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Strategic Analysis and
Strategic Cost Management
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Mission Statements of
Selected Firms
How A Firm Succeeds:
The Competitive Strategy
Ford Motor Company
(www.ford.com)
To be a low-cost producer of the highest
quality products and services that provide the
best customer value.
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How A Firm Succeeds:
The Competitive Strategy
General Electric
(www.ge.com)
To become the most competitive enterprise in
the world by being number one or number two
in market share in every business the
company is in.
International Business Machines
(www.ibm.com)
To be the most successful information-
technology company in the world.
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How A Firm Succeeds:
The Competitive Strategy
Motorola
(www.motorola.com)
To complete the picture at home integrating
broadband with wireless services.
Johnson & Johnson
(www.jnj.com)
To alleviate pain and disease.
United Parcel Service
(www.ups.com)
To move at the speed of business.
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How A Firm Succeeds:
The Competitive Strategy
Walt Disney
(www.disney.com)
To make people happy.
Merck
(www.merck.com)
To preserve and improve human life.
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Cost Management Focus
4 Financial reporting focus
4 Common emphasis on
standardization and
standard costs
4 The accountant as
functional expert and
financial scorekeeper
The Prior Business
Environment
4 View of cost accounting
as a tool for the
development and
implementation of
business strategy
4 The accountant as a
business partner
The Contemporary
Business Environment
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Financial Measures of Success
Sales growth
Earnings growth
Dividend growth
Bond and credit ratings
Cash flow
Increase in stock price
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Nonfinancial Measures of Success
o Market share, and growth in market share
o Customer service
o On-time delivery
o Customer satisfaction
o Brand recognition
o Positions in favorable markets
Customer Measures
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Nonfinancial Measures of Success
- High product quality
- Manufacturing innovation
- High manufacturing productivity
- Cycle time
- Yield, reduction in waste
Internal Business Processes
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Nonfinancial Measures of Success
Learning and Innovation
CCompetence and integrity of managers
CMorale and firm-wide culture
CEducation and training
CInnovation
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Consequences of Lack
of Strategic Information
EDecision making based on guess and intuition only
ELack of clarity about direction and goals
ELack of a clear and favorable perception of the firm by
customers and suppliers
EIncorrect investment decisions; choosing products,
markets, or manufacturing processes inconsistent with
strategic goals
EInability to effectively benchmark competitors
EFailure to identify more profitable products, customers,
and markets
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Developing a
Competitive Strategy
-Cost leadership outperform
competitors by producing at the lowest
cost.
-Differentiation creating a perception
among consumers that your products or
services are unique in some important
way, usually related to quality.
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Aspects of the
Two Competitive Strategies
Aspect Cost Leadership Differentiation
Strategic target
Broad cross-section of
the market
Broad cross-section of
the market
Basis of competitive
advantage
Lowest cost in the
industry
Unique product or
service
Product line Limited selection
Wide variety,
differentiating features
Production emphasis
Lowest possible cost
with high quality and
essential product
features
Innovation in
differentiating
products
Marketing emphasis Low price
Premium price and
innovative,
differentiating features
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Step 1: Obtain a strategic competitive analysis of the firm using
SWOT analysis. What are its strengths and weaknesses,
opportunities and threats? Determine the firms overall
strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical
success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting
the firms overall strategy and for reporting critical success
factors to appropriate managers.

Critical Success Factors
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+ Are the firms products innovative?
+ Are the product offerings too wide or too narrow?
+ Are there important and distinctive technological
advances?
Product lines
Strengths and Weaknesses
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o What is the level of experience and
competence?
Management
Strengths and Weaknesses
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Is the firm ahead or behind competitors?
What is the outlook for important new products
and services?
Research and Development
Strengths and Weaknesses
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=How competitive, flexible, productive, and
technologically advanced are the current
manufacturing processes?
=What plans are there for improvement in
facilities and processes?
Strengths and Weaknesses
Manufacturing
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How effective is the overall marketing
approach, including promotion, advertising,
and selling?
Strengths and Weaknesses
Marketing
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+ How clearly defined, communicated and
effectively implemented is corporate strategy?
Strengths and Weaknesses
Strategy
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Barriers to entry
Intensity of rivalry among competitors
Pressure from substitute products
Bargaining power of customers
Bargaining power of suppliers
Opportunities and Threats
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Step 1: Obtain a strategic competitive analysis of the firm using
SWOT analysis. What are its strengths and weaknesses,
opportunities and threats? Determine the firms overall
strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical
success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting
the firms overall strategy and for reporting critical success
factors to appropriate managers.

