Strategic Management Accounting – A Practical Guidebook with Case Studies

Strategic Management Accounting – A Practical Guidebook with Case Studies

Four parts has been organized in this book. A brief note on the content of the chapters in each part is highlighted for reference.

Part I: Fundamental Concepts (Cost and Value)

This part provides an introduction on some general concepts on cost and value, especially those concepts relevant to strategic management accounting.

It has two chapters. Chapter 2 introduces a general approach in cost analysis, i.e., functional, behavioral, and strategic cost approach. It outlines with examples the employment of behavioral approach as a traditional cost analysis to management decision. It also summarizes a new approach of strategic cost management and highlights major differences between traditional behavioral approach and strategic cost approach. In addition, it also introduces activity base costing and how this concept is used in an organizational context.

Chapter 3 focuses on value concept. In particular, value chain analysis in terms of Michael Porter’s horizontal value chain analysis and Shank and Govindarajan’s vertical value chain analysis is discussed. The latter value chain analysis approach increases a firm’s competitive advantages through exploiting the advantages of backward and forward integrations. Examples are given to illuminate how these value analysis exercises are performed. Furthermore, a brief note on net present value concept is introduced to help readers understand how discounting cash flow analysis is performed, which will be used in subsequent chapters.

Part II: Managing Customers

This part attempts to explore two main themes in managing customers: who are the firm’s ideal customers and how can the firm create value from these customers. Chapter 4 discusses about cost to serve (CTS) and customer selection and why firms failed to manage CTS. A system of classification of customers is proposed in this chapter. Customers are divided into four customer clusters: value champion, value defenders, value exploiters, and value savers. Customer performance management grid is employed to sickle those non-performed customers. Chapter 5 discusses customer profit and customer value. It distinguishes customer profit from customer value and proposes various key measures of these two dimensions. It also discusses advantages and disadvantages in the application. In addition, the chapter will also explore in a greater detail about the concept of customer lifetime value (CLV), especially a short-cut method of modified CLV model introduced by Gupta and Lehmann. This modified method is particularly useful for telecom operators or e-business firms in valuing subscribers.

Part III: Managing Competitors

This part analyzes competitors from three main themes: (1) how to anticipate competitor’s market behaviors from the dyadic strength, (2) how to solicit and analyze competitor information by reconstructing competitor’s predictive model, and (3) how to anticipate particularly competitor’s pricing strategies based on game theory. Therefore, it contains three chapters. Chapter 6 discusses about competitor analysis. It discusses how competitors are classified and the implications of competitor identification. It then discusses about competitors’ market behaviors in response to possible threats. Professor M.J. Chen’s famous awareness-motivation-capability analytical framework was borrowed to perform competitors’ behavioral analysis. In fact, the model was adopted from strategic management discipline, and the conceptual dimensions in respect of market commonality and resource significance indexes can be converted into matrix for action reference. Chapter 7 is a continuation of the previous chapter but emphasizes on reconstruction of competitor’s accounting model. The first part of this chapter develops a framework to depict accounting for competitive positions. This analytical framework is tested using four global telecom equipment providers’ annual financial data (i.e., Ericsson, Nokia, Alcatel, Huawei). Simmond’s recommended relative strength indicators were employed to perform benchmark analysis on their competitive positions. The second part of this chapter goes into detail how to reconstruct competitor’s accounting information based on the competitor intelligence database. The implications of the competitor accounting model are discussed. Chapter 8 is to explore how to use game theory to estimate competitor’s interactive responses. Different scenarios about competitors’ assumptions, constraints, and possible payoffs are explored.

Part IV: Managing Corporate Value

The part embodies three chapters with the main themes to emphasize: (1) how strategies create value, (2) how to value businesses, and (3) how to create corporate value through strategic alliances. In each particular topic, Chap. 9 discusses about strategic value analysis. It elaborates how a firm searches value starting from its value proposition and key strategies. This chapter takes reference of both VBM and SCM frameworks to guide analysis of businesses and development of key strategies. The chapter uses an ABC Coffee chain to showcase how key strategies were set based on the selected strategic positioning. Chapter 10 continues with the prior chapter but focuses how firms value business. Two important processes emerge. The first process relates how key strategies can be converted into a corporate blue print (financial forecast) for future direction. The second process pertains how financial forecast can be converted into free cash flows to facilitate business valuation using discounting cash flow technique. Chapter 11 (the final chapter) is about value creation through strategic alliance. This chapter explores the determinants of synergy value through strategic alliance, discusses the incentives of partnership in terms of expected payoff structure (private vs common benefits), and evaluates partnership symmetry in terms of strategic, organizational, and operational fit. Finally, it discusses how relational risk and performance risk interrupt the stability of partners’ behaviors. Risk mitigation measures are also explored.

Many mini cases, examples, and illustrations were taken from the telecom industry and e-commerce businesses. On one hand, it is due to my long working experiences in the telecom industry in which my accumulated knowledge about the industry may add value to these cases. On the other hand, a strong impact of technological influence on these two industries makes the market landscape very different from other industries. It would be meaningful to shed light on these digital industries, especially the emerging online businesses. Therefore, managing corporate value for these firms is also different. These examples hopefully provoke readers to think more from SMA perspective.


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