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Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost Management
© The McGraw-Hill Companies, Inc., 1999
Part OneIntroduction to Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
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.
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.
After studying this chapter, you should be able to:
Learning ObjectivesLearning Objectives
2Strategic Analysis and Strategic Cost Management
Slide 2-1
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
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.
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.
After studying this chapter, you should be able to:
Learning ObjectivesLearning Objectives
2Strategic Analysis and Strategic Cost Management
Slide 2-1
Click again!Click again!Click again!Click again!
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
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.
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.
After studying this chapter, you should be able to:
Learning Objectives
2Strategic Analysis and Strategic Cost Management
Slide 2-2
After studying this chapter, you should be able to:
Learning ObjectivesLearning Objectives
2Strategic Analysis and Strategic Cost Management
Slide 2-2
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Mission Mission Statements of Statements of Selected FirmsSelected Firms
2Strategic Analysis and Strategic Cost Management
Slide 2-3
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Ford Motor Company
To be a low-cost producer of the highest quality products and services that provide the best
customer value.
To be a low-cost producer of the highest quality products and services that provide the best
customer value.
Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost Management
Slide 2-4
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Apple Computer
To offer the best possible personal computing technology,
and to put that technology in the hands of as many people
as possible.
To offer the best possible personal computing technology,
and to put that technology in the hands of as many people
as possible.
Mission Statements of Selected FirmsMission Statements of Selected Firms
22Strategic Analysis and Strategic Cost Management
Slide 2-5
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2General Electric
To become the most competitiveenterprise in the world by beingnumber one or number two inmarket share in every business
the company is in.
To become the most competitiveenterprise in the world by beingnumber one or number two inmarket share in every business
the company is in.
Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost Management
Slide 2-6
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Quaker Oats
To achieve return on equity at 20 percentor above, “real” earnings growth
averaging 5 percent or better over time, be a leading marketer of strong con-
sumer brands, and improve the profita-bility of low-return businesses.
To achieve return on equity at 20 percentor above, “real” earnings growth
averaging 5 percent or better over time, be a leading marketer of strong con-
sumer brands, and improve the profita-bility of low-return businesses.
2Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost Management
Slide 2-7
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Eastman Kodak
To be the world’s bestin chemical and electronic
imaging.
To be the world’s bestin chemical and electronic
imaging.
2Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-8
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Federal Express
To continue the expansion of Federal Express’s global
network linking key markets around the world.
To continue the expansion of Federal Express’s global
network linking key markets around the world.
2Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-9
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
IBM
To be the most successfulinformation-technologycompany in the world.
To be the most successfulinformation-technologycompany in the world.
2Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-10
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Xerox
To be the document company.To be the document company.
Mission Statements of Selected FirmsMission Statements of Selected FirmsStrategic Analysis and Strategic Cost Management2Strategic Analysis and Strategic Cost Management
Slide 2-11
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
General Motors
To be the worldleader in transportation products
and related services.
To be the worldleader in transportation products
and related services.
Mission Statements of Selected FirmsMission Statements of Selected Firms
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-12
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Cost Management FocusCost Management Focus
• Financial reporting and cost
• Common emphasis on standardization and standard costs
• The accountant as functional expert and financial scorekeeper
• Financial reporting and cost
• Common emphasis on standardization and standard costs
• The accountant as functional expert and financial scorekeeper
2The Prior Business
Environment
The Prior Business Environment
Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-13
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
• View of cost View of cost accounting as a tool accounting as a tool for the development for the development and implementation of and implementation of business strategybusiness strategy
• The accountant as a The accountant as a business partnerbusiness partner
• View of cost View of cost accounting as a tool accounting as a tool for the development for the development and implementation of and implementation of business strategybusiness strategy
• The accountant as a The accountant as a business partnerbusiness partner
The Contemporary The Contemporary Business EnvironmentBusiness Environment
The Contemporary The Contemporary Business EnvironmentBusiness Environment
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-13
• Financial reporting and cost
• Common emphasis on standardization and standard costs
• The accountant as functional expert and financial scorekeeper
• Financial reporting and cost
• Common emphasis on standardization and standard costs
• The accountant as functional expert and financial scorekeeper
The Prior Business Environment
The Prior Business Environment
Cost Management FocusCost Management Focus
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Financial Measures of SuccessFinancial Measures of Success
Sales growthEarnings growthDividend growthBond and credit
ratingsCash flowIncrease in stock price
Sales growthEarnings growthDividend growthBond and credit
ratingsCash flowIncrease in stock price
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-14
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Customer Measures Market share, and growth in market Market share, and growth in market
shareshare Customer serviceCustomer service On-time deliveryOn-time delivery Customer satisfactionCustomer satisfaction Brand recognitionBrand recognition Positions in favorable marketsPositions in favorable markets
