Strategic Analysis and
Strategic Cost
Management
Part One
Introduction to Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-1
2
Learning Objectives
Strategic Analysis and
Strategic Cost Management
After studying this chapter, you should be able to:
 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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-1
2
Learning Objectives
Strategic Analysis and
Strategic Cost Management
After studying this chapter, you should be able to:
 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.
Click again!
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-2
2
Learning Objectives
Strategic Analysis and
Strategic Cost Management
After studying this chapter, you should be able to:
 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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-3
2
Strategic Analysis and
Strategic Cost Management
Mission
Statements of
Selected Firms
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-4
Mission Statements of Selected Firms
Ford Motor
Company
2
Strategic Analysis and
Strategic Cost Management
To be a low-cost producer of the
highest quality products and
services that provide the best
customer value.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-5
Mission Statements of Selected Firms
Apple
Computer
2
Strategic Analysis and
Strategic Cost Management
To offer the best possible
personal computing technology,
and to put that technology in
the hands of as many people
as possible.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-6
Mission Statements of Selected Firms
General
Electric
2
Strategic Analysis and
Strategic Cost Management
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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-7
Mission Statements of Selected Firms
Quaker
Oats
2
Strategic Analysis and
Strategic Cost Management
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 consumer brands, and improve the profitability of low-return businesses.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-8
Mission Statements of Selected Firms
Eastman
Kodak
2
Strategic Analysis and
Strategic Cost Management
To be the world’s best
in chemical and electronic
imaging.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-9
Mission Statements of Selected Firms
Federal
Express
2
Strategic Analysis and
Strategic Cost Management
To continue the expansion of
Federal Express’s global
network linking key markets
around the world.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-10
Mission Statements of Selected Firms
2
Strategic Analysis and
Strategic Cost Management
IBM
To be the most successful
information-technology
company in the world.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-11
Mission Statements of Selected Firms
2
Strategic Analysis and
Strategic Cost Management
Xerox
To be the document company.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-12
Mission Statements of Selected Firms
General
Motors
2
Strategic Analysis and
Strategic Cost Management
To be the world
leader in transportation products
and related services.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-13
Cost Management Focus
2
Strategic Analysis and
Strategic Cost Management
The Prior Business
Environment
•
Financial reporting
and cost
•
Common emphasis on
standardization and
standard costs
•
The accountant as
functional expert and
financial scorekeeper
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-13
Cost Management Focus
2
Strategic Analysis and
Strategic Cost Management
The Prior Business
Environment
•
Financial reporting
and cost
•
Common emphasis on
standardization and
standard costs
•
The accountant as
functional expert and
financial scorekeeper
Irwin/McGraw-Hill
The Contemporary
Business Environment
• View of cost
accounting as a tool for
the development and
implementation of
business strategy
• The accountant as a
business partner
© The McGraw-Hill Companies, Inc., 1999
Slide 2-14
2
Financial Measures of Success
Strategic Analysis and
Strategic Cost Management
 Sales
growth
 Earnings growth
 Dividend growth
 Bond and credit
ratings
 Cash flow
 Increase in stock price
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-15
Non-Financial Measures of Success
Customer Measures
 Market
2
Strategic Analysis and
Strategic Cost Management
share, and growth in market
share
 Customer service
 On-time delivery
 Customer satisfaction
 Brand recognition
 Positions in favorable markets
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-16
Non-Financial Measures of Success
2
Strategic Analysis and
Strategic Cost Management
Internal Business Processes
 High
product quality
 Manufacturing
innovation
 High manufacturing
productivity
 Cycle time
 Yield, reduction in waste
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-17
Non-Financial Measures of Success
2
Strategic Analysis and
Strategic Cost Management
Innovation and Learning
• Competence and integrity
of managers
• Morale and firm-wide
culture
• Education and training
• Innovation
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-18
Consequences of Lack of Strategic Information
2
Strategic Analysis and
Strategic Cost Management
 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
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-19
Developing a Competitive Strategy
2
Strategic Analysis and
