Strategy and Cost Management

1. Strategy and Cost Management Controlling costs by focusing on core competencies

2. The Role of Resource Information • Resource information is needed to support the four functions of management • Strategic management • Planning and decision making • Management and operational control • Preparation of financial statements

3. The Role of Resource Information • Strategic management • Supports choice of products, manufacturing methods, marketing methods, etc. • Planning and decision making • Supports recurring decisions such as equipment replacement, production scheduling, pricing, purchasing, etc.

4. The Role of Resource Information • Management and operational control • Provides feedback on operational efficiency, performance evaluations, etc. • Preparation of financial statements • Provides information on the value of inventory, cost of goods sold, etc.

5. Strategy Development • Strategy determines the emphasis of cost management • Strategy determines what you must do • What you do determines the costs you must incur

6. Strategy Development • Strategy should be built around the company’s core competencies • What are we good at doing? • Competitive advantages • What are we not good at doing? • Competitive disadvantages

7. Strategy Development • SWOT analysis • Internal analysis • Strengths • Weaknesses • Includes product lines, management, research and development, manufacturing, marketing, strategy, employees, brand recognition, etc.

8. Strategy Development • External analysis • Opportunities • Threats • Includes barriers to entry, intensity of competition, substitute products, bargaining power of customers and suppliers, changing demographics, government regulation, technological change, world events, etc.

9. Strategy Development • Basic strategies • Cost leadership • Based on having lowest delivery costs in the industry • Low production cost • Essential product features • Limited product or service selection • Quality • Low price for customers • Large market share

10. Strategy Development • Differentiation • Based on having unique product or service • Emphasis on innovation • Wide product variety with different features • Differentiating features allow for premium price • Narrow market share

11. Strategy Development • Confronting competition • Developing a sustainable advantage is virtually impossible • Rapid transfer of technology • Changing consumer desires • Actions of competitors • Company and its strategy must be flexible to stay in the lead, if just temporarily

12. Strategy Development • Areas of competition • Cost leadership • Cost/price • Differentiation • Functionality • Features • Time • Status • Quality

13. Strategy Development • “Survival triplet” is constantly changing • Must understand the customers’ desires for price, functionality and quality • Position the company’s products or services within the survival zone Cost/price Quality Functionality

14. Strategy Development • Shape of the survival zone is determined by many factors • What determines the minimum and maximum values for • Cost • Price • Quality • Functionality

15. Strategy Development • Value chain • Sequence of activities necessary to satisfy the customer Assemble materials into components Wholesaling warehousing distribution Design and engineering Material acquisition Final assembly Retail sales Customer service

16. Strategy Development • Value chain analysis • Which activities present opportunities to add value or reduce costs? • Activities where the company has strengths represent opportunities to add value • Perform the activities internally • Activities where the company is weak represent opportunities to reduce cost • Outsource to more efficient providers

17. Strategy Development • Analyze linkages in the value chain for opportunities • How does one activity relate to preceding or succeeding activities? • For example, does providing repair service to customers help improve product development activities?