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 I make this product? How can I improve market share? Is there a better way to provide this Service? What will this 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. 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 Management 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. Quality Price/cost Service Competition Diversity Time

Introd - 9 Mission - the basic purpose toward which activities are directed. Missions, Goals, and Strategies

Introd - 10 Goal - a definable measurable target or objective based on the organization’s mission. Missions, Goals, and Strategies

Introd - 11 Strategy - a course of action that will assist in achieving one or more goals. Missions, Goals, and Strategies

Introd - 12 Cost leadership Product or service differentiation Focus on market niche Porter’s Strategic Positions

Introd - 13 MANAGEMENT DECISION - MAKING CYCLE Planning Organizing Action Control Establishment of goals Developing means to achieve goals Review 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) 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 Drivers

Introd - 16 For a chain of discount stores-- Determine the size of the stores Determine the type of construction Determine the location Determine the kind of technology employed in the store Structural 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 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 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 Drivers

Introd - 20 Activity cost drivers are specific units of work (activities) performed to serve customer needs that consume costly resources. Activity Cost Drivers

Introd - 21Customers Served by activities Activities Resources Activities consume resources Costs Resources cost money Activity Cost Drivers