The document discusses various strategic measures of success that firms use, including financial measures like growth in sales, earnings, and cash flows as well as non-financial measures like market share, product quality, and customer satisfaction. It also discusses critical success factors and how firms measure factors like sales, profitability, market value, customer satisfaction, and internal business processes. Finally, it outlines several contemporary cost management techniques that firms use to support their strategic goals like just-in-time, total quality management, process reengineering, benchmarking, and activity-based costing.
The document discusses various strategic measures of success that firms use, including financial measures like growth in sales, earnings, and cash flows as well as non-financial measures like market share, product quality, and customer satisfaction. It also discusses critical success factors and how firms measure factors like sales, profitability, market value, customer satisfaction, and internal business processes. Finally, it outlines several contemporary cost management techniques that firms use to support their strategic goals like just-in-time, total quality management, process reengineering, benchmarking, and activity-based costing.
The document discusses various strategic measures of success that firms use, including financial measures like growth in sales, earnings, and cash flows as well as non-financial measures like market share, product quality, and customer satisfaction. It also discusses critical success factors and how firms measure factors like sales, profitability, market value, customer satisfaction, and internal business processes. Finally, it outlines several contemporary cost management techniques that firms use to support their strategic goals like just-in-time, total quality management, process reengineering, benchmarking, and activity-based costing.
The document discusses various strategic measures of success that firms use, including financial measures like growth in sales, earnings, and cash flows as well as non-financial measures like market share, product quality, and customer satisfaction. It also discusses critical success factors and how firms measure factors like sales, profitability, market value, customer satisfaction, and internal business processes. Finally, it outlines several contemporary cost management techniques that firms use to support their strategic goals like just-in-time, total quality management, process reengineering, benchmarking, and activity-based costing.
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Developing a Competitive Strategy;
Contemporary Cost Management
Techniques Chapter 4 Strategic Measure of Success Firms use cost management to support their strategic goals. The strategic cost management system develops strategic information, including both financial and non- financial information. Financial performance measures includes: › 1. growth in sale earnings › 2. cash flows › 3. stock prices Strategic Measure of Success Non-financial measures of operation include among others › Market share › Product quality › Customer satisfaction › Growth opportunities
› Note: Strategic financial and non-financial measures of
success are also commonly called CRITICAL SUCCESS FACTORS (CSFs) Financial and Non Financial Measures of Success or Critical Success Factors and How To Measure CSF Financial Measure of Success Critical Success Factors How To Measure CSF
Sales Level of sales in critical product groups, sales
trend. Percent of sales from new products, sales forecast accuracy.
Profitability Earnings from operation, earnings trend,
Non-Financial Measures of Success Customer Factors
Customer Satisfaction Customer returns and complaints, customer
survey Dealer and Distributor Coverage and strength of dealer and distributor channel relationships Marketing and Selling Trends in sales performance, training, market research activities, measured in hour or peso. Timeliness of delivery On-time delivery performance, time from order to customer receipt Quality Customer complaints, warranty expense Internal Business Process
Quality Number of defects, number of returns,
customer survey, amount of scrap, amount of rework, field service reports, warranty claims, vendor quality defects. Productivity Cycle time (from raw materials to finished product, labor efficiency; machine efficiency; amount of waste, rework and scrap Flexibility Setup time, cycle time Equipment readiness Downtime, operator experience, machine capacity, maintenance activities. Safety Number of accidents, effects and accidents. Without strategic information, the firm is likely to stray from its competitive course, to make strategically wrong manufacturing and marketing decisions, to choose the wrong products or the wrong customers Consequence of Lack of Strategic Information Decision making based on intuition Lack of clarity about direction and goals Lack of clear and favorable perception of the firm by customers and suppliers Incorrect investment decisions; choosing products, markets or manufacturing processes inconsistent with strategic goals. Inability to effectively benchmark competitors, resulting in lack of knowledge about more effective competitive strategies. Failure to identify most profitable products, customer and markets. COMPETITIVE STRATEGIES
Cost Leadership. Is a competitive strategy in
which a firm succeeds in producing products or services at the LOWEST cost in the industry.
