Introd - 1

STRATEGIC MANAGEMENT ACCOUNTANTS

Dynamic Business Partners

Introd - 2

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.

Introd - 3

Should Imake this product?

How can Iimprove marketshare?

Is therea better way

to provide this Service?

What willthis change cost me?

MANAGEMENT DECISIONS

Introd - 4

MANAGEMENT vs. FINANCIAL ACCOUNTING

Management Internal focus Decision driven Emphasis on

future Detailed Segment

evaluation Subjective (if

relevant)

Financial External focus G.A.A.P. driven Historical

orientation Aggregate Entity-wide

evaluation Objective

Introd - 5

Strategic position analysis--an

organization’s basic way of competing to sell

products or services.

Strategic position analysis--an

organization’s basic way of competing to sell

products or services.

Value chain analysis--the study of value-

producing activities, stretching from basic raw materials to the final consumer of a product or service.

Value chain analysis--the study of value-

producing activities, stretching from basic raw materials to the final consumer of a product or service.

Strategic Cost ManagementStrategic Cost Management

Cost driver analysis--the study of factors that cause or influence costs.

Cost driver analysis--the study of factors that cause or influence costs.

Introd - 6

STRATEGIC MANAGEMENT ACCOUNTING

“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.

Introd - 7

EMERGING THEMES OF BUSINESS AND MANAGEMENT

Highly Competitive Environment

Advanced Technologies

Continuous Change

Process Orientation

De-regulation

Introd - 8

Competition takes place on

these dimensions.

Competition takes place on

these dimensions.

Quality

Price/cost

Service

CompetitionCompetition

Diversity

Time

Introd - 9

Mission - the basic purpose toward which activities are directed.

Mission - the basic purpose toward which activities are directed.

Missions, Goals, and StrategiesMissions, Goals, and Strategies

Introd - 10

Goal - a definable measurable target or

objective based on the organization’s

mission.

Goal - a definable measurable target or

objective based on the organization’s

mission.

Missions, Goals, and StrategiesMissions, Goals, and Strategies

Introd - 11

Strategy - a course of action that will assist in achieving one or

more goals.

Strategy - a course of action that will assist in achieving one or

more goals.

Missions, Goals, and StrategiesMissions, Goals, and Strategies

Introd - 12

Cost leadership

Product or service

differentiation

Focus on market

niche

Porter’s Strategic PositionsPorter’s Strategic Positions

Introd - 13

MANAGEMENT DECISION - MAKING

CYCLE

Planning

Organizing

Action

Control

Establishment of goals

Developing means toachieve goalsReview of results

Revision of plans

Introd - 14

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

An Activity (A Unit of Work)An Activity (A Unit of Work)

Waiter or Waitress Activity

Introd - 15

Structural cost drivers are fundamental choices about the size and scope of

operations and technology employed in delivering products or services to customers.

Structural Cost DriversStructural Cost Drivers

Introd - 16

For a chain of discount stores--

Determine the size of the stores

Determine the size of the stores

Determine the type of

construction

Determine the type of

construction

Determine the location

Determine the location

Determine the kind of

technology employed in

the store

Determine the kind of

technology employed in

the store

Structural Cost DriversStructural Cost Drivers

Introd - 17

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.

Organizational Cost DriversOrganizational Cost Drivers

Introd - 18

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.

Organizational Cost DriversOrganizational Cost Drivers

Introd - 19

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.

Organizational Cost DriversOrganizational Cost Drivers

Introd - 20

Activity cost drivers are specific units of

work (activities) performed to serve customer needs that

consume costly resources.

Activity Cost DriversActivity Cost Drivers

Introd - 21

CustomersCustomers

Served by activities

ActivitiesActivities

ResourcesResources

Activities consume resources

CostsCosts

Resources cost money

Activity Cost DriversActivity Cost Drivers