Strategic Cost Management
• Cost leadership
• Differentiation
• Focus
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-20
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
FOCUS
Strategic
target
Basis of
competitive
advantage
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-20
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
Strategic
target
LOW-COST
LEADERSHIP DIFFERENTIATION
broad crosssection of the
market
broad-cross section
of the market
FOCUS
a narrow
market
segment
Basis of
competitive
advantage
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-20
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
FOCUS
Strategic
target
broad crosssection of the
market
broad-cross section
of the market
a narrow
market
segment
Basis of
competitive
advantage
lowest cost in
the industry
a unique product or
service
uniqueness
or low cost
in a specific
market
segment
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-21
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
FOCUS
Product
line
Production
emphasis
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-21
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
Product
line
limited
selection
wide variety,
differentiating
features
FOCUS
targeted to
selected
market
segment
Production
emphasis
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-21
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
Product
line
limited
selection
Production
emphasis
lowest possible focus on innovation
cost with high in differentiating
quality and
products
and essential
product features
Irwin/McGraw-Hill
wide variety,
differentiating
features
FOCUS
targeted to
selected
market
segment
appropriate
for selected
market
segment
© The McGraw-Hill Companies, Inc., 1999
Slide 2-22
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
LOW-COST
LEADERSHIP DIFFERENTIATION
FOCUS
Marketing
emphasis
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-22
Aspects of Three Competitive Strategies
2
Strategic Analysis and
Strategic Cost Management
ASPECTS
Marketing
emphasis
Irwin/McGraw-Hill
LOW-COST
LEADERSHIP DIFFERENTIATION
low price
premium price and
innovative,
differentiating
features
FOCUS
the firm’s
unique
ability to
serve this
segment
© The McGraw-Hill Companies, Inc., 1999
Slide 2-23
Identifying Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2
Strategic Analysis and
Strategic Cost Management
Analyzing a
Firm’s Strength
and Weaknesses
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-24
2
Strengths and Weaknesses
Product lines
Strategic Analysis and
Strategic Cost Management
 Are
the firm’s products
innovative?
 Are the product offerings too
wide or too narrow?
 Are there important and
distinctive technological
advances?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-25
2
Strengths and Weaknesses
Management
Strategic Analysis and
Strategic Cost Management
What is the
level of
experience
and
competence?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-26
2
Strengths and Weaknesses
Strategic Analysis and
Strategic Cost Management
Research and Development
• Is the firm ahead or
behind competitors?
• What is the outlook for
important new products
and services?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-27
Strengths and Weaknesses
Manufacturing
2
Strategic Analysis and
Strategic Cost Management

How competitive,
flexible, productive, and
technologically
advanced are the
current manufacturing
processes?
 What plans are there for
improvement in facilities
and processes?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-28
2
Strengths and Weaknesses
Marketing
Marketing
Strategic Analysis and
Strategic Cost Management
How effective is the
overall marketing
approach, including
promotion, advertising,
and selling?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-29
2
Strengths and Weaknesses
Strategy
Strategic Analysis and
Strategic Cost Management
How clearly defined,
communicated and
effectively
implemented is
corporate strategy?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-30
2
Opportunities and Threats
Strategic Analysis and
Strategic Cost Management

Barriers to entry
 Intensity of rivalry among
competitors
 Pressure from substitute
products
 Bargaining power of customers
 Bargaining power of suppliers
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-31
Identifying Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-32
Measures for Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
Financial Factors
•
•
•
•
Profitability
Liquidity
Sales
Market value
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-32
Measures for Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
Financial Factors
•
•
•
•
Profitability
Liquidity
Sales
Market value
Irwin/McGraw-Hill
Customer Factors
•
•
•
•
•
Customer satisfaction
Dealer and distributor
Marketing and selling
Timeliness of delivery
Quality
© The McGraw-Hill Companies, Inc., 1999
Slide 2-32
Measures for Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
Financial Factors
•
•
•
•
Customer Factors
Profitability
• Customer satisfaction
Internal Business Procedures
Liquidity
• Dealer and distributor
• Quality
• Marketing and selling
Sales
• Productivity• Timeliness of delivery
Market value
• Flexibility • Quality
• Equipment readiness
• Safety
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-32
