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Defining strategy and strategic management accounting - Coggle Diagram
Defining strategy and strategic management accounting
Strategic Management Accounting and Value-Based Management
4.) Techniques learned in previous units, such as
profit and shareholder value planning and control
, can be used as a foundation for strategic management accounting.
3.) Plays a
strategic role in formulating
and
supporting the overall strategy of an organization
by developing an appropriate
framework for performance measurement.
5.) Profit planning involves techniques like
cost behavior analysis, CVP analysis, flexible budgets
, and
pricing to determine the cost structure
and
profit objectives of a business
.
2.) SMA goes beyond traditional management accounting
by incorporating external information about competitors and exploiting linkages in the value chain to gain a competitive advantage
.
1.) Strategic management accounting (SMA) involves the provision and analysis of management accounting data
about a business and its competitors
, which
helps in developing and monitoring business strategy
.
6.) It is important to
consider the limitations of basic profit planning techniques
, as
short-term profit increases may come at the expense of long-term profit
, and there may be no analysis of the use of capital resources.
Basic profit planning techniques often
focus inwardly and fail to consider external factors
, such as how competitors may react to price cuts.
7.)
Value-based management
focuses on
increasing shareholder wealth by using an integrated framework for measuring and managing businesses
, with the goal of creating long-term value for shareholders.
Strategic Management Accounting and Positional Strategies
The
cost leadership
and
differentiation strategies
can also be
linked to the value chain
, which consists of
business functions that add value
.
Value-chain analysis aims to
identify linkages
between
value-creating activities to lower cost
s.
Some criticism exists regarding strategic positioning models, with the argument that companies can succeed by being in the middle and failure results from incompetence.
Differentiators may
prioritize new product development
and
marketing expenditure
over traditional costing.
Depending on the strategic position adopted, different techniques in management accounting should be emphasized.
Strategies to consider include being a
defender
and
prospector
, concentrating on
cost leadership
, or
pursuing a differentiation strategy
.
For companies seeking cost leadership,
standard costing with flexible budgets
may be used for
manufacturing cost control
.
Lean enterprises
face increasingly sophisticated customers
who
have access to product knowledge
and
can search for the best deals online
.
Technological advancements and reduced trade barriers
have intensified competition between firms
.
In a
lean company
,
cost management is crucial
, and it should
include feedforward features like target costing
.
Strategic management accounting focuses on a
company's environment
, including its
value chain
and
competitive position
.
Cost management depends on the
competitive environment
,
technology maturity
, and the
product life cycle's length
.
The Balanced Scorecard and Strategic Performance Management
The
internal processes
perspective
evaluates how well the business is running
and
if it provides what customers want.
The learning and growth perspective
looks at improving skills, training, leadership
, and
knowledge to create value
.
The customer perspective
examines customer satisfaction
and
how customers perceive the organization.
These perspectives
form the company's vision
and
strategy
and can be
represented in a strategy map
.
The
financial perspective
focuses on
top-level financial objectives
and
measures
, considering shareholders' perspective.
S
trategic objectives are identified within each perspective
, with targets set and regular measurement to determine success.
The Balanced Scorecard consists of
four perspectives
:
financial
,
customer
,
internal processes
, and
learning and growth
.
Performance measures
are used to assess the organization's performance
, with a focus on leading measures that can be influenced and make a difference.
The tool was created based on
their examination of successful businesses
and their
clear vision and strategy in key areas
.
It is
recommended to concentrate on a small number of objectives
that will
influence change
rather than having too many objectives.
The
Balanced Scorecard
is a
strategic performance management tool
developed by Dr. Robert Kaplan and Dr. David Norton in 1992.
The
Balanced Scorecard
ensures alignment,
improves communication through a common language
, and
leads to a better-performing organization
in tune with its business strategy.
The Balanced Scorecard and Strategic Performance Management Continued
Longer throughput time
leads to longer delivery times
.
M
anufacturing cycle efficiency
(
MCE
)
compares throughput time to delivery time.
Companies
aim to reduce throughput time
to significantly decrease delivery time.
Throughput time
is the
total time required to convert raw materials into finished products
. It includes
Inspection Time
Move Time
Process Time
Queue Time
N
on-value added
time lowers
MCE
. An
MCE below 1 indicates that a significant portion of production time is spent on non-value added activities
like inspection and moving materials.
D
elivery cycle time
is the
time between receiving an order from a customer
and
shipping the completed order
. Shorter delivery times can give a company a
competitive advantage
.
A
lower MCE
, such as
0.5 or 0.25
, means a
higher proportion of production time is wasted on non-value added activities
.
Pe
rformance measurements in manufacturing
include
self-explanatory metrics
and
three specific ones
:
Throughput Time
Delivery Cycle Time
Manufacturing Cycle Efficiency
Some Criticisms of Balanced Scorecard
Another criticism is the
absence of a mechanism to monitor competitor actions
, which can be important for strategic decision-making.
The balanced scorecard also
does not propose a specific remuneration system
, which may
limit its effectiveness in incentivizing performance
.
One criticism is the
lack of clear cause-and-effect relationship
between
non-financial and financial indicators
. It questions whether improvements in non-financial areas, like
customer satisfaction, always lead to positive financial outcomes.
The balanced scorecard
has been subject to criticisms
, especially from academics.
Despite these criticisms, the widespread adoption of the balanced scorecard can be attributed, at least in part,
to the effective rhetoric used by its proponents.