An integrated framework for strategic and

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An integrated framework for strategic and

  1. 1. Strategic management accounting An integrated framework for strategic and financial decision-making and for interpreting business performance which brings together competitive, operational and financial analysis
  2. 2. What business are we in? <ul><li>Products and services </li></ul><ul><li>Customer types </li></ul><ul><li>Markets (geographical) </li></ul><ul><li>Delivery channels </li></ul>
  3. 3. SBU and Business Unit Strategy A strategic business unit is part of an organization for which there is a distinct external market for goods or services that is different from another SBU A business unit strategy is about how to compete successfully in particular markets
  4. 4. Virgin founded by Richard Branson Group presentation page 83 to 89 Virgin Corporate level Virgin Travel Virgin Rail Virgin Cinemas Virgin Media Virgin Hotels Virgin Direct … ..Net … ..Money … ..Mobile Virgin Music Virgin Trading www.Virginmoney.com Business level
  5. 5. Virgin The Virgin Group is evaluating around 50 business proposals and ideas every week. Only a few will pass the initial test. 4 new business proposals are under more close testing at all the time.
  6. 6. Focus on a segment Examples on Focus Strategies <ul><li>Cars: BMW (Sporty, prestige cars ) </li></ul><ul><li>Banking: First Direct (Telephone - and internet banking) </li></ul>How can a focus strategy be measured?
  7. 7. How can a focus strategy be measured? <ul><li>Extra costs by positioning </li></ul><ul><li>Extra pay-off due to exceptional performance e.g. outstanding quality, service, brand </li></ul>
  8. 8. Cost leadership <ul><li>Example: TOYOTA </li></ul><ul><li>Difficult to measure: In practice it is done by defining cost leadership relative to a group of competitors (or ”strategic group”) </li></ul>
  9. 9. Differentiation <ul><li>Creating uniqueness compared to competitors. Example : Safeskin gloves </li></ul><ul><li>Involves adding more real or perceived value to target customers relative to competitors. </li></ul><ul><li>Additional costs are tolerated if they ad disproportionate value to customers, harvested through premium price. </li></ul>
  10. 10. The Life-cycle problem <ul><li>Emerging </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Renewal? </li></ul>Long term versus short term cash-flow?
  11. 11. Identifying performance improvements <ul><li>Products against market segments </li></ul><ul><li>Products against geographic segments </li></ul><ul><li>Market segments against distribution channels </li></ul><ul><li>Products against distribution channels </li></ul><ul><li>Customer types against products </li></ul>
  12. 12. The PIMS (Profit Impact of Market Strategy) Database contains the experiences of over 3.000 businesses Increased market share gives economies of scale
  13. 13. The PIMS (Profit Impact of Market Strategy) Database contains the experiences of over 3.000 businesses % Marketing costs Perceived relative quality Increased marketing and advertising ads little to ROCE if the quality is bad.
  14. 14. Evaluating business and financial performance <ul><li>Fishbone analysis </li></ul><ul><li>Cost/benefit analysis </li></ul><ul><li>Performance driver analysis </li></ul>
  15. 15. Income statement divided into businesses ( products or segments ) In what business is it very difficult to make money? Where should we increase investments or reduce assets? Time? Short-term or long-term returns? 12,1% 25,0% 20,0% 5,0% ROAE 3300 800 500 2000 Assets employed 400 200 100 100 Operating profit 600 300 200 100 Cost of sales 1000 500 300 200 Sales Total Z Y X Business
  16. 16. Break-even, contribution and value analysis , Ronnie’s Garage page 77-78 Sales Total costs Fixed costs Sales € €
  17. 17. Exercise <ul><li>Fixed costs: 1.000.000 € </li></ul><ul><li>Contribution margin: 30% </li></ul><ul><li>Actual sales equal to: 4.000.000 € </li></ul><ul><li>What is Break-even point? </li></ul><ul><li>By how per cent can sales fall before we reach break-even? (Security margin) </li></ul>

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