Market share, and growth in market Market share, and growth in market shareshare
Customer serviceCustomer service On-time deliveryOn-time delivery Customer satisfactionCustomer satisfaction Brand recognitionBrand recognition Positions in favorable marketsPositions in favorable markets
Non-Financial Measures of SuccessNon-Financial Measures of Success
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-15
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Internal Business ProcessesHigh product qualityManufacturing
innovationHigh manufacturing
productivityCycle timeYield, reduction in waste
High product qualityManufacturing
innovationHigh manufacturing
productivityCycle timeYield, reduction in waste
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-16
Non-Financial Measures of SuccessNon-Financial Measures of Success
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
• Competence and integrity Competence and integrity of managersof managers
• Morale and firm-wide Morale and firm-wide cultureculture
• Education and trainingEducation and training
• InnovationInnovation
• Competence and integrity Competence and integrity of managersof managers
• Morale and firm-wide Morale and firm-wide cultureculture
• Education and trainingEducation and training
• InnovationInnovation
Innovation and Learning2Strategic Analysis and
Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-17
Non-Financial Measures of SuccessNon-Financial Measures of Success
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Decision making based on guess and intuition only Lack of clarity about direction and goalsLack 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
Consequences of Lack of Strategic InformationConsequences of Lack of Strategic Information
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-18
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
• Cost leadership
• Differentiation
• Focus
Developing a Competitive StrategyDeveloping a Competitive Strategy
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-19
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Strategictarget
Basis of competitiveadvantage
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-20
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Strategic broad cross- broad-cross section a narrowtarget section of the of the market market
market segment
Basis of competitiveadvantage
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-20
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Strategic broad cross- broad-cross section a narrowtarget section of the of the market market
market segment
Basis of lowest cost in a unique product or uniquenesscompetitive the industry service or low costadvantage in a specific
marketsegment
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-20
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Product line
Productionemphasis
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-21
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Product limited wide variety, targeted toline selection differentiating selected
features marketsegment
Productionemphasis
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-21
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Product limited wide variety, targeted toline selection differentiating selected
features marketsegment
Production lowest possible focus on innovation appropriateemphasis cost with high in differentiating for selected
quality and products marketand essential segmentproduct features
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-21
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Marketing emphasis
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-22
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
LOW-COST ASPECTS LEADERSHIP DIFFERENTIATION FOCUS
Marketing low price premium price and the firm’s emphasis innovative, unique
differentiating ability tofeatures serve this
segment
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-22
Aspects of Three Competitive StrategiesAspects of Three Competitive Strategies
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-23
Identifying Critical Success FactorsIdentifying Critical Success Factors
First: Obtain a strategic competitive analysis of the firm using Obtain a strategic competitive analysis of the firm using SWOT analysis. What are its strengths and weaknesses, SWOT analysis. What are its strengths and weaknesses, opportunities and threats? Determine the firm’s overall opportunities and threats? Determine the firm’s overall strategy (cost, differentiation, focus) and its critical success strategy (cost, differentiation, focus) and its critical success factors.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
Analyzing a Firm’s Strength and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Are the firm’s products innovative?
Are the product offerings too wide or too narrow?
Are there important and distinctive technological advances?
Are the firm’s products innovative?
Are the product offerings too wide or too narrow?
Are there important and distinctive technological advances?
Product lines
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-24
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
What is the What is the level of level of
experience experience and and
competence?competence?
What is the What is the level of level of
experience experience and and
competence?competence?
Management
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-25
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
• Is the firm ahead or behind competitors?
• What is the outlook for important new products and services?
• Is the firm ahead or behind competitors?
• What is the outlook for important new products and services?
Research and Development
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-26
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
How competitive, How competitive, flexible, productive, and flexible, productive, and technologically technologically advanced are the advanced are the current manufacturing current manufacturing processes?processes?
What plans are there for What plans are there for improvement in facilities improvement in facilities and processes?and processes?
How competitive, How competitive, flexible, productive, and flexible, productive, and technologically technologically advanced are the advanced are the current manufacturing current manufacturing processes?processes?
What plans are there for What plans are there for improvement in facilities improvement in facilities and processes?and processes?
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-27
Manufacturing
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
How effective is the overall marketing approach, including promotion, advertising, and selling?
How effective is the overall marketing approach, including promotion, advertising, and selling?
Marketing
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-28
Marketing
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
How clearly defined,How clearly defined, communicated andcommunicated and
effectively effectively implemented isimplemented is
corporate strategy?corporate strategy?