Critical Success Factors
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Internal Business Procedures
Measures for Critical
Success Factors
4 Quality
4 Productivity
4 Flexibility
4 Equipment readiness
4 Safety
Financial Factors
Profitability
Liquidity
Sales
Market value
Customer Factors
Customer satisfaction
Dealer and distributor
Marketing and selling
Timeliness of delivery
Quality
Learning and Innovation
4 Product innovation
4 Timeliness of new
product
4 Skill development
4 Employee morale
4 Competence
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Step 1: Obtain a strategic competitive analysis of the firm using
SWOT analysis. What are its strengths and weaknesses,
opportunities and threats? Determine the firms overall
strategy (cost/differentiation) and critical success factors.
Step 2: Develop relevant and reliable measures for the critical
success factors identified in the first step.
Step 3: Develop a strategic cost information system for supporting
the firms overall strategy and for reporting critical success
factors to appropriate managers.

Critical Success Factors
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Corporate
Level
Linking the CSF Quality in a
Hierarchical Firm
Percentage of
products with
defect-prevention
systems
Percentage of
products with
approved control
plans
Percentage of
products with
design-defect
system
Warranty
return rate
Vice President
Manufacturing
Information Systems
for Critical Success Factors
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Linking the CSF Quality in a
Hierarchical Firm
First-time
test yields
Percentage of
functioning
characteristics
Supplier
rejections
Percentage of
products with
defect-prevention
systems
Vice President
Manufacturing
Information Systems
for Critical Success Factors
Plant
Manager
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Linking the CSF Quality in a Hierarchical Firm
Viscosity of
adhesive
Ambient
adhesive
temperature
Machine
application
pressure
Amount of
adhesive
Concentricity of
outside diameter
Direct current
resistance
First-time
test yields
Information Systems
for Critical Success Factors
Plant
Manager
Department
Manager
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COMPETITIVE
SUCCESS
The Balanced Scorecard
Financial Measures
Did earnings increase?
Customer Satisfaction
Has the percentage of on-
time deliveries improved?
Internal Operations
Has profitability improved?
Learning and Innovation
How many new patents this
year?
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Value Chain of the
Manufacturing Industry
Manufacturing:
Assembling, testing,
and packaging
Design
Acquisition of
Raw Materials
Warehousing and
Distribution
Retail Sales
Customer Service
Flow of Product
Development
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Value-Chain Analysis
OIdentify the value-chain activities.
OIdentify the cost driver(s) at each value activity.
ODevelop a competitive advantage by reducing
cost or adding value.
OIdentify competitive advantage (cost leadership
or differentiation).
OIdentify opportunities for added value.
OIdentify opportunities for reduced cost.
OExploit linkages among activities in the value
chain.
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Value Chain for the
Computer-Manufacturing Industry
Step in the Value Chain Activities Expected Output of Activities
Step 1: Design Research and development Completed product design
Step 2: Acquire raw
materials
Mining, development, and
refining
Silicon, plastic, various
metals
Step 3: Assembling
materials into components
Converting raw materials
into components and parts
used in the manufacture of
the computer
Desired components and
parts
Stage 1
Chips, processors, other
basic components
Stage 2
Boards, higher-level
components
Step 4: Computer
manufacturing
Final assembly, packaging,
and shipping the final
product
Completed computers
Step 5: Wholesaling,
warehousing, and
distribution
Moving products to retail
locations and warehouses,
as needed
Rail, truck, and air
shipments
Step 6: Retail sales Retain sale Cash receipts
Step 7: Customer service
Processing returns, inquiries
and repairs
Serviced and restocked
computers
Conversion, assembly,
finishing, testing, and
grading
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Linking Strategic Resources
Strategic
Positioning
Value Chain
Analysis
Balanced
Scorecard
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End of Chapter 2