More importantly it is valuable if it creates value or

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Unformatted text preview: curement This should not be confused with outbound logistics. It is the development of relationships with suppliers to procure raw material inputs so that inbound logistics can use it. More importantly, we need to understand that these individual processes are not independent. They are interrelated and it is this relation that allows them to become the value chain within an entity. This allows us to see both our resources and core competencies. Management Accounting 2 – Semester 2 2010 8 The Internal Environment Core Competencies Core competencies are unique capabilities that can create strategic value and, more importantly, a competitive advantage for the entity. However, note that resource cannot be core competencies and that not all capabilities can be either. The criteria we look at are, in the following specific order. Once one of the criteria fails, we do not continue on to the next criteria. 1) Valuable Something is valuable when it enables a firm to do a wide variety of things such as create efficiency, effectiveness, exploit opportunities or stop threats. More importantly, it is valuable if it creates value or assists in creating value for stakeholders. Fail at this stage: Competitive Disadvantage 2) Rare Is the capability only possessed by just a few entities? Or even just you? Fail at this stage: Competitive Parity 3) Difficult to Imitate Is the capability difficult to imitate? If so, other entities will take very long times to be able to formulate a competitive solution to combat the one the entity already has. Fail at this stage: Temporary Competitive Advantage 4) Non ­Substitutable Is this capability hard or impossible to substitute? Competitors can create capabilities to compete with the entity’s one, as long as it has the same strategy, and be a substitute. Passes all stages: Sustainable Competitive Advantage Preventing Core Rigidities Core competencies tend to be more valuable the longer it is used and exploited in the competitive market. As such, an entity may be too inclined to stick with the core competency instead of changing it and evolving it along with the market. In this sense, the core competency becomes a core rigidity. Core rigidities stop innovation in the entity and create a very inflexible environment where the entity is more prone to competitors’ attacks. Back to SWOT Now that we’ve identified our resources and capabilities, it should be simple to find out which parts form our strength and which parts form our weaknesses. If you still need a hint, start with analysing if the firm has a competitive advantage or not. Management Accounting 2 – Semester 2 2010 9 Strategy Analysis and Formulation Strategy Analysis and Formulation Background Strategy is the direction and scope of an entity over the long term. The scope is how wide or narrow of a market the entity is targeting. Investors reward companies with a clear strategy and the ability to meet that strategy with its resources and capabilities. The Strategic Management Process The strategic management process covers three stages: 1) Strategic Inputs The vision and mission of the entity. 2) Strategic Actions Encompasses strategy formulation and implementation. 3) Strategic Outcomes Strategic competitiveness and above market average returns that result from good strategy. The Vision and Mission Almost all entities have a vision and a mission statement. A vision statement states what an entity aims to achieve in the future. It generally only includes top ­level management’s views and desires. It also provides the underlying foundation for the entity’s mission statement. The mission statement states what it is currently doing and what it is currently endeavouring to deliver to customers. Unlike the vision statement, the mission statement involves lower level employees since the statement targets day ­to ­day operations. Business Level Strategy Business level strategy looks at how a business unit should compete with other units and also other entities. Strategic Business Units (SBUs) are part of an entity and have their own distinct markets for goods or services. Some SBUs of the same entity may even compete against each other. SBUs can compete through: • • • • • Cost Leadership Focused Cost Leadership Differentiation Focused Differentiation Integrated Cost Leadership and Differentiation The goal of most entities is to combine...
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This note was uploaded on 10/13/2013 for the course ACCT 2522 taught by Professor Chang during the One '11 term at University of New South Wales.

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