acct 771: strategic cost management

Acct 771: Strategic Cost ManagementSpring 2007University of Wisconsin-Madison1175 Grainger Hall2:25 to 5:25 TuesdaysProfessor Mark A. Covaleski

Course Description and Objectives:

Strategic Cost Management (Acct771) is designed to provide the student with an in-depth understanding of the role of management accounting information in the support of key strategic management issues and processes. Specifically, the course first starts with an in-depth presentation and understanding of organizational strategy. We then consider the complexities and importance of strategic performance measurement in capturing successes deriving from organizational strategy. Here, a particular focus is made on Balanced Scorecard Reporting and the manner in which it supports strategic decision-making. We then look more closely as to the importance of just-in-time philosophies and total quality management initiatives to organizational success, and the related role of managerial accounting in these contemporary organizational strategic and operational processes..

The critical dimensions of Balanced Scorecard Reporting -- customer value propositions, internal processes, and human resources – are then examined in more detail with a particular focus on the importance of accounting metrics to provide insight as to the organizational capabilities along these dimensions. First, we consider the underpinnings of organizational strategy -- human resources and technology (in Balanced Scorecard terms, the learning and growth perspective) -- in terms of the significance of these intangible assets to contemporary organizations. We then examine the internal process dimension with a particular concern for contemporary organizational issues (and related accounting measurement issues) in the production part of the organizational value chain. Our focus on internal processes then shifts upstream in the value chain to address important strategic issues of supplier relations, product design, and speed of product development (again, with a particular concern for the accounting measurement issues). Finally, our concern for strategic performance measurement then focuses on the customer perspective as we move downstream to understand the contemporary organizational issues (and related accounting measurement issues) in the customer/distribution part of the organizational value chain.

Course Approach:

A variety of tools and teaching approaches will be used to achieve the course objectives. No one course textbook serves to meaningfully address the boundary area of subject matter -- strategy and managerial accounting. Therefore, and consistent with a more graduate course orientation, the course will rely heavily on primary source readings (web-based company/industry reports, SEC reports, financial analysts’ reports, etc), chapters from texts, and related articles from various sources. These various readings and reports span a broad range of industries and company contexts such that most of the difficult and complex strategic performance measurement issues facing managerial accountants should be exposed and addressed in this course.

Also consistent with a more graduate course orientation, most of the energy in this course will be devoted to projects and related presentation/discussion of strategic performance measurement issues facing “real world” companies. More specifically, the major “deliverables” of this course will be three group projects that entail a strategic analysis and related development of strategic performance metrics along the dimensions espoused along a Balanced Scorecard framework. Several other class sessions will be

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devoted to the discussion of contemporary readings addressing the critical issues of this course. An outline of suggested questions will be provided to guide class discussion around these readings. Although there will be no written assignment pertaining to readings and related class discussions, these outlines of suggested questions will be the basis for two written quizzes (open-book, open-note) given during the semester. Finally, a critical part of this graduate course approach is class participation. The primary source company/industry readings, and assigned chapters and articles are inherently complex, and somewhat open-ended. There are no simplistic “right answers.” The ultimate analysis/conclusions will formulate out of class discussion.

Course Text and Readings:

There is no course text to be purchased.

Much of the course will be devoted to “primary source” readings where you have to go directly to web-based information on the company that you will be studying. This will be done by going to the Business School Library web page. Here you can go the “Shortcut to Business Databases” where you want to go to “OneSource” and then “Click to Enter OneSource.” At this point you will able to gather the primary source information for the companies being considered in this course.

The remaining readings (i.e., chapters of texts, articles, etc) are referenced in the syllabus and are available through the My UW resource. Here you need to access the A771 course and follow the weekly links.

Administration:

Office: 4108 Grainger HallOffice Hours: 11:00 a.m. to 1:00 p.m. Thursdays; and by appointmentPhone: 262-4239

Email: [email protected]

Grading:

Quizzes 150 points (2 * 75 points each)Participation 50 pointsThree Group Projects 300 points (3 * 100 points each)

Total 500 points

Ethics and Professionalism

This course abides by the Department of Accounting’s statement of values developed by students in the Five-Year Professional Program. Additional information on the statement of values and the student-developed Ethics and Professionalism Program can be accessed at the following link:

http://www.bus.wisc.edu/accounting/resources_for_students/Ethics%20general/ethics%20PwC.asp

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Quizzes:

A pair of quizzes (mid-term and final) will be administered during the class periods indicated in the syllabus. The quizzes are meant to be integrative exercises where the student will be required to address various issues raised in the readings, projects, and class discussion. The assigned questions throughout the semester, both for the projects as well as the sessions where we just review and discuss readings, will serve as a major source for the quiz questions. The quizzes are scheduled during class periods so there is no reason to not take the quizzes at the designated time. The quizzes are open-book and open-note.

