MyChapter_11 - CHAPTER 11 STRATEGIC COST MANAGEMENT...

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CHAPTER 11 STRATEGIC COST MANAGEMENT QUESTIONS FOR WRITING AND DISCUSSION 1. A competitive advantage is providing better customer value for the same or lower cost or equivalent value for lower cost. The cost management system must provide informa- tion that helps identify strategies that will create a cost leadership position. 2. Customer value is the difference between what a customer receives and what the customer gives up (customer realization less customer sacrifice). Cost leadership focuses on minimizing customer sacrifice. A differen- tiation strategy, on the other hand, focuses on increasing customer realization, with the goal of ensuring that the value added exceeds the costs of providing the differenti- ation. Focusing selects the customers to which value is to be delivered. Strategic po- sitioning is the choice of the mix of cost leadership, differentiation, and focusing that a company will emphasize. 3. External linkages describe the relationship between a firm’s value chain and the value chain of its suppliers and customers. Intern- al linkages are relationships among the activities within a firm’s value chain. 4. Organizational activities are activities that determine the structure and business pro- cesses of an organization. Operational activ- ities are the day-to-day activities that result from the structure and processes chosen by an organization. Organizational cost drivers are the structural and procedural factors that determine a firm’s long-term cost structure. Operational cost drivers are the factors that drive the cost of the day-to-day activities. 5. A structural cost driver is a factor that drives costs associated with the organization’s structure, such as scale and scope factors. Examples include number of plants and management style. Executional cost drivers are factors that determine the cost of activit- ies related to a firm’s ability to execute successfully. Examples include degree of employee participation and plant layout efficiency. 6. Value-chain analysis involves identifying those internal and external linkages that result in a firm achieving either a cost lead- ership or differentiation strategy. Managing organizational and operational cost drivers to create long-term cost reductions is a key element in the analysis. Value-chain analys- is is a form of strategic cost management. It shares the same goal of creating a long- term competitive advantage by using cost information. 7. An industrial value chain is the linked set of value-creating activities from basic raw materials to end-use customers. Knowing an activity’s relative position in the value chain is vital for strategic analysis. For example, knowing the relative economic position in the industrial chain may reveal a need to backward or forward integrate in the chain. A total quality control strategy also reveals
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MyChapter_11 - CHAPTER 11 STRATEGIC COST MANAGEMENT...

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