How clearly defined,How clearly defined, communicated andcommunicated and
effectively effectively implemented isimplemented is
corporate strategy?corporate strategy?
Strengths and WeaknessesStrengths and Weaknesses
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-29
Strategy
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Barriers to entryIntensity of rivalry among
competitorsPressure from substitute
productsBargaining power of customersBargaining power of suppliers
Barriers to entryIntensity of rivalry among
competitorsPressure from substitute
productsBargaining power of customersBargaining power of suppliers
Opportunities and ThreatsOpportunities and Threats
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-30
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-31
Identifying Critical Success FactorsIdentifying Critical Success Factors
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 Develop relevant and reliable measures for the critical success factors identified in the first step.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
Financial FactorsFinancial Factors
• Profitability
• Liquidity
• Sales
• Market value
• Profitability
• Liquidity
• Sales
• Market value
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-32
Measures for Critical Success FactorsMeasures for Critical Success Factors
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Customer FactorsCustomer Factors
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
Financial FactorsFinancial Factors
• Profitability
• Liquidity
• Sales
• Market value
• Profitability
• Liquidity
• Sales
• Market value
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-32
Measures for Critical Success FactorsMeasures for Critical Success Factors
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Customer FactorsCustomer Factors
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
Financial FactorsFinancial Factors
• Profitability
• Liquidity
• Sales
• Market value
• Profitability
• Liquidity
• Sales
• Market value
2Internal Business ProceduresInternal Business Procedures
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-32
Measures for Critical Success FactorsMeasures for Critical Success Factors
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Customer FactorsCustomer Factors
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
Financial FactorsFinancial Factors
• Profitability
• Liquidity
• Sales
• Market value
• Profitability
• Liquidity
• Sales
• Market value
2Internal Business ProceduresInternal Business Procedures
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
Strategic Analysis and Strategic Cost Management
Learning and InnovationLearning and Innovation
• Product innovationProduct innovation• Timeliness of new Timeliness of new
productproduct• Skill developmentSkill development• Employee moraleEmployee morale• CompetenceCompetence
• Product innovationProduct innovation• Timeliness of new Timeliness of new
productproduct• Skill developmentSkill development• Employee moraleEmployee morale• CompetenceCompetence
Strategic Analysis and Strategic Cost Management
Slide 2-32
Measures for Critical Success FactorsMeasures for Critical Success Factors
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Financial FactorsFinancial FactorsCustomer FactorsCustomer Factors
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
• Customer satisfactionCustomer satisfaction• Dealer and distributorDealer and distributor• Marketing and sellingMarketing and selling• Timeliness of deliveryTimeliness of delivery• QualityQuality
• Profitability
• Liquidity
• Sales
• Market value
• Profitability
• Liquidity
• Sales
• Market value
2Internal Business ProceduresInternal Business Procedures
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
• QualityQuality
• ProductivityProductivity
• FlexibilityFlexibility
• Equipment readinessEquipment readiness
• SafetySafety
Other FactorsOther Factors
Strategic Analysis and Strategic Cost Management
• Governmental• Governmental
Learning and InnovationLearning and Innovation
• Product innovationProduct innovation• Timeliness of new Timeliness of new
productproduct• Skill developmentSkill development• Employee moraleEmployee morale• CompetenceCompetence
• Product innovationProduct innovation• Timeliness of new Timeliness of new
productproduct• Skill developmentSkill development• Employee moraleEmployee morale• CompetenceCompetence
Strategic Analysis and Strategic Cost Management
Slide 2-32
Measures for Critical Success FactorsMeasures for Critical Success Factors
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-33
Identifying Critical Success FactorsIdentifying Critical Success Factors
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 Develop a strategic cost information system for supporting the firm’s overall strategy and for reporting critical success the firm’s overall strategy and for reporting critical success factors to appropriate managers.factors to appropriate managers.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
Corporate Level
WarrantyWarrantyreturn return
raterate
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
Corporate Level
WarrantyWarrantyreturn return
raterate
% products with% products withdefect preventiondefect prevention
systemssystems
% products with% products withapproved controlapproved control
plansplans
% products with% products withdesign defectdesign defect
systemssystems
Vice President Manufacturing
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
Corporate Level