Product Differentiation. The differentiation
strategy is implemented by creating a perception among consumers that the product or service is UNIQUE in some important way, usually by being of higher quality, features or innovation. Distinctive Aspects of the Two Competitive Strategies Aspect Cost Leadership Differentiation Strategic target Broad cross section of the Focused section of the market market Basis of competitive Lowest cost in the industry Unique product or service advantage Product Line Limited selection Wide variety, differentiating features,
Product emphasis Lowest possible cost with high Innovation in differentiating
quality and essential product products features.
Market emphasis Low price Premium price and innovative
differentiating features Contemporary Cost Management Techniques JUST IN TIME (JIT) Total Quality Management Process Reengineering Benchmarking Mass Customization Balance Scorecard Activity-Based Costing and Management Theory of Constraints (TOC) Life-cycle Costing Target Costing Computer-aided design and Manufacturing Automation E-Commerce The Value Chain and Supply Chain Analysis Total Quality Management TQM. Is a technique in which management develops policies and practices to ensure that the firm’s products and services exceed customers’ satisfaction. With TQM develop a company that stresses listening to the needs of customers, making products right the first time, reducing defective products that must be reworked and encouraging workers to continuously improve their production process. 2 major characteristic of TQM 1. a focus on serving customers 2. systematic problem-solving using teams made up of front-line workers. Just in Time (JIT) JIT. Is the philosophy that activities and undertaken only as needed or demanded. Its a production system aka pull it through approach, in which materials are purchased and units are produced only as needed to meet actual customer demand. JIT Production. A system in which each component on a production line is produced immediately as needed by the next step in the production line. Financial Benefits of JIT Lower investment in inventories Reductions in carrying and handling costs of inventories. Reductions in risk of obsolescence of inventories Lower investment in plant space for inventories and production. Process Reengineering Reengineering. Is a process for creating competitive advantage in which a firm reorganizes its operating and management functions, often with the result that jobs are modified, combined, or eliminated. “Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. Process Reengineering
The main objective of this approach is the
simplification and elimination of wasted effort and the central idea is that all activities that do not add value to product or service should be eliminated. Benchmarking
Benchmarking. Is a process by which a firm.
› 1.determines the critical success factors › 2. studies the best practices of other firms (or other units within a firm) for achieving these critical success factors. › 3. implements improvements in the firm’s processes to match or beat the performance of those competitors. Mass Customization
Mass customization. Is a management technique
in which marketing and production processes are designed to handle the increased variety that results from delivering customized products and services to customers. Balance Scorecard
The balance scorecard is an accounting report
that includes the firm’s critical success factors in four areas. › Financial performance › Customer satisfaction › Internal business process › Innovation and learning Activity Based Cost Management
Activity analysis. Is used to develop a detailed
description of the specific activities performed in the operations of the firm ABC. Is used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers. ABM. Uses activity analysis to improve operational control and management control Theory of Constraints
TOC. Is a sequential process of identifying and
removing constraints in a system. The TOC approach is a perfect complement to TQM and Process Reengineering- it focuses improvement efforts where they are likely to be most effective. Life Cycle Costing
LCC. Is a management technique to identify and
monitor the costs of a product throughout its lifecycle. Target Costing
Involves the determination of the desired cost for
a product or the basis of a given competitive price so that the product will earn a desired profit.
Target cost= Market determined price-Desired
Profit Computer-Aided Design and Manufacturing CAD. Is the use of computers in product development, analysis, and design modification to improve the quality and performance of the product. CAM. Is the use of computers to plan, implement, and control production. Automation
Flexible manufacturing system. Is a
computerized network of automated equipment that produces one or more groups of parts or variations of a product in a flexible manner. Computer integrated manufacturing (CIM). Is a manufacturing system that totally integrates all office and factory functions within a company via a computer-based information network to allow hour by hour manufacturing management. E-commerce
The internet has important advantages over more
conventional marketplaces for some kinds of transaction. The Value Chain
Value chain. Refers to the sequence of business
functions in which usefulness is added to the products or services of a company. An analysis tool that firms use to identify the specific steps required to provide a product or service to the customer. The Value Chain
Analyzing the firm’s value helps management
discover: › Which steps or activities are not competitive. › Where costs can be reduced › Which activity should be outsourced › How to increase value for the customer at one or more of the steps of value chain.