Changing Business Environment
SMA
Conception of Strategy
Balanced Scoreboard (BSC)
Relevant Costs and Decision Making Under Certainty
Decision Making Under Uncertainty
Investment Appraisal
Performance Measurement
Customer Profitability Analysis (CPA) and Target Costing
Beyond Budgeting
Cost Accounting (CA)
Cost accounting is concerned with calculating the costs of products/services so as to determine
selling prices, also for cost control purposes e.g. developing budgets, comparing actual costs to
budgets, taking corrective action.
Benefits:
Ensure manufacturing price < selling price.
Control company’s costs through the use of budgets
Calculate extra costs we would incur if we increased production, or the costs we would save
if we reduced production.
Management Accounting (MA)
Key focus is to provide information to support management in running business:
- Includes cost accounting.
- Supports decision making by providing relevant information e.g. make or buy decisions,
accept/reject orders, lease or buy, how frequency should equipment/vehicles be replaced
- Manage the performance of the organisation e.g. through responsibility accounting,
measuring divisional profitability, using non-financial performance measures e.g. customer
surveys, defect rates, etc.
Takes a more proactive role in achieving the organisation’s objectives.
Benefits:
Measure profitability of each international division to identify areas of improvement.
Measure profitability of individual products
Provide relevant financial information for proposed products.
Decide on best locations for production facilities.
Decide whether we should continue manufacturing ourselves or outsource.
Strategic Management Accounting (SMA)
Focus on the future, both short and long-term goals; focus on factors that are external to the
organisation e.g. competitors, developments in the market place.
Integrates management accounting with marketing strategy, which helps management of the
organisation develop and implement strategy – uses non-financial information.
Tools include the balance scorecard, business process reengineering (BPR), benchmarking, TQM, JIT,
SWOT, strategic costing, performance measurement, analysis of markets and competition, strategic
positioning, and customer analysis.
Benefits:
Provide relevant information about customers, suppliers, and competitors.
Put measures in place to check whether we are achieving future strategy
Monitor selling prices that our competitors are charging.
Changing Business Environment:
- Environment determines the organisation’s freedom to manoeuvre.
- Structure of the environment is overwhelmingly important
- Competitive advantage – firm positions itself within the environment
- Problem for the strategist – finding a defensible position against the threats
- A hold under conditions of stability
,Porter’s Five Forces:
1. Rivalry between existing competitors
2. Bargaining power of suppliers
3. Threats or new entrants
4. Bargaining power of buyers
5. Threats of substitutes.
Business environments experience changes such as: moving from protected markets to highly
competitive global markets, deregulation, or declining product life-cycles.
In order to compete successfully companies have to: make customer satisfaction an overriding
priority, adopt new management approaches, change their manufacturing systems, and invest in
AMT’s – these changes have a significant impact on MAS.
Customer Satisfaction Approaches:
Key success factors: Cost efficiency – quality – time – innovation
Continuous improvement
Employee empowerment
Total value chain analysis
Key Success Factors
Cost Efficiency:
Since customers will buy the product with the lowest price, ceteris paribus, keeping costs low and
being cost efficient provides an organisation with a strong competitive advantage.
High Quality Products & Services:
Customers demand high quality products and services, companies respond to this by focusing on
Total Quality Management (TQM). TQM described a situation where all business functions are
involved in a process of continuous quality improvement.
Speedy Response to Customer Requests:
Customer satisfaction is increased by timelier responses, ensures on-time delivery and reducing time
taken to develop and bring new products to market. Emphasis on time based measures.
Innovation:
Must develop a steady stream of innovative new products and services and have the capability to
adapt to changing customer requirements. Innovation measures include an assessment of key
characteristics of new products relative to those of competitors, feedback on customer satisfaction
with the new features of newly introduced products, and the number of new products launched and
their launch time.
Management Approaches
Continuous Improvement:
Ongoing process that involves a continuous search to reduce costs, eliminate waste, and improve
the quality and performance of activities that increase customer satisfaction.
Benchmarking is a technique that is increasingly being adopted as a mechanism for achieving
continuous improvement – measures firm’s products, services or activities against the other best
performing organisations, either internal or external.
Employee Empowerment:
By empowering employees and giving them relevant information, they will be able to respond faster
to customers and improve morale.
MA moves from monitoring activities of employees to empowering employees to focus on
continuous improvement of activities.
,Value Chain Analysis:
Increasing customer satisfaction and managing costs more effectively – a linked set of value creating
activities from suppliers of raw materials to the end-use customer (see below chain).
Coordinating the individual parts of the value chain together to work as a team creates the
conditions to improve customer satisfaction.
Organisation Strategy & Administration
R & D -> Design -> Production -> Marketing -> Distribution -> Customer Service
Does not imply managers should proceed sequentially through value chain! Individual parts of the
value chain work concurrently.
06/02/23
CHANGING BUSINESS ENVIRONMENT AND SMA
Simmons defines SMA as “the provision and analysis of developing and monitoring the business
strategy” (1981). Profits stem not from internal efficiencies but rather from the firm’s competitive
positioning in its market.
