This presentation outlines a strategic management framework, emphasizing its iterative nature and the crucial role of the management accountant in supporting each stage, from analysis to review and control.
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this presentation provides an overview
of a strategic management framework and
gives a brief introduction of how the
management accountant can assist in the
strategic management process it is the
first in a series of presentations that
support the book management accounting
in support of strategy so what is
strategic management strategic
management is more than just producing a
strategic plan it is a process and this
it is difficult to find an agreed
definition of strategic management but
the common elements can be set out this
files having an overall sense of
direction and purpose formulating
strategic goals and plans to achieve
them implementing the plans and
monitoring and evaluating performance
and taking corrective action the diagram
shown here sets out a formal process for
strategic management the dotted lines
illustrate the iterative nature of the
process as in reality organizations do
not necessarily go through a series of
steps one by one
nevertheless the diagram can form the
basis of explaining how the process
works let us start by looking at mission
and objectives the mission is the
rationale behind the business it sets
out the long-term aims and purpose of
the organization as well as indicating
the strategy values policies and
behavior standards organizations often
develop a vision alongside the mission
this is usually broader and shorter than
the mission statement and is often
intended as a point of inspiration for
employees to drive the business forward
the objectives are more specific and set
out what the organization aims to
achieve ideally they should be smart
that is specific measurable agreed
realistic and time-bound the accountant
can contribute here by helping to
develop a range of performance
measurements that will evaluate the
extent to which objectives have been
achieved plus ensuring that appropriate
systems are in place to provide the
information if you think about it there
is little point in developing objectives
of measures of performance that you
can't actually measure [Music]
[Music]
environmental analysis what we're
looking for here are events trends or
changes in the business environment that
could affect the ability of the
organization to achieve its objectives
we are also looking for opportunities
that we can take advantage of in order
to develop the business further in short
we are looking for opportunities and
threats the management accountant can
assist here by monitoring specific
aspects of the environment for example
interest rates inflation foreign
exchange rates and perhaps the state of
the economy competitor analysis is also
part of the environment and the
accountant is well-placed to evaluate
the financial position of competitors
and identify their relative strengths
and weaknesses also accountants are
skilled at techniques such as scenario
building and forecasting in order to
evaluate the financial impact of changes
in the business environment having
looked at the environment we need to
look at the resources we have in order
to deal with any changes in the
environment in the internal appraisal we
are reviewing the organization's
resources to assess the strengths and
weaknesses accountants are able to
provide an assessment of the financial
strengths and weaknesses of the
organization and there are a range of
techniques where accountants can provide
input into the analysis such as a review
of the products and markets in terms of
portfolio analysis the most well-known
form of which is the Boston Consulting
Group matrix allied to this is the
assessment of the relative stage of
products in the product life cycle
the financial implications of these also
the analysis of the customer portfolio
by customer profitability analysis and
the analysis of the value creation
system and this ability to generate
profits via the competitive advantage so
now we have carried out an environmental
analysis and identified the
opportunities and threats and an
internal appraisal to assess the
strengths and weaknesses we can pull
these together in the form of a
corporate appraisal or what is sometimes
called a SWOT analysis in the SWOT
analysis the strengths and weaknesses
come from the internal appraisal and the
opportunities and threats come from the
environmental analysis however when we
did the environmental analysis we might
have spotted a change but did not yet
assess our ability to deal with it the
SWOT enables us to assess the ability to
deal with changes given the current
resources and hence to determine if the
change represents an opportunity or a
threat so the SWOT asks a question given
the changes in the environment can we
still meet the mission and objectives if
the answer is no we have identified a
gap between where we want to get to and
where we will get to if we continue with
the current strategy this is often
referred to as the profits gap here
the management accountant can evaluate
how big the gap is and more importantly
how big it will become if we do nothing
about it [Music]
[Music]
if we have identified a gap we need to
develop a strategy to close the gap this
is the options generation process in
reality many organizations may not
generate every possible option but make
small changes to their existing strategy
but the process allows for innovation
and evolution of new strategies even
reassessing the objectives in the light
of the changes in the environment for
example following the financial crisis
of 2008 many organizations would have
found it necessary to reassess the
appropriateness of their objectives
within options generation the
accountants have a range of techniques
that can aid the process not least of
these is the financial evaluation of
potential strategic options in terms of
investment appraisal techniques it is
also worth 3 evaluating the competitive
strategy at this point for example is
differentiation still a viable strategy
given the changes in the environment or
if the current strategy is that of cost
leadership can it be maintained
evaluating these in financial terms can
give an indication of what needs to be
done in order to remain competitive and profitable
profitable [Music]
[Music]
once the options have been identified we
need to evaluate them and choose the
most appropriate ones that help to close
the gap the evaluation is both strategic
and financial ideally a good strategy is
one that builds on the strengths
addresses the weaknesses grasps the
opportunities and avoids or minimizes
the threats the management accountant is
good at evaluating various options in
financial terms to make sure that they
are sufficient to close the gap there is
also a range of techniques that help
with specific options such as target
costing and pricing strategies in
relation to new product development
evaluating the financial viability of
market entry methods for market
development opportunities this might
even be undertaken via acquisition and
merger where the methods of company
valuation become highly relevant even
using techniques such as activity-based
costing can be useful within the value
creation system to identify where costs
can be saved or more value added to
customers to secure a competitive advantage
now we come to the difficult part which
is implementing the strategic plan the
plan needs to be crystallized into an
operational budget but in a fast
changing environment does not want to be
too rigid it is also worth noting that
changes in strategy may require changes
to operations and therefore we are also
dealing with implementing change however
in practice many organizations do not
make dramatic changes to their existing
strategy but we see a gradual shift over
time the management accountant needs to
ensure that the information systems keep
pace with the organization as the
business grows and develops the
information requirements can change
therefore we need to make sure that the
system can provide the right information
and that the accounting techniques are
still appropriate for the strategy
adopted a changing strategy might
require a change in focus of the
performance measurements for example the
shift up market in terms of quality
demands more attention on qualitative
issues it is also important to ensure
that the reporting formats focus of
reports and the information provided is
appropriate for any changes in the
strategy finally we come to review and
control we need to make sure that the
strategy is working and therefore we
need to review the performance against
the plan and to take corrective action
where necessary this feeds back into the
mission and objectives and closes the
loop which illustrates the continuous
nature of the process the management
accountant here is continuing the work
at the previous stage in ensuring that
information systems are still providing
the right information at the right time
and to the right people the reporting
also needs a strategic focus with more
emphasis on the future impact of current
performance rather than focusing on the
past we can learn a lot for the past but
it is much more important to review
whether the current performance is on
track to meet the future objectives you
may have noticed that there are dotted
lines illustrating the feedback and
iterations in the process of developing
a strategy when assessing options we
might address a weakness that alters the
balance of the existing SWAT or when
choosing and implementing an option we
could affect the environment for example
developing a new technology that gives
us competitive advantage but also
changes the environment in that all our
competitors now need to catch up think
of the Internet than the impact that
that completes the brief explanation of
a strategic management framework I say a
strategic management framework because
in reality it can be much more fluid
when small organizations may not have
the resources to undertake a full formal
process however no matter how informal
there are always four key elements
analysis formulation implementation
review and control and what we have seen
in this presentation is that the
accountant is capable of contributing to
all stages of the process further
presentations in this series provide
more detail on specific aspects of the
strategic management framework and cover
some of the strategy models that can be
used in the analysis formulation
implementation and review and control of
strategy and of course the role of the
management accountant this presentation
is provided as part of the support
materials for the book management
accounting in support of strategy
written by me Graham s picture and
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