•Implementing and using MCS •Management style and 7S•Responsibility Centres•Costing-Transfer Prices – outsourcing•International Business

ContinuesAn overwiew of the MA-area, Costing & International Business

A

B C

Strategy Stucture HRM

Culture

Performance

Implementation Mechanisms

The 7S framework

McKinsey & co

Strategy

SharedValues

Skills

Staff

Style

Structure

Systems

Product

Market

Strategy & product/market matrix

Polo Golf Passat … New?

Young peopleSmall familyLarge familyCompanies…New?

Management in transition

How to balance between Control and Empowerment

• Decentralize, tear down the pyramids

• Measure performance

• Communicate

CEO

Directors

Managers

Middle managers

Lower managers

Workforce (Hands)

Hierarcy and bureaucracy in the industrial era

ProcessInputs

Responsibilityareas and types

Outputs

•Cost Center•Revenue Center•Profit Center•Investment Center

Generic responsibility Generic responsibility centracentra

Inb.logistics/cost

Sourcing/costHRM/costR&D/costAdministration/cost

Product/cost

Outb.logistics/cost

Marketing/cost

Service/cost

Profit Centre?

Inb.logistics/cost

Sourcing/costHRM/costR&D/costAdministration/cost

Product/cost

Outb.logistics/cost

Marketing/cost

Service/cost

Cost centers, activity Cost centers, activity areasareas

•Cash•Acc Reciev?•Inventory?•Machines?•Buildings?

A decentralised ”balance sheet” (investment center)

•Acc Payable?•Bank?•Equity?

EVA=

Net profit –Capital charge

EVA versus ROI

ROI=

Net profitInvestment

Degrees of freedom in Degrees of freedom in responsibility?responsibility?

Sourcing

.

Mgmt & adm.

Marketing

Customerbase

R&DR&D

HRMHRM

inlogistics

inlogistics

Production

Production

outlogistics

outlogistics

Service

Value chain analysisValue chain analysis

Inb.Logistics

SourcingHRM.R&DAdministration.

Production

Outb.logistics

Marketing

Service

Levi Strauss’ Levi Strauss’ Value-Delivery NetworkValue-Delivery Network

Competition is between Competition is between networksnetworks, not companies., not companies.The winner is the company with the better network.The winner is the company with the better network.

Delivery

Sears(Retail)Sears

(Retail)Levi’s

(Apparel)Levi’s

(Apparel)

Order

Delivery

Order

CustomerCustomer

Delivery

Du Pont(Fibers)Du Pont(Fibers)

Order

Delivery

Order

Milliken(Fabric)Milliken(Fabric)

Transfer PricesTransfer Prices

A B C

- Cost (std C, dir C, tot C...)- Cost plus profit margin (pre calc, real)- Negotiation price (internal market price)- Market Price (cathaloque, bid)- Combinations of above

A

Transfer Price exampleTransfer Price example

Selling dpt tot C=10

Buying dpt tot C = 15

Principle: Cost – Sale = Profit, Buying dpt Sales Price

Cost C 10 S 10 P 0 C 10+15 S 25Margin 10% C 10 S 11 P 1 C 11+15 S 26Negotiation C 10 S 14 P 4 C 14+15 S 29Market price C 10 S 20 P 10 C 20+15 S 35Combination C 10 S 20 P 10 C 10+15 S 25

Costing for different Costing for different purposespurposes

• Short term decisionmaking (tactical/operational)– Product costing/cost accounting)– Principles/methods for costing

• Full costing (absorption costing, process costing..)

• Marginal costing• Modern costing…ABC, TC, SCM f ex Attribute

Costing

ABC and customer valuesABC and customer values

Inb.logistics/cost

Sourcing/costHRM/costR&D/costAdministration/cost

Product/cost

Outb.logistics/cost

Marketing/cost

Service/cost

Customer values?Profitable customer?Profitable product?

Aktivities and ABCAktivities and ABC

Inb.logistics/cost

Sourcing/costHRM/costR&D/costAdministration/cost

Product/cost

Outb.logistics/cost

Marketing/cost

Service/cost

activitycost

based

The Bromwich fast food exampleProduct-volume Activity related Capacity Decision related Total costsrelated costs costs related costs costs

Illustrative CostsPRODUCT BENEFIT1 Texture2 Nutritional Value3 Appearance4 Taste5 Consistency of above over outlets and time6 Quality7 Low cost relative to competitorsOUTLET BENEFITS8 Service9 Cleanliness10 Outlet facilities11 Location and geographical coverageOTHER BENEFITS12 Product advertising

TOTAL COSTS ATTRIBUTABLETO CONSUMER BENEFITSPRODUCT COSTS NOTATTRIBUTABLE TO CONSUMERBENEFITSTOTAL PRODUCT COSTS

Attribute costing, an illustration…

Costing for different Costing for different purposespurposes

• Long term decision making (strategic/tactical)

– Investment methods• NPV• IRR• Pay-Back

SCM/BsC?

Investment & business plan activities

• Investment process in an organizational context

A Value system based on a vision

Company CustomersSuppliers

EmployeesManagementOwners

GoodsServicesFinancePartners

Customer valueMarket

VisionGoals

The company in the Value system

Company

Companypartners

Supplierssuppliers

Customerscustomers

CustomerValue

Proposition

Productleadership

*state of the art*speed to market

Operationalexcellence

*low cost*high quality*exc. service

Customerintimacy

*customazation*long-term rel.

Microsoft3MMarks & SpencerSonyIntelNike

ToyotaWal-MartDellIkeaChryslerSouthwest Air

Levi´sKraftHondaBritish Airways

Value Proposition, how to deliver value

Hope & Hope HBS (1997)

Sell the product

The Value-Delivery ProcessThe Value-Delivery Process

Make the product

ProcureDesignproduct Make Price Sell Advertise/

promote Distribute Service

Choose the Value Provide the Value Communicate the Value

(a) Traditional physical process sequence

(b) Value creation & delivery sequence

Strategic marketing Tactical marketing