Mintzberg (1988) believes SMA defies a single definition – resorts to distinct orientations i.e. plan,
pattern, position and perspective.
Strategy relates to the larger picture or the important things, while tactics are more concerned with
the means to achieving the strategy – tend to be more concerned with matters of efficiency.
Long-Term and Future-Oriented Notion of Strategy
Chandler (1962) defines strategy as “the determination of the basic LT goals, objectives of an
enterprise, and all the adoption of courses of action, and the allocation of resources necessary for
carrying out these goals”.
Zabriskie and Huellamntel (1991) see strategy as concerned with the selection of future markets that
can provide growth while operational activities are concerned with managing resources already
invested in today’s markets.
Competitive Strategy
Porter (1980; 1985) defines competitive strategy as concerned with “creating and maintaining a
competitive advantage in each and every area of business”.
Ohmae (1982) states “without competitors there would be no need for strategy, for the sole
purpose of strategic management is to enable the company to gain a sustainable edge over its
competitors”.
Conventional MA and SMA
Conventional MA system does not tend to adopt a LT FO stance, nor it is characterised by a
marketing or competitive focus. Financial year predominates in a conventional MA time frame.
SMA Key Tools
Attribute Costing:
Products are compromised of packages of attributes (Lancaster, 1979), which are components of a
product/service which appeals to customers. Anything that differentiates a product/service is
normally an attribute e.g. warranty agreements, reliability of supply, cost and availability of spare
parts, features of a product etc.
, Brand Valuation:
Occurs when a brand has value to customers (intangible asset, difficult to value, dependant on
valuation method), can be used to measure performance of brand marketing. Improves dialogue
between management accounting function and marketing.
Competitor Cost Assessment:
In an increasingly competitive environment it is important to understand competitor’s costs,
methods include appraising competitors resources, including production facilities, labour costs, costs
of main raw materials, power costs, economies of scale.
Costs are becoming more transparent, can be determined via market prices, common suppliers.
Competitive Position Monitoring:
Focuses on market as a whole and competitor’s position within the market, includes the analysis of
competitor’s sales, market share, volume, unit cost, loyalty of customers. Generates an
understanding of who are the market leaders and their attributes.
Competitor Appraisal Based on Published Financial Statements:
Involves the analysis and interpretation of competitor’s published accounts, easily accessible and
cheap information. Provides access to some information, and allows some comparison and
benchmarking – Moon and Bates (1993) claim that strategically significant insights can be derived
from this.
Life Cycle Costing:
Requires managers to move away from assessing product costs and revenues within a financial
period, and towards the whole life of a product. Stages of product life include design, introduction,
growth, maturity and decline.
Provides valuable information to support design cost decisions, pricing decisions, level of marketing
needed etc.
Quality Costing:
Four types of cost: prevention, detection, internal failure, external failure (Heagy, 1991). These need
to be managed e.g. if failure costs are too high, increase spending on prevention.
Helps managers use resources effectively in ensuring that quality improves competitive advantage.
Strategic Costing:
Introduced by Shank and Govindarajan (1993), states that sub-optimal decisions occur if only
traditional costing is used. Should consider competitor’s spending on marketing, changes in the
market price, supply chain, differentiation, pricing (skimming and penetration), internationalisation
of business etc.
Strategic Pricing (Cost-Plus vs Target Pricing):
Claimed competitively focused pricing resulted in better informed decisions, factors include
competitor’s prices and responses to price changes, price elasticity, market growth.
Foster and Gupta (1994) found that marketing executives rated management a/c information’s
greatest use is related to pricing decisions.
Les avantages d'acheter des résumés chez Stuvia:
Qualité garantie par les avis des clients
Les clients de Stuvia ont évalués plus de 700 000 résumés. C'est comme ça que vous savez que vous achetez les meilleurs documents.
L’achat facile et rapide
Vous pouvez payer rapidement avec iDeal, carte de crédit ou Stuvia-crédit pour les résumés. Il n'y a pas d'adhésion nécessaire.
Focus sur l’essentiel
Vos camarades écrivent eux-mêmes les notes d’étude, c’est pourquoi les documents sont toujours fiables et à jour. Cela garantit que vous arrivez rapidement au coeur du matériel.
Foire aux questions
Qu'est-ce que j'obtiens en achetant ce document ?
Vous obtenez un PDF, disponible immédiatement après votre achat. Le document acheté est accessible à tout moment, n'importe où et indéfiniment via votre profil.
Garantie de remboursement : comment ça marche ?
Notre garantie de satisfaction garantit que vous trouverez toujours un document d'étude qui vous convient. Vous remplissez un formulaire et notre équipe du service client s'occupe du reste.
Auprès de qui est-ce que j'achète ce résumé ?
Stuvia est une place de marché. Alors, vous n'achetez donc pas ce document chez nous, mais auprès du vendeur acmarinagabby. Stuvia facilite les paiements au vendeur.
Est-ce que j'aurai un abonnement?
Non, vous n'achetez ce résumé que pour €25,20. Vous n'êtes lié à rien après votre achat.
