This is a summary of an article by John K. Shank. Mind you, this was back in 1989, therefore should serve the purpose of historical trace.
Management Accountants were lagging to embark in the issues of strategy. When SCM finally defined, was it really a new concept, or just an old wine with a new bottle?
Summary: Strategic Cost Management: New Wine or New Bottles
1. Summary
Modul 1 Reading 3B, Kelompok 1
Strategic Cost Management:
New Wine, or Just New
Bottles?
John K. Shank
CMA-IPMI 2012 1
2. Abstract
There was a kind of disconnection between the changing need of business
and the „current‟ (in 1989) academic curricula, with regards to management
accounting system.
This paper seek evidence that the concept of management accounting are
changing towards Strategic Cost Management, and it‟s not just an „old wine
in a new bottle’.
SCM is defined as the managerial use of cost information explicitly directed
at one or more of the four stages of Strategic Management Cycle
The emergence of SCM results from a blending of three underlying themes
that are each taken from the strategic management literature: Value Chain
Analysis, Strategic Positioning Analysis, and Cost Drivers Analysis.
For each of the themes, conventional managerial accounting has not
provided the financial support deemed necessary. SCM emerged as the
financial analysis that meet those needs.
Each of the themes deals with a basic question for which SCM and
management accounting pose answers which tend to differ substantially.
Thus, support the view that SCM constituted a paradigm shift. A new wine.
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3. Prologue: A Disconnect?
Tektronix revamped its Tektronix's success
competitive strategy, featured in Sloan
including set up of a Management Review:
suitable, new accounting highlighting elimination of
system anticipating ‘core components’ of
Japan comp. ‘current’ Mgt Acctg
system.
American Management
Association promoted
oncoming seminar on
“Fundamental of Cost
Accounting”. „Current‟
system, that was.
CMA-IPMI 2012 3
4. New Wine or New Bottles?
The paper addresses questions:
What is the evidence that the fundamental
concepts of management accounting are
changing or they need to change?
What is the evidence that many management
accountants are lagging this change rather
than leading it?
What is the evidence to support Kaplan‟s
charge (1986) that the management
accounting taught for the last 30 years is
becoming obsolete?
CMA-IPMI 2012 4
5. Mgt. Accounting Transition
Cost Manageria Strategic
Accountin l Cost Cost
g Analysis Manageme
nt
The increasing interest of „strategic
management‟ arose in around 1970s, both in
industrial as well as academic world had
created a big industry of “Strategic Analysis”
Until now (1989), however, little attention
given for this topic in major accounting
journals…
CMA-IPMI 2012 5
6. Strategic Business
Management
Communicate
Strategies
Formulate Implement
Strategies Cost Strategies
Information
Monitor
Results
SCM is defined as the managerial use of cost
information explicitly directed at one or more of the
four stages of Strategic Management Cycle
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7. The Emergence of SCM
Value Chain
Analysis
Strat. Positioning
Analysis
Cost Driver
Analysis
Together these three themes represent a
coherent framework of thinking (i.e.
paradigm) about managerial accounting
Is Strategic Cost Management a paradigm
shift? CMA-IPMI 2012 7
8. Value Chain Analysis
”What is the most useful way to analyze costs?”
The Mgt. Acctg Paradigm The SCM Paradigm
Strongly INTERNAL focus Strongly EXTERNAL focus
In terms of: Products, In terms of various stages of
Customers, Functions the overall value chain of which
the firm is part
„Value Added‟ is a key concept „Value Chain‟ is a key concept.
„Value Added‟ is seen as a
dangerously narrow concept
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9. Strategic Position Analysis
”What is the objective of cost analysis?”
The Mgt. Acctg Paradigm The SCM Paradigm
Three objectives, regardless The three remains, but the
strategic context: design of management system
changes dramatically
• Scorekeeping depending on basic strategic
• Attention directing positioning:
• Problem solving
• Cost leadership strategy, or
• Product differentiation
strategy
CMA-IPMI 2012 9
10. Cost Driver Analysis
”How should we try to understand cost behaviour?”
