Intro strategic management accounting For MBA-Accounting
- 1. Introduction to Strategic Management Accounting M. A. ASIEDU
- 2. Introduction • Significant internal and external challenges confronting contemporary business organisations • The demands to create value for multiple stakeholders • A must to be achieved in a global environment that is continuously changing and becoming more competitive • This subject focuses on the role strategic management accounting plays in creating, managing and protecting value
- 3. Introduction Cont’ Strategic management accounting is defined as creating sustainable value by: supporting the formation, selection, implementation and evaluation of organisational strategy synthesising information that captures financial and non-financial perspectives for both the internal and external environments, to enable effective resource allocation
- 4. Introduction Cont’ The essential requirements for successful performance are: to generate products and services with value that consumers are willing to pay for. to constantly develop and improve the resources, activities and processes used to generate that value (Anderson and Narus 1998)
- 5. Learning Objectives Upon completion of this lecture you will be able to: • Discuss what strategy is about • Define strategic management • Outline the levels of strategy • discuss rational/formal approach to strategy development • Identify and analyse stakeholder power, and interest in strategy development
- 6. Concept of Strategy Content Diagram The Concept of Strategy and the Rational Approach What is Strategy? Rational/Formal Approach to Strategic Development Levels of Strategy
- 7. What is Strategy? • Strategy A course of action, including specification of resources required, to achieve a specific objective (CIMA) • Strategic Plan A statement of long-term goals along with definition of the strategies and policies which will ensure achievement of these goals (CIMA)
- 8. Five Fundamental Questions • Drucker suggested five questions in relation to strategy Fundmental Questions What is Our Mission? Who is Our Customer? What Does The Customer Value? What is Our Plan? What Are Our Reults?
- 9. Mintzberg’s Five Ps of Strategy • A direction, a guide, or a course of action into the future, a path to get from here to there Plan • A pattern of consistent behaviour over time, given the impression of a logically thought out strategy. Eg. Always marketing most expensive product Pattern • An action or manoeuvre within a competitive business game. Eg. Adding unnecessary plant capacity to discourage a competitor from entering the market Ploy • A means of identifying where an organization places itself within an environment or marketPosition • A unique way of perceiving the world or of interpreting information from it and judging its opportunities and choices. Different organisations with different strategic perspectives might respond to same environmental stimulus in different ways Perspective
- 10. • Strategic Management Process is essentially concerned with the decisions organisations make about their future direction and the development and implementation of the strategies which will enhance the competitiveness of the organisation.
- 11. Levels of Strategy Corporate Strategy (Group Level-HO) Business Strategy (SBU-Divisions and Subsidiaries) Functional or Operational Strategy
- 12. Level of Strategy Cont’ • Corporate: What sort of business should we be? What should we do? How should we do it? For example, a retail company might have to decide whether to start internet trading and to close down its physical outlets • SBU: Should the company get out of, say, the Ghana market? Should it open a manufacturing plant in Nigeria? • Functional and operational departments: What type of delivery vans should we use? What type of hardware should employees be provided with?
- 13. Rational/Formal Approach to Strategic Development Set Mission Establish Objective Corporate Appraisal (SWOT) Internal Analysis External Analysis Generate Strategy Options Strategy Evaluation and Choice Strategy Implemen tation Review and Control
- 14. Rational/Formal Approach to Strategic Development Cont’ • Mission: a broad statement of overall purpose of the business and should reflect the core values of the business UEW Mission Statement “To train competent professional teachers for all levels of education as well as conduct research, disseminate knowledge and contribute to educational policy and development” • Vision: a description of the picture of the preferred future. How the future will look like if the business achieves its mission UEW Mission Statement “To be an internationally reputable institution for teacher education and research”
- 15. Rational/Formal Approach to Strategic Development Cont’ • Objective: goals expressed in a form in which they can be measured. Eg. Profit before interest and tax not less than 20% • Objectives must be SMART Specific Measurable Achievable Relevant/Realistic Timely
- 16. Rational/Formal Approach to Strategic Development Cont’ • The Prime Functions of Objective: Specific Planning Responsibility Integration Motivation Evaluation
- 17. Corporate Appraisal (SWOT) • Framework to summarise the key outputs from the internal and external analysis. • Analysis tools for Corporate Appraisal: Elements of SWOT Environment Analytical Tools Strength and Weaknesses Internal Resource Audit Porter’s Value Chain Opportunities and Threats Esternal PESTLE Porter’s Five Forces
- 18. Corporate Appraisal (SWOT) • How to carry out a good SWOT analysis: STRENGTH Things we do well Things we do that competitors don’t Major successes WEAKNESSES Things we do badly and need to improve Things we are not doing but should be Major failures OPPORTUNITIES Events or changes in the external environment that can be exploited Things that are likely to go well in the future THREATS Events or changes in the external environment that we need to protect ourselves from Things likely to go badly in future SWOT
- 19. Strategic Options, Choices and Implementation • Strategic Choice is the process of choosing the alternative strategic options generated by the SWOT analysis • The process involves making decisions regarding What basis should the organisation compete? What are the alternative directions available and which product or market should the organisation enter or leave? What alternative methods are available to achieve the chosen direction?