Measures for Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
Financial Factors
Customer Factors
• Profitability
• Customer satisfaction
Internal Business Procedures
• Liquidity
• Dealer and distributor
Learning and Innovation
• Quality
• Marketing and selling
• Sales
• Product innovation
• Productivity• Timeliness of delivery
Market value
• •Timeliness
of•new
Flexibility • Quality
product
• Equipment readiness
• Skill development
• Safety
• Employee morale
• Competence
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-32
Measures for Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
Financial Factors
Customer Factors
• Profitability
• Customer satisfaction
Internal Business Procedures
• Liquidity
• Dealer and distributor
Learning and Innovation
• Quality
• Marketing and selling
• Sales
• Product innovation
• Productivity• Timeliness of delivery
Market value
• •Timeliness
of•new
Other Factors
Flexibility • Quality
product
•
Governmental
• Equipment readiness
• Skill development
• Safety
• Employee morale
• Competence
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-33
Identifying Critical Success Factors
2
Strategic Analysis and
Strategic Cost Management
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.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
Linking CSFs in an Hierarchical Firm
2
Strategic Analysis and
Strategic Cost Management
Corporate
Level
Irwin/McGraw-Hill
Warranty
return
rate
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
Linking CSFs in an Hierarchical Firm
2
Strategic Analysis and
Strategic Cost Management
Corporate
Level
Vice President
Manufacturing
Irwin/McGraw-Hill
Warranty
return
rate
% products with
defect prevention
systems
% products with
approved control
plans
% products with
design defect
systems
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
2
Linking CSFs in an Hierarchical Firm
Strategic Analysis and
Strategic Cost Management
Corporate
Level
Vice President
Manufacturing
Plant
Manager
Irwin/McGraw-Hill
Warranty
return
rate
% products with
defect prevention
systems
first time test
yields
% products with
approved control
plans
% functioning
characteristics
% products with
design defect
systems
supplier
rejections
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
2
Linking CSFs in an Hierarchical Firm
Strategic Analysis and
Strategic Cost Management
Plant
Manager
Irwin/McGraw-Hill
first time test
yields
% functioning
characteristics
supplier
rejections
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
2
Linking CSFs in an Hierarchical Firm
Strategic Analysis and
Strategic Cost Management
Plant
Manager
first time test
yields
Department
Manager
amount of
adhesive
Irwin/McGraw-Hill
% functioning
characteristics
supplier
rejections
concentricity
of outside
diameter
direct
current
resistance
© The McGraw-Hill Companies, Inc., 1999
Slide 2-34
2
Linking CSFs in an Hierarchical Firm
Strategic Analysis and
Strategic Cost Management
Plant
Manager
first time test
yields
Department
Manager
Irwin/McGraw-Hill
% functioning
characteristics
supplier
rejections
amount of
adhesive
concentricity
of outside
diameter
direct
current
resistance
viscosity of
adhesive
ambient
adhesive
temperature
machine
application
pressure
© The McGraw-Hill Companies, Inc., 1999
Slide 2-35
The Balanced Scorecard
2
Strategic Analysis and
Strategic Cost Management
COMPETITOR
SUCCESS
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-35
The Balanced Scorecard
2
Strategic Analysis and
Strategic Cost Management
FINANCIAL
MEASURES
Did earnings increase?
COMPETITOR
SUCCESS
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-35
2
The Balanced Scorecard
Strategic Analysis and
Strategic Cost Management
FINANCIAL
MEASURES
Did earnings increase?
CUSTOMER
SATISFACTION
Has the percentage of ontime deliveries improved?
COMPETITOR
SUCCESS
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-35
2
The Balanced Scorecard
Strategic Analysis and
Strategic Cost Management
FINANCIAL
MEASURES
Did earnings increase?
CUSTOMER
SATISFACTION
Has the percentage of ontime deliveries improved?
COMPETITOR
SUCCESS
INTERNAL OPERATIONS
Has profitability improved?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Slide 2-35
2
The Balanced Scorecard
Strategic Analysis and
Strategic Cost Management
FINANCIAL
MEASURES
Did earnings increase?
CUSTOMER
SATISFACTION
Has the percentage of ontime deliveries improved?
COMPETITOR
SUCCESS
INTERNAL OPERATIONS
Has profitability improved?
Irwin/McGraw-Hill
LEARNING AND
INNOVATION
How many new patents this
year?
© The McGraw-Hill Companies, Inc., 1999
Slide 2-36
Value Chain in a Manufacturing Industry
2
Strategic Analysis and
Strategic Cost Management
Flow of
Product
Development
Irwin/McGraw-Hill
Design
Acquisition of raw
materials
Manufacturing:
Assembling, testing, and
packaging
Warehousing and
Distribution
Retail Sales
Customer Service
© The McGraw-Hill Companies, Inc., 1999
Slide 2-36
Value Chain in a Computer Industry
2
Strategic Analysis and
Strategic Cost Management
Raw Materials
Manufacture of computer
chips and parts
Manufacture of
components
Assembly
Marketing, distribution
and service
Irwin/McGraw-Hill
Flow of
Product
Development
© The McGraw-Hill Companies, Inc., 1999
2
Strategic Analysis and
Strategic Cost Management
The End
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999