The Mgt. Acctg Paradigm The SCM Paradigm
Cost is primarily f (output Cost is f (strategic choices).
volume): i.e. strategic choice about the
structure of how to compete &
• Variable cost managerial skill in execution:
• Fixed cost
• Step cost • ‘Structural’ cost drivers
• Mixed/semi variable cost • ‘Executional’ cost drivers
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11. Epilogue: It‟s a New Wine!
“Strategic Cost Management is a Paradigm Shift”
Rather than being totally different, the SCM
perspective is just more inclusive than the
management accounting perspective.
Many of individual SCM concepts (e.g. life
cycle costing, cost of quality, or value chain
analysis) are sufficiently different from
conventional ways that they cannot be easily
accommodated into the list of conventional
key topic areas.
Accepting all SCM concepts together
requires rejecting some of the basic attitudes
which shape current thinking about Mgt.
Accounting. Are we, the management
accountants ready? CMA-IPMI 2012 11
13. Appendix: Tektronix, 1983
In 1983, the Portables Division of Tektronix Inc. adopted a program of
continuous improvement to dull the Japanese competitive threat. Portables'
strategy was to set a standard for performance and price that the rest of the
industry tried to emulate. To do this, new philosophies were required in
manufacturing, engineering, and marketing; and Portables set up a new
accounting system. The successful innovation involved:
1. a new managerial team,
2. a new accounting philosophy
3. the building of trust with employees, and
4. the management of excess capacity.
Obsolete accounting systems were eliminated and replaced with approaches
that worked well in the new environment. These included: (1) continuous flow;
(2) people involvement; (3) continuous process improvement; (4) elimination of
waste; (5) elimination of inventory; (6) elimination of unevenness; and (7) visual
control.
Measures of continuous improvement were developed that they report on how
well manufacturing is delivering value to its customers. 2012
CMA-IPMI Overhead allocation was13
14. Appendix: About the Author
Dr. John K. Shank (1942 – 2006) was a professor in the Amos Tuck School
at Dartmouth and a visiting professor each winter term at the Olin Graduate
School at Babson College. His teaching assignments included required and
elective courses in the Tuck and Olin MBA programs. Professor Shank had
published 16 books, more than 100 case studies and more than 100 articles
in leading journals in accounting, finance and management. His research
interests mostly centered around the strategic cost management theme.
Professor Shank holds the AB degree from Oberlin College, the MBA degree
from the University of Pittsburgh, and the Ph.D. in accounting from The Ohio
State University. He was a member of the American Accounting Association,
the AICPA, and the IMA. Before joining the Amos Tuck Faculty, he taught at
The Ohio State University for eight years and The Harvard Business School
for seven years
CMA-IPMI 2012 14
Notas do Editor
One of the important roles of internal accounting info within a business is to facilitate the development & implementation of business strategies.The difference from Management Accounting is on SCM’s EXPLICITattention towards Strategic Management context
Three underlying themes of Strategic Management: Value Chain Analysis, Strategic Positioning Analysis, Cost Driver AnalysisTogether these three themes represent a coherent framework for thinking about managerial accounting.SCM framework is sufficiently different from conventional framework, and SCM cannot be easily accommodated within conventional topic list //test with three basic questions, each under the three underlying themes.
Mgt accounting takes value added perspective: maximize the difference (value added) between purchases & salesValue Added perspective is ‘start too late (purchase), end too soon (sales)’ misses opportunity to exploiting linkages with suppliers as well as customers.Missing value chain concept many problems misunderstood, many opportunities missed.
“Scorekeeping, attention directing, problem solving” was first articulated by Herbert Simon et. al. (1954)Example attention directing: cost variance analysis; example problem solving: contribution margin analysis.
“Structural vs Executional list, proposed by Daniel Riley pada 1987.Structural: Scale (how big is the investment?), Scope (degree of vertical nitegration), Experience, Technology, Complexity (how wide a line of products/services to offer). More is NOTalways better.Executional: Employee engagement, TQM, capacity utilization, plant layout efficiency, product configuration, exploiting linkage with supplier & customer per value chain approach. More is ALWAYS better.
SCM involves:Some ideas which are fully consistent with the management accounting paradigm, but are not well implemented today (‘today’ means 1989, mind you), such as Activity-based CostingSome ideas are largely outside the scope of the conventional paradigm, e.g. Cost of QualitySome ideas which are inconsistent with the conventional paradigm, e.g. full cost is preferable to variable cost