Monday, September 24, 2012

Strategic Cost Management - Online Course

Articles/Knols in the Series
The series of knols that form part of a course to understand strategic cost management are given below. More knols will be needed as appropriate. Comments are welcome on additions and modifications.
Strategic Cost Management - Introduction
Target Costing and Target Cost Management
Kaizen Costing and Kaizen Cost Management
Activity Based Cost Management
Inventory Management
ERP Systems in Cost Management

Original knol - 379

All knols links changed to migrated blog posts - 24.9.2012

Strategic Cost Management

Strategic Cost Management

Strategic Cost Management

Cost is a strategic issue. Strategic cost management looks at cost a strategic issue and it considers or evaluates the effect of cost on strategic objectives of the company.


Cost is a strategic issue

In today's competitive environment the most efficient companies view all of their spend (direct and indirect) as an investment; they make smart spending decisions based on a strategic vision and their internal capability to deliver value from that investment.
Cost is a strategic issue (PWC). It needs to be continuously optimised in the context of the entire business model of the organisation. Often, the very business model itself may need to change to ensure the organisation remains competitive.

In addition, execution of any chosen strategy has to be carefully managed to ensure the appropriate balance between revenue growth and cost.

Companies that are taking the investment approach to managing cost are thriving in this new environment, striking a balance between a competitive cost structure, cost effective strategic execution and investment in the future. They are delivering a robust response to the cost challenge.

Strategic cost management looks at cost a strategic issue and it considers or evaluates the effect of cost on strategic objectives of the company. In contrast cost management was defined as a system that identifies how management’s decisions affect costs (Horngren, Sundem, Stratton, 1999).

PWC Consultants clarified the activities that come under strategic cost management by identifying three major areas and the activities under each major area.
The three major areas are:
1. Creating a competitive cost base
2. Cost effective strategy execution 
3. Continuous improvement

Creating a competitive cost base

    Keep cost under continued observation through targeted key performance indicators.
  Know current best practice and regularly benchmark the cost base against competitors.
  Have effective decision-making processes at the operational level through stringent cost accounting.
  Execute periodic, tightly focused tactical cost reduction projects under an effective project management discipline.
  Ensure compliance through strict governance and robust supplier management.
  Understand net profitability by customer, product, market and channel.

Cost effective strategy execution

  Continually challenge the business model to shape investment choices.
  Analyse key cost data to show the cost implications of new opportunities, products and customers.
  Ensure poor areas of customer and product profitability are understood and continually addressed.
  Ensure that growth is funded through cost efficiency.
  Robustly track the execution of strategy against plans and manage performance.
  Embed a culture of cost consciousness in the organisation but invest in those areas that will deliver the greatest return.
Continually strive to improve and apply incentive mechanisms to drive sustainable improvement.

Continuous improvement

  Actively track the customer experience and market place, being able to effectively assess the costs of responding appropriately to changes.
  Review the external environment for different cost effective methods or business models.
  Be alert to potential market entrants from any area, recognising that lower cost competition can arise from different industries and competitiveness can be enhanced by adapting cost structures from other industries.
  Constantly challenge operational costs to drive investment in critical research and development.
  Continuously monitor complexity throughout the business, constantly simplify execution whilst enhancing service delivery.
  Recognise that employee satisfaction and performance drives financial success and structure rewards accordingly.
  When you combine a competitive cost base and a competitive business strategy with cost-focused future planning, you are seeing truly best practice cost management.


 Horngren, Charles T., Sundem, Gary L. and William O. Strattion, Introduction to Management Accounting, Prentice Hall, Enlgewood Cliffs, 1999, p. 144.

Other Documents for Further Study:

The document has two pages devoted to strategic cost management during the downturn.
More detailed write up on strategic cost management by KPMG. Includes a brief writeup on case study also.
Strategic Cost Management in Supply Chains, Part 1: Structural Cost Management  by Shannon W. Anderson and Henri C. Dekker. To be published in Accounting Horizons, 2009.

