Chapter 4

Review Question

Questions:

1. Identify & and explain the two types of competitive strategy.

 Cost leadership is a strategy companies use to increase efficiencies and reduce
production costs below the industry average or their closest competitor. It’s a method
to reduce costs and produce the least expensive goods in a market or industry in an
effort to gain market share. 
 Product differentiation strategy is implemented by creating a perception among
consumers that the product or services is unique in some important way, usually by
being higher quality, features or innovation. This perception allows the firm to charge
higher prices and outperform the competition in profits without reducing cost
significantly.
2. Identify three or four well-known firms that succeed through cost leadership.
o Wal-mart
o Pure Gold
o Uratex
o SM Mall
3. Identify three or four well-known firms that succeed through product differentiation.
 Gucci fashion company
 Apple technology company
 BGC Shangri-LA hotel
 Sneakers Shoe manufacturing
4. Explain the process of identifying a sustainable competitive advantage for a dorm.
 First, you must analyze internal and external factors that affect your line of
business, this is specifically called SWOT Analysis (Strengths, Weaknesses,
Opportunities and Threats Analysis). Second, you need to match your strengths
and opportunities to create an effective and efficient strategies. Third, try to
eliminate the weaknesses and threats or convert to become your strengths.
These steps should be used to have a competitive advantage for it helps you
analyze and determine the factors you needed and the factors you have to
change for the benefit Of the firm. After this gain Of information, use this to come
up with great strategies and goals for the success Of the business.
5. What is the meaning of “getting stuck in the middle” in the context of competitive
strategy, and how does the situation arise?
 According to Michael, “ Getting stuck in the middle” is when a firm applies both
strategy which is cost leadership and product differentiation to outperform
competitors, however fails to sustain competitive advantage by getting stuck with
no direction.
6. What is the role of the cost manager regarding nonfinancial performance measures such
as delivery speed and customer satisfaction?

 Non-financial measures offer four clear advantages over measurement systems

based on financial data. First of these is a closer link to long-term organizational
strategies. Financial evaluation systems generally focus on annual or short-term
performance against accounting yardsticks. They do not deal with progress
relative to customer requirements or competitors, nor other non-financial
objectives that may be important in achieving profitability, competitive strength
and longer-term strategic goals. For example, new product development or
expanding organizational capabilities may be important strategic goals, but may
hinder short-term accounting performance. By supplementing accounting
measures with non-financial data about strategic performance and
implementation of strategic plans, companies can communicate objectives and
provide incentives for managers to address long-term strategy.

7. Explain difference between short-term and long-term performance measures and give
two or three examples of each.
 Long-term goals are inherently strategic. This characteristic is why long-term
goals shape the overall direction of the organization. The success of achieving
long-term goals is a reflection of how well the board conforms to the
organization’s mission.
a) An example of a long-term business goal that the short-term goal
helps achieve is to double business revenue by the end of the
fiscal year.
 Short-term goals are a reflection of how well the organization’s programs are
performing. Effective board directors know that it takes establishing, monitoring
and achieving short- and long-term goals to help the organization progress.
a) An example of a short-term goal is to increase your advertising
budget each month for the next three months.
8. What is a critical success factor, and what is its role in strategic management and in cost
management?

 Identifying Critical Success Factors enable you to track and measure your
progress toward achieving strategic goals - and, ultimately, to fulfilling your
organization's mission. They also provide a common point of reference so that
everyone knows exactly what's most important, ensuring that tasks and projects
are aligned across teams and departments.

9. Identify four or five potential critical success factors for a small auto-repair shop.
  Positive Image. One critical factor that often defines an automotive company is
its public image. Because buyers entrust their safety, along with a sizable
portion of their income, to a car company, the perception of the company
figures greatly in the buying decision. 
 Distribution Network. A more practical critical success factor for any
automotive company is a strong network for distribution. 
 Cash Flow. A healthy cash flow is another practical critical success factor.
When an automaker provides incentives or lowers prices, it almost always sells
more cars, but the profit margin may not be a healthy one. At the same time, an
automaker needs to keep costs under control, including line items that are
prone to fluctuation such as the price of raw materials and outsourced
components. 
 Flexibility. An elusive critical success factor for the automotive industry is the
ability to be flexible. 