Class Participation and Attendance:

Student participation and involvement is critical to this course; so it is being rewarded accordingly. You are at the point in your educational career where you no longer need to be “lectured to.” You each bring your unique educational experiences to the table, as well as any work experience from summer work, internships, etc. So you have much to contribute to the course. Also, the emphasis on class participation serves to develop your skills to think, present, and respond to others. This is what is expected of you as you move into your careers as corporate decision makers. Finally, the projects and assigned articles are inherently complex, and somewhat open-ended. There are no simplistic “right answers.” The ultimate analysis/conclusions will formulate out of your own analysis and discussion.

Remember, class attendance is expected. However, class attendance is not a substitute for the verbal communications. Verbal reasoning is an essential component of strategic management, and it will be difficult to do well in this course if you do not come prepared for class, and make consistent and regular contributions to class discussions. Full class attendance ensures only partial credit for this portion of your grade. Absences from class lower that portion of the grade. Most of the participation points are awarded for the quality and quantity of the contribution of your comments to class. In the event that you do have to miss a class during the semester or need to leave class early, I would appreciate it if you would let me know in advance of that class. Also, I frequently call on individuals whose hands are not raised. You should let me know before the start of class if some emergency has made it impossible for you to be adequately prepared for that class. Timely attendance at every class is important. Please turn off cell phones and other technology prior to class.

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Three Group Projects:

As stated above, the major deliverables required for this course are the strategic analysis group projects. There are three parts to this strategic analysis: 1) a five-force analysis of the firm; 2) the creation of balanced scorecard and the types of issues which you would measure for each of the four dimensions of the scorecard; and 3) address any specific questions required for each analysis. A company (typically publicly traded) will be assigned to your group for each project; thus your group will analyze three companies over the semester.

Three classroom sessions are devoted to student presentations of their respective projects. Each group will have approximately 20 minutes to make their presentation and field questions. More details as to the nature of the presentation will be provided. In general, though, the idea is for you to share with the rest of the class the insight that you have developed pertaining to your chosen company.

Each of the three Group Projects is a written product that is handed in on the assigned class date that it is presented. This written report tends to be around 10 to 15 pages (double-spaced) anchored by the Executive Summary and critical exhibits on the five-force analysis and the Balance Scorecard Report described above. You should follow this format:

Executive Summary Introduction that elaborates on the company chosen, the products/services it provides, the

industry it is in, and some of the industry forces it is facing at this time. Five-Force Analysis that elaborates on the basis for analysis and observations. Balance Scorecard Report that elaborates on the report you have developed for this company

including the basis for the various metrics in each of the four dimensions chosen and their inter-connections with each other.

Address any additional specific questions that might be asked for each project.

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Primary Sources of Information for the Group Projects:

The following companies will be subject to a strategic analysis (five-force analysis and balanced scorecard presentation) in this course. The exact assignments of groups to companies will be done during the semester.

Group Project # 1:

Retail/Apparel o J. Crew Group, Inc. o The Gap, Inc.

Retail/Department o Wal-Mart Stores, Inc. o Target Corporation

Retail/Specialty o Williams-Sonoma, Inc. o Bed Bath & Beyond, Inc.

Group Project # 2:

Services/Restaurants o P. F. Chang's China Bistroo Darden Restaurants

Food & Tobacco/Food Processing/Cereal o Kellogg Companyo General Mills, Inc.

Services/Restaurants o Penera Bread Companyo Starbucks Corporation

Group Project # 3:

Computers & Electronics/Computer Hardware o Dell, Inco Apple Computer, Inc.

Healthcare/Biotechnology & Drugs o Pfizer, Inco Eli Lilly & Co.

Service/Hotels & Motels o Marriot International, Inco Starwood Hotels/Resort

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The School of Business Library has a wonderful primary source of data pertaining to organizations. This primary source, referred to as “OneSource”, provides multiple sub-links to various forms of organizational, strategic analysis, and financial information for each firm. Furthermore, the sub-links also take you the companies’ annual reports and SEC reports (you should only need to go to the most recent 10k report for the company). More specifically, here are some steps you can take as you pursue information for you company projects. You are also free and encouraged to pursue other links and sources of information for each company.

Suggested Steps:

Business School Library Shortcut to Business Databases Onesource Use “Company”, “Industry”, or “Quick Search by Name” to get to your Company.

