DEVELOPING A COMPETITIVE STRATEGY
STRATEGY
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A set of policies, procedures and approaches to business that
produce long-term success.
TWO BROAD STRATEGIES
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"COST LEADERSHIP" STRATEGY
"PRODUCT DIFFERENTIATION" STRATEGY
Cost Leadership Strategy
 Providing a quality product or service at low prices.
Product Differentiation
 Offer unique products or services that are often priced
higher than the products or services of competitors.
STRATEGIC MEASURES OF SUCCESS
The strategic cost management system develops strategic information.
Financial performance measures include among others
 Growth in sales and earnings
 Cash flows
 Stock price
Non-financial measures of operation include among others
 Market share
 Product quality
 Customer satisfaction
 Growth opportunities
Three additional perspective
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The customer
Internal business process
Innovation and learning
Strategic
financial and
nonfinancial
measures of
success
Critical
Success
Factors
(CSFs)
FIGURE 4-1: FINANCIAL AND NONFINANCIAL
MEASURES OF SUCCESS OR CRITICAL SUCCESS
FACTORS AND HOW TO MEASURE CSF
Without strategic information, the firm is likely to stray from its
competitive course.
FIGURE 4-2: CONSEQUENCES OF LACK OF
STRATEGIC INFORMATION
COMPETITIVE STRATEGIES
FIGURE: DISTINCTIVE ASPECTS OF THE TWO
COMPETITIVE STRATEGIES
OTHER STRATEGIC ISSUES
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A firm that does not achieve at least one strategy.
A firm that is stuck in the middle is not able to sustain a
competitive advantage.
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CONTEMPORARY COST MANAGEMENT TECHNIQUES
Managers commonly use the following tools to
implement the firm's broad strategy and to facilitate the
achievement of success on critical success factors:
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JUST-IN-TIME (JIT)
TOTAL QUALITY MANAGEMENT
PROCESS REENGINEERING
BENCHMARKING
MASS CUSTOMIZATION
BALANCED SCORECARD
ACTIVITY-BASED COSTING AND
MANAGEMENT
THEORY OF CONSTRAINTS (TOC)
LIFE CYCLE COSTING
TARGET COSTING
COMPUTER-AIDED DESIGN AND
MANUFACTURING
AUTOMATION
E-COMMERCE
THE VALUE CHAIN AND SUPPLY-CHAIN
ANALYSIS
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TOTAL QUALITY MANAGEMENT
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Management develops policies and practices to ensure
that the firm's products and services exceed customer's
expectations.
Major characteristic:
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Major feature:
Focus on serving customers
Systematic problem-solving using teams
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JUST-IN-TIME (JIT)
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Materials are purchased and units are produced only as
needed to meet actual customer demand.
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Production is organized in manufacturing cells
Workers are trained to be multiskilled
Total quality management is aggressively pursued
Emphasis is placed on reducing setup time
Suppliers are carefully selected
PROCESS REENGINEERING
REENGINEERING
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is a process for creating competitive advantage in which a
firm reorganizes its operating and management functions.
Process reengineering is an approach where a business process is
diagrammed in detail, questioned and then completely designed in
order to eliminate unnecessary step.
BUSINESS PROCESS
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is any series of steps that are followed in order to carry out
some task in a business.
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BENCHMARKING
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Is a process by which a firm
o Determines it critical success factors
o Studies the best practices of other firms
o Then implements improvements in the firm's
processes
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MASS CUSTOMIZATION
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Marketing and production process are designed to
handle the increased variety that results from delivering
customized products and services to customers.
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BALANCED SCORECARD
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An accounting report that includes the firm's critical
success factors in four areas
o Financial performance
o Customer satisfaction
o Internal business process
o Innovation and learning
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ACTIVITY-BASED COSTING AND
MANAGEMENT
ACTIVITY ANALYSIS
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Used to develop detailed description of the specific activities
performed in the operation of the firm.
ACTIVITY-BASED COSTING (ABC)
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Is used to improve the accuracy of cost analysis by improving
the tracing of costs to products or to individual customers.
ACTIVITY-BASED MANAGEMENT (ABM)
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Uses activity analysis to improve operational control and
management control.
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THEORY OF CONSTRAINTS (TOC)
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Emphasizes the importance of managing the
organization's constraints or barriers that hinder or impede
progress toward an objective.
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LIFE-CYCLE COSTING
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Management technique to identify and monitor the costs
of a product throughout its lifecycle.
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TARGET COSTING
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Involves the determination of the desired cost for a
product or the basis of a given competitive price so that
the product will earn a desired profit.
TARGET COST = MARKET DETERMINED PRICE DESIRED PROFIT
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COMPUTER-AIDED DESIGN AND
MANUFACTURING
COMPUTER-AIDED DESIGN (CAD)
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Is the use of computers in product development, analysis, and
design modification to improve the quality and performance
of the product.
COMPUTER-AIDED MANUFACTURING (CAM)
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Is the use of computers to plan, implement, and control
production.
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AUTOMATION
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Involves and requires a relatively large investment in
computers, computer programming, machines, and
equipment.
TWO INTEGRATION APPROACH
Flexible Manufacturing System (FMS)
Is a computerized network of automated equipment that
produces one or more groups of parts or variations of a
product in a flexible manner.
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Computer-Integrated Manufacturing (CIM)
Is a manufacturing system that totally integrates all office
and factory functions within a company via a computerbased information network to allow hour-by-hour
manufacturing management.
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E-COMMERCE
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A number of internet-based companies have emerged
and been proven successful in last decade.
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THE VALUE CHAIN
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The sequence of business functions in which usefulness is
added to the products or services of a company.
INTERNAL VALUE CHAIN
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Is the set of activities required to design, develop, produce,
market and deliver products or services to customers.