Strategic management accounting

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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
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What business are we in?

• Products and services
• Customer types
• Markets (geographical)
• Delivery channels

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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
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Virgin founded by Richard Branson
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
Group presentation page 83 to 89
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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.
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Focus on a segmentExamples on Focus Strategies

• Cars BMW (Sporty, prestige cars)
• Banking First Direct (Telephone - and internet
  banking)

How can a focus strategy be measured?
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How can a focus strategy be measured?

• Extra costs by positioning
• Extra pay-off due to exceptional performance e.g.
  outstanding quality, service, brand

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Cost leadership

• Example TOYOTA
• Difficult to measure In practice it is done by
  defining cost leadership relative to a group of
  competitors (or strategic group)

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Differentiation

• Creating uniqueness compared to competitors.
  Example Safeskin gloves
• Involves adding more real or perceived value to
  target customers relative to competitors.
• Additional costs are tolerated if they ad
  disproportionate value to customers, harvested
  through premium price.

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The Life-cycle problem

• Emerging
• Growth
• Maturity
• Decline
• Renewal?

Long term versus short term cash-flow?
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Identifying performance improvements

• Products against market segments
• Products against geographic segments
• Market segments against distribution channels
• Products against distribution channels
• Customer types against products

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The PIMS (Profit Impact of Market Strategy)
Database contains the experiences of over 3.000
businesses
Increased market share gives economies of scale
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The PIMS (Profit Impact of Market Strategy)
Database contains the experiences of over 3.000
businesses
Increased marketing and advertising ads little to
ROCE if the quality is bad.
Perceived relative quality
Marketing costs
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Evaluating business and financial performance

• Fishbone analysis
• Cost/benefit analysis
• Performance driver analysis

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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?
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Break-even, contribution and value analysis,
Ronnies Garage page 77-78

Sales
Total costs
Fixed costs
Sales
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Exercise

• Fixed costs 1.000.000
• Contribution margin 30
• Actual sales equal to 4.000.000
• What is Break-even point?
• By how per cent can sales fall before we reach
  break-even? (Security margin)