- 20. Strategic Options, Choices and Implementation Cont’ • Strategic Direction: Decision on how a business might develop in the future to exploit strength and opportunities or minimise threats and weaknesses Market Penetration: seeks to maintain or increase its share of existing markets with existing products Product Development: launching new product or making products enhancement which are offered to existing markets Market Development: finding new markets for existing products Diversification: launching new products into new market
- 21. Strategic Options, Choices and Implementation Cont’ • Strategic Methods: Internal Development: organisation uses its own internal resources to pursue its chosen strategy Takeovers/acquisitions or mergers: acquiring resources by taking over or merging with another organisation, in order to acquire knowledge of a particular product/market area Strategic Alliances: often aims at increasing exposure to potential customers or gaining access to technology
- 22. Strategic Options, Choices and Implementation Cont’ • Strategy Evaluation and Choice: the stage considers each strategic option in detail for its feasibility and fit with the mission and circumstances of the business. • A powerful method of choosing a suitable strategy is to look at its suitability feasibility and acceptability.
- 23. Strategic Options, Choices and Implementation Cont’ • Strategy Implementation: Formulation of detailed plans and budgets Target Setting for KPIs Monitoring and Control
- 24. Strategic Options, Choices and Implementation Cont’ • Review and Control: a continues process of reviewing both the implementation and the overall continuing suitability, feasibility and acceptability of the strategy. It considers two aspects – Does the performance of the strategy still put the business on course for reaching its strategic objective? Are the forecast of the environment for which the strategy was based still accurate, or have unforeseen threats and opprotunies arisen that might necessitate a reconsideration of the strategy? • Reading assignment: Stakeholder analysis
- 25. Stakeholder Analysis in Strategic Development • Identification of stakeholder and the understanding of their objectives • These are individuals and interest group both internal and external who can affect or be affected by the performance of the organisation • Strategic decision-making requires that stateholders be considered when setting the mission, vision, and objectives for two reasons: Stakeholder power, and organisational legitimacy
- 26. Stakeholder Analysis Table Stakeholder Group General Concerns/Objective Example Shareholders • A study flow of income (dividends) • Possible Capital Growth • Continuation of business If a strategy involves a large capital injection, the shareholder will be unhappy if the injection has an adverse effect on their income stream Directors/Managers • Pay and status • Job security • Individual performance measures if a strategy results in a particular department being reduced in size or abolished, the manager of that department is likely to be hostile to the plans Employees • Job Security • Pay and conditions • Job satisfaction If a strategy results in workers being given more responsibility for monitoring quality, the employees may be unhappy, unless it is supported by an increase in wage
- 27. Stakeholder Analysis Table Cont’ Stakeholder Group General Concerns/Objective Example Trade Union • The problem of employees • Taking an active part in the decision-making process If a strategy results in manufacturing plant being closed, the union will be unhappy if it has not been consulted and if there is no scheme for helping the employees find alternative employment Customers • Receiving goods and services of a reasonable quality • Paying reasonable price for those goods and service if a strategy increases the quality of a product at the same time as increasing the price, existing customers may not be willing to pay more for the product, while new customers are not attracted to a product that they will view as being of low quality Suppliers • Being paid promptly for goods and services delivered • Receiving regular repayment of If a strategy improves the working capital management by paying suppliers late, existing suppliers may decide to stop
- 28. Managing Stakeholder Conflict • Objectives of stakeholder groups are different and may be in direct conflict • Management is to develop and implement strategy with the differences in mind • Mendelow Matrix • Cyert and March Technique Satisficing Sequential Attention Side Payment Exercise of Power
- 29. Summary of Strategy Development The Concept of Strategy and The Rational Approach Levels of Strategy • Corporate • Business • Functional Corporate Appraisal • Strength • Weaknesses • Opportunities • Threats Cyert and March • Satisficing • Sequential Attention • Side Payment • Exercise of Power What is Strategy • Mintzberg’s Five Ps • Druker’s Fundamental Questions • Strategic Management Mission • Why do we exist • For whom do we exist? • What are we providing? Stakeholders • Objectives • Power and interest • Conflict Mendelow Matrix • Minimal effort • Keep informed • Keep satisfied • Key player Rational/Formal Approach • Mission • Objectives • Analysis • Options • Choice • Implementation • Review and Control
- 30. Strategic Management Accounting • “The provision and analysis of financial information on the firm’s product, markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods”(Bromwich, 1990: 28)
- 31. Strategic Management and Accounting Focus • Stakeholder analysis • Corporate objectives • Sustainable competitive advantages • Strategic Management Accounting • Appropriate analysis • Long-term considerations • Nonfinancial data
- 32. Strategic Management and Analysis • Strategic considerations • Strategic Marketing Analysis • Total Value-Chain Analysis • Target Costing • Life-Cycle Management and Costing • Operational considerations • Activity Based Analysis • JIT Operations: A Management Philosophy • Total-Quality Management and Costing
- 33. Strategic Cost Management • 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. • Cost driver analysis--the study of factors that cause or influence costs.
- 34. Group Activities • Case Study 1 • Case Study 2
- 35. Qs and As