Strategic Cost Management - Part 1  ASA (South Africa)

Strategic Cost Management - Part 2

Strategic Cost Management - Part 3

Phd Thesis on 

Towards a conceptual framework for strategic cost management
- The concept, objectives, and instruments -
Chemnitz University of Technology
Ibrahim Abd El Mageed Ali El Kelety
Full Thesis:

Wednesday, September 5, 2012

Supply Chain Management - Information - Bulletin Board

Equity Research - Online Textbook on Knol

Equity Research - Online Textbook on Knol

Equity Research - Online Textbook on Knol


The Book Scheme (Proposed)



Financial Statements

Financial Statement Analysis

Fundamental Analysis or Fundamental Equity Research

Graham and Dodd's Equity Analysis

Phil Fisher's Scuttlebutt

Practice by Warren Buffett

Dividend Discount Model

Relative Valuation Methods

Economy Analysis

Industry Analysis

Company Analysis

Cash Flow Discount  Models

Target Prices and Target Price Determination

Technical Analysis of Equity Prices

Quantitative Equity Analysis

Behavioral Finance - Equity Research Implications

Efficient Markets Theory

Market Anomalies and Equity Research

Equity Research Report Writing

Recent Research Findings - Equity Analysis and Valuation

Benefits of Equity Research - Scientific Assessments


Collected Knols


Existing Knols being collected

The existing knols relevant to the chapter are being collected first so that they can be included in the content of the book appropriately.
Narayana Rao - 12 Nov 2010
Thank you for the comment.

Request you to suggest knols from yours for inclusion in the chapter Behavioral Finance - Equity Research Implications.

You can write your selection on the knol promotion board. I shall transfer them from there to here. That way they will get some exposure on the Knol promotion board also. Many knols require lot more backlinks to get good ranking in Google search pages. I find only those knols which were included by some others on their pages are getting page views. While we cannot do much with respect to others' actions we need to create some links ourselves.
Narayana Rao - 12 Nov 2010
Thanks to the inclusions. You are doing a big and useful job.
Peter Greenfinch - 12 Nov 2010

Book Scheme is announced

Presently only book scheme is announced. Some existing articles written by me or others are collected under some chapters. Writing chapters/sections will take considerable amount of time. Writing will be done during quarters that I teach this subject. The material created will be used in the classroom thus doing an evaluation of the material in the classroom.
Narayana Rao - 09 Nov 2010
Dear Peter Greenfinch

Thank you for the suggestion. Let me first write a section on analysis and valuation in the introductory chapter and distinguish the two and then see if I can cleanly separate them into two parts or both are present in turns and hence both may come in the same chapter in various chapters. I shall include many of your articles in the chapter collections now. Even though I want to write separate articles for each section of the chapter, it will take years. I want to first indicate existing knols as forming part of the chapter scheme. That way visitors have some materials to look as a supplement to the text or book they are following.

Narayana Rao - 09 Nov 2010
Good scheme
Maybe divide it into two main sections
* Analysis
* Valuation
Peter Greenfinch - 09 Nov 2010

Saturday, September 1, 2012

1 September - Knowledge History - Science, Engineering and Management

Francis William Aston born 1877: mass spectrograph and isotopes ; Nobel Prize, 1922

Vladimir Haensel born 1914: platinum reforming catalysts in petroleum industry .
B. Smith Hopkins born 1873: rare earths
Karl August Folkers born 1906: isolation of vitamin B12 (whose deficiency brings on pernicious anemia); structure and synthesis of coenzyme Q10

Rohm & Haas founded 1909

Carl Auer von Welsbach born 1858: rare earths; discoverer of neodymium (Nd, element 60) and praseodymium (Pr, 59); co-discoverer of lutetium (Lu, 71).

Knowledge History of the Day - Index for the Year

Management Theory Review Blog
Management Knowledge Center
Engineering and Technology Knowledge Center
Science Knowledge Center
Social Science Knowledge Center