology company in the world. 2 Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-10

13. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Xerox To be the document company. Mission Statements of Selected Firms Strategic Analysis and Strategic Cost Management 2 Slide 2-11

14. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 General Motors To be the world leader in transportation products and related services. To be the world leader in transportation products and related services. Mission Statements of Selected Firms 2 Strategic Analysis and Strategic Cost Management Slide 2-12

15. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Cost Management Focus Financial reporting and cost Common emphasis on standardization and standard costs The accountant as functional expert and financial scorekeeper Financial reporting and cost Common emphasis on standardization and standard costs The accountant as functional expert and financial scorekeeper 2 The Prior Business Environment Strategic Analysis and Strategic Cost Management Slide 2-13

16. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 View of cost accounting as a tool for the development and implementation of business strategyView of cost accounting as a tool for the development and implementation of business strategy The accountant as a business partnerThe accountant as a business partner View of cost accounting as a tool for the development and implementation of business strategyView of cost accounting as a tool for the development and implementation of business strategy The accountant as a business partnerThe accountant as a business partner The Contemporary Business Environment 2 Strategic Analysis and Strategic Cost Management Slide 2-13 Financial reporting and cost Common emphasis on standardization and standard costs The accountant as functional expert and financial scorekeeper Financial reporting and cost Common emphasis on standardization and standard costs The accountant as functional expert and financial scorekeeper The Prior Business Environment Cost Management Focus

17. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Financial Measures of Success  Sales growth  Earnings growth  Dividend growth  Bond and credit ratings  Cash flow  Increase in stock price  Sales growth  Earnings growth  Dividend growth  Bond and credit ratings  Cash flow  Increase in stock price 2 Strategic Analysis and Strategic Cost Management Slide 2-14

18. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Customer Measures  Market share, and growth in market share  Customer service  On-time delivery  Customer satisfaction  Brand recognition  Positions in favorable markets  Market share, and growth in market share  Customer service  On-time delivery  Customer satisfaction  Brand recognition  Positions in favorable markets Non-Financial Measures of Success 2 Strategic Analysis and Strategic Cost Management Slide 2-15

19. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Internal Business Processes  High product quality  Manufacturing innovation  High manufacturing productivity  Cycle time  Yield, reduction in waste  High product quality  Manufacturing innovation  High manufacturing productivity  Cycle time  Yield, reduction in waste 2 Strategic Analysis and Strategic Cost Management Slide 2-16 Non-Financial Measures of Success

20. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Competence and integrity of managersCompetence and integrity of managers Morale and firm-wide cultureMorale and firm-wide culture Education and trainingEducation and training InnovationInnovation Competence and integrity of managersCompetence and integrity of managers Morale and firm-wide cultureMorale and firm-wide culture Education and trainingEducation and training InnovationInnovation Innovation and Learning 2 Strategic Analysis and Strategic Cost Management Slide 2-17 Non-Financial Measures of Success

21. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 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 Consequences of Lack of Strategic Information 2 Strategic Analysis and Strategic Cost Management Slide 2-18

22. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Cost leadership Differentiation Focus Developing a Competitive Strategy 2 Strategic Analysis and Strategic Cost Management Slide 2-19

23. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Strategic target Basis of competitive advantage Aspects of Three Competitive Strategies 2 Strategic Analysis and Strategic Cost Management Slide 2-20

24. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Strategicbroad cross-broad-cross sectiona narrow targetsection of theof the marketmarket marketsegment Basis of competitive advantage 2 Strategic Analysis and Strategic Cost Management Slide 2-20 Aspects of Three Competitive Strategies

25. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Strategicbroad cross-broad-cross sectiona narrow targetsection of theof the marketmarket marketsegment Basis of lowest cost ina unique product oruniqueness competitivethe industryserviceor low cost advantagein a specific market segment 2 Strategic Analysis and Strategic Cost Management Slide 2-20 Aspects of Three Competitive Strategies

26. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Product line Production emphasis 2 Strategic Analysis and Strategic Cost Management Slide 2-21 Aspects of Three Competitive Strategies

27. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Productlimited wide variety, targeted to lineselectiondifferentiating selected featuresmarket segment Production emphasis 2 Strategic Analysis and Strategic Cost Management Slide 2-21 Aspects of Three Competitive Strategies

28. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Productlimited wide variety, targeted to lineselectiondifferentiating selected featuresmarket segment Productionlowest possiblefocus on innovation appropriate emphasiscost with highin differentiatingfor selected quality and productsmarket and essentialsegment product features 2 Strategic Analysis and Strategic Cost Management Slide 2-21 Aspects of Three Competitive Strategies

29. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Marketing emphasis 2 Strategic Analysis and Strategic Cost Management Slide 2-22 Aspects of Three Competitive Strategies

30. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS Marketinglow pricepremium price and the firm’s emphasisinnovative, unique differentiatingability to featuresserve this segment 2 Strategic Analysis and Strategic Cost Management Slide 2-22 Aspects of Three Competitive Strategies

31. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-23 Identifying Critical Success Factors 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, focus) and its critical success factors. First: 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, focus) and its critical success factors. Second: Develop relevant and reliable measures for the critical success factors identified in the first step. Third: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

32. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Analyzing a Firm’s Strength and Weaknesses 2 Strategic Analysis and Strategic Cost Management

33. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  Are the firm’s products innovative?  Are the product offerings too wide or too narrow?  Are there important and distinctive technological advances?  Are the firm’s products innovative?  Are the product offerings too wide or too narrow?  Are there important and distinctive technological advances? Product lines Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-24

34. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 What is the level of experience and competence? Management Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-25

35. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Is the firm ahead or behind competitors? What is the outlook for important new products and services? Is the firm ahead or behind competitors? What is the outlook for important new products and services? Research and Development Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-26

36. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  How competitive, flexible, productive, and technologically advanced are the current manufacturing processes?  What plans are there for improvement in facilities and processes?  How competitive, flexible, productive, and technologically advanced are the current manufacturing processes?  What plans are there for improvement in facilities and processes? Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-27 Manufacturing

37. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 How effective is the overall marketing approach, including promotion, advertising, and selling? Marketing Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-28 Marketing

38. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 How clearly defined, communicated and communicated andeffectively implemented is corporate strategy? How clearly defined, communicated and communicated andeffectively implemented is corporate strategy? Strengths and Weaknesses 2 Strategic Analysis and Strategic Cost Management Slide 2-29 Strategy

39. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999  Barriers to entry  Intensity of rivalry among competitors  Pressure from substitute products  Bargaining power of customers  Bargaining power of suppliers  Barriers to entry  Intensity of rivalry among competitors  Pressure from substitute products  Bargaining power of customers  Bargaining power of suppliers Opportunities and Threats 2 Strategic Analysis and Strategic Cost Management Slide 2-30

40. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-31 Identifying Critical Success Factors First: 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, focus) and its critical success factors. Develop relevant and reliable measures for the critical success factors identified in the first step. Second: Develop relevant and reliable measures for the critical success factors identified in the first step. Third: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

41. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Financial Factors Profitability Liquidity Sales Market value Profitability Liquidity Sales Market value 2 Strategic Analysis and Strategic Cost Management Slide 2-32 Measures for Critical Success Factors

42. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Customer Factors Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Financial Factors Profitability Liquidity Sales Market value Profitability Liquidity Sales Market value 2 Strategic Analysis and Strategic Cost Management Slide 2-32 Measures for Critical Success Factors

43. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Customer Factors Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Financial Factors Profitability Liquidity Sales Market value Profitability Liquidity Sales Market value 2 Internal Business Procedures QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety Strategic Analysis and Strategic Cost Management Slide 2-32 Measures for Critical Success Factors

44. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Customer Factors Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Financial Factors Profitability Liquidity Sales Market value Profitability Liquidity Sales Market value 2 Internal Business Procedures QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety Strategic Analysis and Strategic Cost Management Learning and Innovation Product innovationProduct innovation Timeliness of new productTimeliness of new product Skill developmentSkill development Employee moraleEmployee morale CompetenceCompetence Product innovationProduct innovation Timeliness of new productTimeliness of new product Skill developmentSkill development Employee moraleEmployee morale CompetenceCompetence Strategic Analysis and Strategic Cost Management Slide 2-32 Measures for Critical Success Factors

45. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Financial Factors Customer Factors Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Customer satisfactionCustomer satisfaction Dealer and distributorDealer and distributor Marketing and sellingMarketing and selling Timeliness of deliveryTimeliness of delivery QualityQuality Profitability Liquidity Sales Market value Profitability Liquidity Sales Market value 2 Internal Business Procedures QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety QualityQuality ProductivityProductivity FlexibilityFlexibility Equipment readinessEquipment readiness SafetySafety Other Factors Strategic Analysis and Strategic Cost Management Governmental Learning and Innovation Product innovationProduct innovation Timeliness of new productTimeliness of new product Skill developmentSkill development Employee moraleEmployee morale CompetenceCompetence Product innovationProduct innovation Timeliness of new productTimeliness of new product Skill developmentSkill development Employee moraleEmployee morale CompetenceCompetence Strategic Analysis and Strategic Cost Management Slide 2-32 Measures for Critical Success Factors

46. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-33 Identifying Critical Success Factors First: 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, focus) and its critical success factors. Second: Develop relevant and reliable measures for the critical success factors identified in the first step. Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers. Third: Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success factors to appropriate managers.

47. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-34 Linking CSFs in an Hierarchical Firm Corporate Level Warrantyreturnrate

48. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-34 Linking CSFs in an Hierarchical Firm Corporate Level Warrantyreturnrate % products with % products with defect prevention systems % products with % products with approved control plans % products with % products with design defect systems Vice President Manufacturing

49. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Strategic Analysis and Strategic Cost Management Slide 2-34 Linking CSFs in an Hierarchical Firm Corporate Level Warrantyreturnrate % products with % products with defect prevention systems % products with % products with approved control plans % products with % products with design defect systems first time test yields supplierrejections Plant Manager % functioning characteristics Vice President Manufacturing

50. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Slide 2-34 Linking CSFs in an Hierarchical Firm first time test yieldssupplierrejections Plant Manager % functioning characteristics Strategic Analysis and Strategic Cost Management

51. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Slide 2-34 Linking CSFs in an Hierarchical Firm amount of adhesive concentricity of outside diameter directcurrentresistance Department Manager first time test yieldssupplierrejections Plant Manager % functioning characteristics Strategic Analysis and Strategic Cost Management

52. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2 Slide 2-34 Linking CSFs in an Hierarchical Firm amount of adhesive viscosity of adhesive concentricity of outside diameter directcurrentresistance machineapplicationpressureambientadhesivetemperature Department Manager first time test yieldssupplierrejections Plant Manager % functioning characteristics Strategic Analysis and Strategic Cost Management

53. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 COMPETITORSUCCESSCOMPETITORSUCCESS 2 Strategic Analysis and Strategic Cost Management Slide 2-35 The Balanced Scorecard

54. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 FINANCIALMEASURES Did earnings increase? FINANCIALMEASURES COMPETITORSUCCESSCOMPETITORSUCCESS 2 Strategic Analysis and Strategic Cost Management Slide 2-35 The Balanced Scorecard

55. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 FINANCIALMEASURES Did earnings increase? FINANCIALMEASURES COMPETITORSUCCESSCOMPETITORSUCCESS CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? 2 Strategic Analysis and Strategic Cost Management Slide 2-35 The Balanced Scorecard

56. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 FINANCIALMEASURES Did earnings increase? FINANCIALMEASURES COMPETITORSUCCESSCOMPETITORSUCCESS CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? INTERNAL OPERATIONS Has profitability improved? INTERNAL OPERATIONS Has profitability improved? 2 Strategic Analysis and Strategic Cost Management Slide 2-35 The Balanced Scorecard

57. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 FINANCIALMEASURES Did earnings increase? FINANCIALMEASURES COMPETITORSUCCESSCOMPETITORSUCCESS CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? CUSTOMER SATISFACTION Has the percentage of on- time deliveries improved? INTERNAL OPERATIONS Has profitability improved? INTERNAL OPERATIONS Has profitability improved? LEARNING AND INNOVATION How many new patents this year? LEARNING AND INNOVATION How many new patents this year? 2 Strategic Analysis and Strategic Cost Management Slide 2-35 The Balanced Scorecard

58. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Design Acquisition of raw materials Manufacturing: Assembling, testing, and packaging Warehousing and Distribution Retail Sales Customer Service Design Acquisition of raw materials Manufacturing: Assembling, testing, and packaging Warehousing and Distribution Retail Sales Customer Service Flow of Product Development 2 Strategic Analysis and Strategic Cost Management Slide 2-36 Value Chain in a Manufacturing Industry

59. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Raw Materials Manufacture of computer chips and parts Manufacture of components Assembly Marketing, distribution and service Raw Materials Manufacture of computer chips and parts Manufacture of components Assembly Marketing, distribution and service Flow of Product Development 2 Strategic Analysis and Strategic Cost Management Slide 2-36 Value Chain in a Computer Industry

60. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 The End 2 Strategic Analysis and Strategic Cost Management