Strategy and Cost
Management
Controlling costs by focusing on core
competencies
1
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
2
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.
3
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.
4
Strategy Development

Strategy determines the emphasis of cost
management

Strategy determines what you must do

What you do determines the costs you must incur
5
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
6
Strategy Development

SWOT analysis

Internal analysis

Strengths

Weaknesses

Includes product lines, management, research and
development, manufacturing, marketing, strategy,
employees, brand recognition, etc.
7
Strategy Development

External analysis

Opportunities

Threats

Includes barriers to entry, intensity of competition,
substitute products, bargaining power of customers and
suppliers, changing demographics, government
regulation, technological change, world events, etc.
8
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
9
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
10
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
11
Strategy Development

Areas of competition

Cost leadership


Cost/price
Differentiation


Functionality

Features

Time

Status
Quality
12
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
13
Strategy Development

Shape of the survival zone is determined by many
factors

What determines the minimum and maximum values for

Cost

Price

Quality

Functionality
14
Strategy Development

Value chain

Sequence of activities necessary to satisfy the
customer
Design and
engineering
Material
acquisition
Assemble
materials into
components
Final
assembly
Wholesaling
warehousing
distribution
Retail
sales
Customer
service
15
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
16
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?
17