Once you are in your Company, use at least (but not limited to) information from the following sub-links:

o Corporate Overviewo Latest News Storieso Strategic Initiativeso Strengths/Weaknesseso Analysts’ Reportso Competitors Reporto Financial Health (any of the various financial sub-links that you feel are helpful)o Annual Report (most recent report)o SEC Filings (most recent 10k will be informative; and within that Report you should

particularly pay attention to the sub-sections on: Business Risk Factors Management’s Discussion and Analysis Quantitative and Qualitative Disclosures About Market Risk

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COURSE OUTLINE

Week 1/J23rd: Introduction and Administration (No class attendance required)

Readings:

None.

Assignment Due:

None. The introductory material will be disseminated electronically prior to January 23rd such that you will have access to the syllabus, readings and assignment (pre-set of questions pertaining to Week 2 readings).

Week 2/J30th: Strategy and Performance Measurement

Readings:

Porter, M. E. The Structural Analysis of Industries. In Competitive Strategy, New York: The Free Press, 1980.

Porter, M. E. Generic Competitive Strategies. In Competitive Strategy, New York: The Free Press, 1980.

Simons, R. Organizational Tensions to be Managed. In Performance Measurement & Control Systems for Implementing Strategy. New Jersey: Prentice Hall, 2000.

The Struggle to Measure Performance. Business Week, 1/09/2006.

Balkcom, J. E., Itner, C. D., & Larcker, D. F. Strategic Performance Measurement: Lessons Learned and Future Directions. Journal of Strategic Performance Management (April-May, 1997): 22-32.

Assignment Due:

No Written Assignment Due.

Be prepared to discuss a pre-set of questions pertaining to the readings assigned.

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Week 3/F06th: Strategy and Performance Measurement

Readings:

Johnson, H. T., & Kaplan, R. S. The New Global Competition. In Relevance Lost: The Rise and Fall of Management Accounting, Boston: Harvard Business School Press, 1987.

Johnson, H. T., & Kaplan, R. S. Performance Measurement: Systems for the Future. In Relevance Lost: The Rise and Fall of Management Accounting, Boston: Harvard Business School Press, 1987.

Kaplan, R., & Norton, D. Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I. Accounting Horizons (March, 2001), 15 (1): 87-104.

Kaplan, R., & Norton, D. Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part II. Accounting Horizons (June, 2001), 15 (1): 147-160.

Kaplan, R., and Norton, D. Linking the Balanced Scorecard to Strategy. California Management Review (Fall, 1996) 39 (1): 53-79.

Assignment Due:




Assignment Due:

Group Project # 1: Student presentations of their strategic analysis of their assigned companies.

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Readings:

Reid, P. Well Made in America: Lessons From Harley-Davidson on Being the Best. New York: McGraw Hill, 1995.

Hog Heaven: Harley at 100. Newsweek, 7/22/2002.

Magretaa, J. The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell. Harvard Business Review (March-April, 1998): 73-84.

Dell to Detroit: Get Into Gear Online! Wall Street Journal, 12/1/1999.

How a Low-Cost Provider Like Dell Also Delivers Best Customer Service. International Business Daily, 11/12/2000.

Vital Signs Improve at Texas Cancer Center after Radical Measures. Wall Street Journal, 8/30/2000.

Minding the Store: Kimberly-Clark Keeps Costco in Diapers, Absorbing Costs Itself. Wall Street Journal, 9/7/2000.

Assignment Due:



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Week 6/F27th: Learning and Growth Perspective (Intangible Assets)

Lev, B. Intangibles: Now More Important than Ever. Balanced Scorecard Report (Sept/Oct, 2001): 1-5.

Resources: The Essence of Competitive Advantage. Harvard Business School Reading # 9-792-064, 2/2/1992.

Economic Scene. New York Times, 12/5/2002.

Why High-Fliers, Built on Big Ideas, Are Such Fast Fallers. Wall Street Journal, 4/4/2002.

Name Dropper: Mayo Clinic. Forbes, 4/14/1999.

Macy’s Brands the Holidays. Wall Street Journal, 11/22/2006.

Becker, B., Huselid, M., & Ulrich, D. The Link Between People and Strategy: Companies Often Treat Workers as a Cost, Rather than a Source of Competitive Advantage. Financial Times, 11/19/2001.

Rucci, A. J., Kirn, S. P., & Quinn, R. T. The Employee-Customer-Profit Chain at Sears. Harvard Business Review (Jan-Feb, 1998): 83-97.