WarrantyWarrantyreturn return
raterate
% products with% products withdefect preventiondefect prevention
systemssystems
% products with% products withapproved controlapproved control
plansplans
% products with% products withdesign defectdesign defect
systemssystems
first time testfirst time testyieldsyields
suppliersupplierrejectionsrejections
Plant Manager
% functioning % functioning characteristicscharacteristics
Vice President Manufacturing
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
first time testfirst time testyieldsyields
suppliersupplierrejectionsrejections
Plant Manager
% functioning % functioning characteristicscharacteristics
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
amount ofamount ofadhesiveadhesive
concentricity concentricity of outsideof outsidediameterdiameter
directdirectcurrentcurrent
resistanceresistance
Department Manager
first time testfirst time testyieldsyields
suppliersupplierrejectionsrejections
Plant Manager
% functioning % functioning characteristicscharacteristics
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
2Slide 2-34
Linking CSFs in an Hierarchical FirmLinking CSFs in an Hierarchical Firm
amount ofamount ofadhesiveadhesive
viscosity ofviscosity ofadhesiveadhesive
concentricity concentricity of outsideof outsidediameterdiameter
directdirectcurrentcurrent
resistanceresistance
machinemachineapplicationapplication
pressurepressure
ambientambientadhesiveadhesive
temperaturetemperature
Department Manager
first time testfirst time testyieldsyields
suppliersupplierrejectionsrejections
Plant Manager
% functioning % functioning characteristicscharacteristics
Strategic Analysis and Strategic Cost Management
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
COMPETITOR COMPETITOR SUCCESSSUCCESS
COMPETITOR COMPETITOR SUCCESSSUCCESS
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-35
The Balanced ScorecardThe Balanced Scorecard
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
COMPETITOR COMPETITOR SUCCESSSUCCESS
COMPETITOR COMPETITOR SUCCESSSUCCESS
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-35
The Balanced ScorecardThe Balanced Scorecard
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
COMPETITOR COMPETITOR SUCCESSSUCCESS
COMPETITOR COMPETITOR SUCCESSSUCCESS
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-35
The Balanced ScorecardThe Balanced Scorecard
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
COMPETITOR COMPETITOR SUCCESSSUCCESS
COMPETITOR COMPETITOR SUCCESSSUCCESS
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
INTERNAL OPERATIONSINTERNAL OPERATIONSHas profitability improved?Has profitability improved?
INTERNAL OPERATIONSINTERNAL OPERATIONSHas profitability improved?Has profitability improved?
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-35
The Balanced ScorecardThe Balanced Scorecard
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
FINANCIAL FINANCIAL MEASURESMEASURES
Did earnings increase?Did earnings increase?
COMPETITOR COMPETITOR SUCCESSSUCCESS
COMPETITOR COMPETITOR SUCCESSSUCCESS
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
CUSTOMER CUSTOMER SATISFACTIONSATISFACTION
Has the percentage of on-Has the percentage of on-time deliveries improved?time deliveries improved?
INTERNAL OPERATIONSINTERNAL OPERATIONSHas profitability improved?Has profitability improved?
INTERNAL OPERATIONSINTERNAL OPERATIONSHas profitability improved?Has profitability improved?
LEARNING AND LEARNING AND INNOVATIONINNOVATION
How many new patents this How many new patents this year?year?
LEARNING AND LEARNING AND INNOVATIONINNOVATION
How many new patents this How many new patents this year?year?
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-35
The Balanced ScorecardThe Balanced Scorecard
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
DesignDesign
Acquisition of raw Acquisition of raw materialsmaterials
Manufacturing: Manufacturing: Assembling, testing, and Assembling, testing, and
packagingpackaging
Warehousing and Warehousing and DistributionDistribution
Retail SalesRetail Sales
Customer ServiceCustomer Service
DesignDesign
Acquisition of raw Acquisition of raw materialsmaterials
Manufacturing: Manufacturing: Assembling, testing, and Assembling, testing, and
packagingpackaging
Warehousing and Warehousing and DistributionDistribution
Retail SalesRetail Sales
Customer ServiceCustomer Service
Flow of Product
Development
Flow of Product
Development
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-36
Value Chain in a Manufacturing IndustryValue Chain in a Manufacturing Industry
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
Raw MaterialsRaw Materials
Manufacture of computer Manufacture of computer chips and partschips and parts
Manufacture of Manufacture of componentscomponents
AssemblyAssembly
Marketing, distribution Marketing, distribution and serviceand service
Raw MaterialsRaw Materials
Manufacture of computer Manufacture of computer chips and partschips and parts
Manufacture of Manufacture of componentscomponents
AssemblyAssembly
Marketing, distribution Marketing, distribution and serviceand service
Flow of Flow of Product Product
DevelopmentDevelopment
Flow of Flow of Product Product
DevelopmentDevelopment
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management
Slide 2-36
Value Chain in a Computer IndustryValue Chain in a Computer Industry
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
The The EndEnd
2Strategic Analysis and Strategic Cost ManagementStrategic Analysis and Strategic Cost Management