Introd - 1
STRATEGIC MANAGEMENT ACCOUNTANTS
Dynamic Business Partners
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Peter Drucker made the following
comments:
“The most exciting and innovative work in
management today is found in accounting
theory, with new concepts, new methodology-even what might be called new economic
philosophy--rapidly taking shape. And while
there is enormous controversy over specifics,
the lineaments of the new manufacturing
accounting are becoming clearer every day.”
Drucker, Peter E., “The Emerging Theory of Manufacturing,” Harvard Business Review,
Man-June 1990, pp. 94-102.
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Peter Drucker made the following
comments:
“Accounting has become the most intellectually
challenging area in the field of management, and
the most turbulent one.”
Accounting is the primary discipline attempting to
answer questions … “few executives yet
know how to ask: What information do I
need to do my job? When do I need it? And
from whom should I be getting it?”
Drucker, Peter E., “Be Data Literate—Know What to Know,” The Wall Street Journal,
December 1, 1992, p. A16.
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MANAGEMENT DECISIONS
Should I
make this
product?
How can I
improve market
share?
Is there
a better way
to provide this
Service?
What will
this change
cost me?
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MANAGEMENT vs. FINANCIAL
ACCOUNTING
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Management
Internal focus
Decision driven
Emphasis on
future
Detailed
Segment
evaluation
Subjective (if
relevant)
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Financial
External focus
G.A.A.P. driven
Historical
orientation
Aggregate
Entity-wide
evaluation
Objective
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Strategic Cost Management
Strategic position
analysis--an
organization’s basic way Value chain analysis-of competing to sell
the study of valueproducts or services.
producing activities,
stretching from basic
raw materials to the
Cost driver analysis-- final consumer of a
the study of factors that product or service.
cause or influence costs.
STRATEGIC MANAGEMENT
ACCOUNTING
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“Accounting exists within an business primarily to facilitate
the development and implementation of business
strategy...
Three important generalizations emerge from this way of
viewing management accounting:
 Accounting is not an end in itself, but only a means to
help achieve business success
 Specific accounting techniques or systems must be
considered in terms of the role they are intended to play
 In evaluating the overall accounting system... the key
question is whether the overall fit with strategy is
appropriate.”
Shank, John K. and Vijay Govindarajan, Strategic Cost Management,
The Free Press, Macmillan, Inc., 1993, pp. 6-7.
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EMERGING THEMES OF
BUSINESS AND MANAGEMENT
Highly Competitive Environment
Advanced Technologies
Continuous Change
Process Orientation
De-regulation
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Competition
Price/cost
Competition
takes place on
these dimensions.
Quality
Time
Service
Diversity
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Missions, Goals, and Strategies
Mission - the basic
purpose toward which
activities are directed.
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Missions, Goals, and Strategies
Goal - a definable
measurable target or
objective based on the
organization’s mission.
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Missions, Goals, and Strategies
Strategy - a course of
action that will assist
in achieving one or
more goals.
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Porter’s Strategic Positions
 Cost leadership
 Product or service
differentiation
 Focus on market
niche
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MANAGEMENT
DECISION - MAKING
CYCLE
Establishment of goals
Revision of plans
Planning
Organizing
Control
Action
Review of results
Developing means to
achieve goals
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An Activity (A Unit of Work)
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Waiter or Waitress Activity
Seat customer and offer menu
Take customer order
Bring order to kitchen
Bring food to customer
Replenish beverages
Determine and bring bill to customer
Collect money and give change
Clear table
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Structural Cost Drivers
Structural cost drivers are fundamental
choices about the size and scope of
operations and technology employed in
delivering products or services to customers.
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Structural Cost Drivers
For a chain of discount stores--
Determine the
type of
construction
Determine
the location
Determine the
kind of
technology
employed in
the store
Determine the
size of the stores
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Organizational Cost Drivers
Organizational cost drivers are choices concerning
the organization of activities and choices concerning
the involvement of persons inside and outside the
organization in decision making.
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Organizational Cost Drivers
 Deciding to work closely with a
limited number of suppliers.
 Providing employees with cost
information and authorizing them
to make decisions.
 Deciding to reorganize the existing
equipment in the plant so that
sequential operations are closer.
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Organizational Cost Drivers
 Designing components of a
product so they can only fit
together in the correct manner.
 Deciding to manufacture a low
volume product on low-speed,
general-purpose equipment rather
than high-speed, special-purpose
equipment.
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Activity Cost Drivers
Activity cost drivers
are specific units of
work (activities)
performed to serve
customer needs that
consume costly
resources.
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Activity Cost Drivers
Customers
Served by
activities
Activities
Activities consume
resources
Resources
Costs
Resources
cost money