Assignment Due:



Week 7/M06th: Quiz # 1

Assignment Due:

Quiz # 1:

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Week 8/M13th: Activity-Based Costing

Readings:

Atkinson, A., Kaplan, R., & Young, S. M. Traditional Manufacturing Costing Systems. In Management Accounting. Prentice Hall, 2004.

Kroll, K.M. The Lowdown on Lean Accounting. Journal of Accountancy (2004), 198: 69-75.

Kennedy, F. A. & Brewer, P. C. Lean What’s It All About? Strategic Finance (2005), 87: 26-34.

Turk, W. T. Management Accounting Revitalized: The Harley Davidson Experience.. Journal of Cost Management (Winter 1990): 28-39.

Assignment Due:



Week 9/M20th: Balance Scorecard: Internal Process Perspective/Production

Readings:

Kaplan, R. S., & Cooper, R. Strategic Activity-Based Management/Product Mix and Pricing. In Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston: Harvard Business School Press, 1998

Back to the Past: Some Plants Tear Out Long Assembly Lines, Switch to Craft Work. Wall Street Journal, 10/24/1994.

Importing Solutions: Detroit’s New Strategy to Beat Back Japanese is to Copy Their Ideas. Wall Street Journal, 10/1/1992.

Inside Mulally’s War Room: A Radical Overhaul of Ford. Wall Street Journal, 12/22/2006.

Industrial Strength: To Fix Health Care, Hospitals Take Tips From Factory Floor. Wall Street Journal, 4/09/2004.

Coffee on the Double. Wall Street Journal, 4/12/2005.

Assignment Due:



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Week 10/M27th Strategy and Performance Measurement Assignment Due:


A03rd: No Class – Spring Break

Week 11/A10th: Balance Scorecard: Internal Process Perspective/Suppliers

Readings:

Kaplan, R. S., & Cooper, R Strategic Activity-Based Management/Supplier Relationships: 202-210. In Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston: Harvard Business School Press, 1998.

Tiger’s New Threads. Wall Street Journal, 3/26/2004.

Working Together: Manufacturers Use Suppliers to Help Them Develop New Products. Wall Street Journal, 12/19/1994.

Invisible Supplier Has Penney’s Shirts All Buttoned Up. Wall Street Journal, 9/11/2003.

Assignment Due:



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Week 12/A17th: Balance Scorecard: Internal Process Perspective/Product Design

Readings:

Kaplan, R. S., & Cooper, R. Strategic Activity-Based Management/Supplier Relationships: 210-227. In Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston: Harvard Business School Press, 1998.

Meyer, C. Fast-Cycle Time: How to Align Purpose, Strategy, and Structure for Speed: 3-51. New York: The Free Press, 1993.

Cooper, R., & Slagmulder, R. Target Costing and Value Engineering: 71-85. Portland, OR: Productivity Press, 1998.

Despite Billions for Discoveries, Pipeline of Drugs is Far from Full. The New York Times, 4/19/2002.

Why Drug Makers are Failing in Search for New Blockbusters. Wall Street Journal, 4/18/2002.

Waiting on Apple Cell Phone Call. Wall Street Journal, 12/22/2006.

As Rivals Catch Up, Toyota CEO Spurs Big Efficiency Drive. Wall Street Journal, 12/9/2006.

Making Fashions Faster. Wall Street Journal, 2/24/2004.

Assignment Due:



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Week 13/A24th: Balance Scorecard: Customer Perspective

Readings:

Kaplan, R. S., & Cooper, R. Strategic Activity-Based Management/Customers. In Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston: Harvard Business School Press, 1998.

In Lean Times, Big Companies Make a Grab for Market Share. Wall Street Journal, 9/05/2003.

After Cost Cutting, Companies Turn Toward Price Rises. Wall Street Journal, 9/18/2002.

Analyzing Customers, Best Buy Decides Not All Are Welcome. Wall Street Journal, 11/08/2004.

Why Banks Are Getting Nicer. Wall Street Journal, 5/29/2002.

Sears to Buy Lands’ End in a Deal that Unites Pants and Power Drills. The New York Times, 5/14/2002.

Proposed Deal Could Help Both Retailers’ Web Sites. The New York Times, 5/14/2002.

Sears Orders Fashion Makeover. Wall Street Journal, 1/28/2004.

Will Hershey Meet Its Forecast. Wall Street Journal, 9/7/2006.

Assignment Due:



Week 14/M01st: Strategic Perspectives of Organizations and Industries

Assignment Due:


Week 15/M08th: Final Exam

Assignment Due:

Quiz # 2

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