10. What is a balanced scorecard? What is the primary objective when using a balanced
scorecard?
 A balanced scorecard is a strategic management performance metric used to
identify and improve various internal business functions and their resulting
external outcomes. Balanced scorecards are used to measure and provide
feedback to organizations. Data collection is crucial to providing quantitative
results as managers and executives gather and interpret the information and use
it to make better decisions for the organization. The balanced scorecard is used
to attain objectives, measurements, initiatives, and goals that result from these
four primary functions of a business. Companies can easily identify factors
hindering business performance and outline strategic changes tracked by future
scorecards.
11. Name the ten contemporary management techniques and describe each briefly.
 The Balanced Scorecard (BSC). An accounting report that includes the firm's
critical success factors in four areas: (1) financial performance, (2) customer
satisfaction, (3) internal processes, and (4) learning and growth.
 value chain. An analytic tool firms use to identify the specific steps required to
provide a product or service to the customer
 activity-based costing (ABC). A costing approach that assigns resource costs to
cost objects based on activities performed for the cost objects
 target costing. The desired cost for a product as determined on the basis of a
given competitive price, so the product will earn a desired profit
 life-cycle costing. A method used to identify and monitor the costs of a product
throughout its life cycle
 benchmarking. A process by which a firm identifies its critical success factors,
studies the best practices of other firms (or other business units within a firm) for
achieving these critical success factors, and then implements improvements in
the firm's processes to match or beat the performance of those competitors
  Total quality management (TQM) is a technique in which management develops
policies and practices to ensure that the firm 's products and services exceed
customer expectations.
 Just-in-Time (JIT) production is a system in which each component on a
production line is produced immediately as needed by the next step in the
production line. In a JIT production line, manufacturing activity at any particular
workstation is prompted by the need for that station's output at the following
station.
 Business process reengineering is the act of recreating a core business
process with the goal of improving product output, quality, or reducing costs.
Typically, it involves the analysis of company workflows, finding processes that
are sub-par or inefficient, and figuring out ways to get rid of them or change
them.
 Mass customization is a marketing and manufacturing technique that combines
the flexibility and personalization of custom-made products with the low unit costs
associated with mass production. Other names for mass customization include
made-to-order or built-to-order.
12. How do managers implement strategy?
 A well-developed strategy is easier to implement than one that has not received
sufficient thought. Create strategies that can be effectively implemented by
specifying clear objectives and projecting measurable milestones. Align these
strategic steps with your company's overall mission. For example, if your
company's mission is to reduce energy use by installing solar panels, an
appropriate strategic step might be to increase capacity by purchasing new
equipment, based on accounting data that shows your company failing to keep
up with current demand.
13. What should managers do to compete effectively?

 Delegate wisely. The key to managers success is to learn to effectively delegate

both the responsibility for completing assignments and the authority required to
get things done. 
 Set goals. Every employee needs goals to strive for. Not only do goals give
employees direction and purpose, but they ensure that your employees are
working towards the overall organizational goals.
 Communicate. Far too many bosses communicate far too little. It's often difficult
for busy business owners and executives to keep their employees up-to-date on
the latest organizational news. 
 Think about lasting solutions. No matter how difficult the problem, there is
always a quick solution, and leaders are happiest when they are devising
solutions to problems. 
 Don't take It all too seriously. Without a doubt, running a company is serious
business. Products and services must be sold and delivered, and money must be
made. 
14. How do companies add value?
 Consider the examples of new cars rolling down the production line being
assembled by robots. The final, completed and shiny new car that comes off the
production line has a value (price) that is more than the cost of the sum of the
parts. Value has been added. Exactly how much is determined by the price that a
customer pays.
15. What does the phrase "what gets measured gets done" mean? Provide an example Of a
negative consequence for an organization if this phrase is taken literally.
 We’ve all heard the saying, “What gets measured gets done.” It means regular
measurement and reporting keeps you focused because you use that information
to make decisions to improve your results. It is not that easy. Simply measuring
something does not ensure that some action will then take place. For example in
restaurant, which measure the probability of the customers, it doesn’t mean that
in the opening of the business will be successful you to do some more effective
strategies that make your business successful.
16. What are some new measures of performance that management accountants are
beginning to consider as part of their domain?

 Strategy, planning, and performance. Strategic management includes

activities such as competitive analysis, forecasting and budgeting, operational
decision analysis, enterprise risk management, and innovation.
 Reporting and control. With robotic process automation (RPA) increasingly
being used to automate accounting processes, management accountants will
need to be able to evaluate the efficiency and effectiveness of accounting
processes and make recommendations to optimize them. 
 Technology and analytics. As big data matures, management accountants will
need knowledge of data extraction tools for mining structured and unstructured
data. 
 Business acumen and operations. Business acumen includes industry-specific
and operational knowledge, as well as quality management, continuous
improvement, and project management skills.

 Leadership. Soft (personal) skills in areas such as motivating and collaborating

with others, communications, change management, talent management,
relationship management, negotiation, and conflict management will remain
critical for management accountants.
 Professional ethics and values. As management accountants get more
involved in the strategic planning process, there will be a greater need for
professional skepticism around the inputs and assumptions in that process.

17. Is customer satisfaction a qualitative or a quantitative measure of performance? Or, is it

a combination of both measures?
 It is a combination of both measures both qualitative methods and quantitative
metrics are used to evaluate the aforementioned things, how they are utilized, if
 they are adequate as they are or if there is need for supplementary measures
and how people’s emotions are being observed through these methods, if they
even are.

18. Define competitive benchmarking and continuous improvement.

 A basic definition for benchmarking is: An ongoing process of measuring and

improving business practices against the companies that can be identified as the
best worldwide.This definition emphasizes the importance of improving, rather
than maintaining the status quo. It addresses searching worldwide for the best
companies. Most companies have international competitors. It would be naive to
think that best practices are limited to one country or one geographical location.
Information that allows companies to improve their competitive positions must be
gathered from the best companies, no matter where they are located.
19. Define value-added and nonvalue-added activities. Which of the following would be
value-added for an automotive manufacturer? Nonvalue-added?
a. painting automobiles- Value-added
b. moving auto parts from the warehouse to the plant- Non value added
c. inspection of final product- Value-added
d. assembling the engines- Value-added
e. costs to store finished goods- Value-added
f. costs to store raw materials- Value-added
g. production Of bumpers- Value-added
h. production Of headlights- Value-added
i. inspection of intermediate product- Value-added
j. production of spark plugs for automobile- Value-added