Strategic Management: Key Issues

Identification and Measurement of Critical Success Factors in Strategic Management

An organization must build sustainable long-term growth, and it can succeed by implementing an optimal strategy for achieving the goal. Choosing a plan to utilize begins with an organization’s purpose determination and its goals over a long span. The mission can be divided into specific performance objectives, following which will lead to forming a strategy that is relevant to an organization’s goals, niche, and future customer requirements. Strategic management is the process of development and implementation of a maintaining competitive position.

The basic competitive strategies are cost leadership and differentiation. By utilizing the cost leadership strategy, an organization sustainably profits on the lower prices and limits the growth of competition. The cost leadership strategy is applicable if an organization has resources and technologies that make the manufacturing and distribution low-cost with no severe influence on product quality. The other approach, differentiation, is relevant when a product of an organization is unique, often by its higher quality, customer service advantages, or innovation. Although differentiation can lead to a high level of consumption, the weak point of the strategy is that if its uniqueness becomes less desirable by a customer, lower-cost rival products will be preferred. Strategic research is essential for an organization to choose the right customers, and determine the advantages among competitors. Critical success factors (CSFs) are measures of those aspects of an organization’s performance essential to its competitive advantage. They provide a common reference point for everyone to understand what’s most important in a firm, guaranteeing that projects and tasks are aligned across teams and departments.

There are four main types of CSFs identified by Rockart (1974) including; environmental factors resulting from macro-environmental influences to the organization such as competitors, business climate, the economy and technological advancements, temporal factors resulting from the firm’s growth and internal changes and are generally short-lived such as specific constraints, influences, barriers and directions, industry factors leading from specific elements of a firm and are the things a firm must do to remain competitive within its sector and, strategic factors resulting from the specific competitive strategy that a firm follows and may include the way a firm chooses to position and market itself and whether it is a low-volume, high-cost producer or high-volume, low cost one.

The process of determining CSFs has five main steps. First, the making of a team that will be responsible for working with CSFs and should start from the top in a firm as it is important to have senior-level buy-in. Second, allowing employees in the organization the opportunity to provide their feedback in the determination of the firm’s CSFs. Third, utilizing multiple frameworks in examining fundamental elements in a firm’s long-term goals such as the SWOT (an acronym for Strength, Weaknesses, Opportunities, Threats) analysis, OAS (an acronym for Objective, Advantage, Scope) statement, strategic and change agenda frameworks (Abisourour et al., 2020). Fourth, establishing factors that are essential in the achievement of long-term goals in a firm’s organizational plan by combining key elements derived from the frameworks. These factors are; planning, communication, skills, teamwork, and process. Lastly, the implementation of a company-wide strategic plan with the firm’s CSFs in mind. A beneficial way to attain this is by developing a Balanced Scorecard (BSC), which is a strategic management framework that enables a firm to achieve its CSFs more successfully.

The achievement of CSFs is directly linked to the success of a firm’s overall strategy. Therefore, there is a need for proper measures to gauge if the CSFs are being attained effectively. This can be done by clearly communicating the firm’s CSFs to the individuals responsible for them and the rest of the business as well, consistent monitoring of and reassessment of the CSFs to ensure that a firm stays on tracks of its set out goals, the careful correlation of indicators to CSFs by a firm’s astute managers and the substantiation that CSFs have a causal relationship with expected outcomes (Ho & Chuak, 2019). A firm may also choose to establish a champion for each CSF. The champion acts as a steward to the CSF and is responsible for ensuring that it moves in a positive direction. This ensures accountability and subsequent success of a CSF.

The Relationship between Basic Cost Concepts and the Use of Information in Business Functions

Cost management information is developed and used to implement an organization’s strategy. It consists of financial information about costs and revenues and customer retention, productivity, quality, and other critical success factors. The use of information is crucial among all business functions, as an organization has to be aware of the ongoing changes, trends, and risks of the product’s niche. Moreover, lack of relevant cost management information leads to incorrect investment decisions, inability to effectively benchmark competitors, and failure to identify the most profitable products, customers, and markets. Cost accounting summarizes costs for determination of the expenses of products or services, planning, controlling, reducing such costs, and furnishing of information to management for decision making. The cost principle requires that assets be recorded at the cash amount when an asset is acquired and that the amount recorded will not be increased for inflation or improvements in market value.

Four business functions are planning, organizing, controlling, and leading; an organization must perform well in each of them. A direct outcome of the planning function is the development of strategy and tactics to accomplish the objectives defined by the service. Organizing is grouping people into departments or units; it describes interactions as does the hierarchy and leadership structure required to help the organization reach its potential. The controlling function is directly related to organizing as it applies plans, goals, and objectives to all levels of management within an organization. The leading function outcomes are vision, focus, and direction created to encourage employees to work at high levels and to ensure their activities are coordinated to achieve maximum results for the organization.

Costing, Costing Methods and Techniques in Strategic Management

Costing is the process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to products, services, or projects. In developing a particular costing system for an organization, the management accountant makes several choices, one for each of the following characteristics of costing methods: the cost accumulation method—job costing, process costing or joint costing; the cost measurement method—actual, normal, or standard costing; and the overhead assignment method—volume-based or activity-based. Each product costing system will reflect these three choices.

Costing methods depend primarily on the manufacturing process of a firm and the methods of quantifying departmental output and finished products. Costing methods include; job costing, batch costing, contract costing, process costing, unit or production costing, farm costing, operating cost, multiple and operation costing (Sriyono et al., 2017). Job costing is whereby costs are collected and accumulated for every work order, job, or project separately. Each task is individually identified, and a job card is prepared for each job for cost accumulation. Batch costing is an extension of job costing. A batch represents a number of small orders that pass through the factory in batch, and each batch is treated as a unit of cost and valued separately. The cost of each unit is derived by dividing the price of the batch by the number of units developed in a batch. Contract costing is used when the job is huge and spreads over a long period of time. A separate account is made for every single contract, and builders and engineers mainly use this method. Process accounting is suitable for firms where; production is a continuous process, clear and well-defined processes do manufacturing, the finished good from one process becomes the raw material of the next process, different goods with or without by-products are simultaneously produced during the same process, and goods produced during a certain process are exactly identical. Since finished goods are obtained at the end of every process, it will necessitate the need to ascertain both the cost of each process and the cost per unit of each process whereby a separate account is made for each process to which all expenditure incurred thereupon is charged.

Unit or output costing is suitable for industries where there is continuous manufacture and units are identical. This method is applicable in industries like breweries and mines where there is a natural or standard unit cost. The object of this method is to establish the cost per unit of output and the cost of each product of such cost. Here, cost accounts take the cost sheets to form, prepared for a definite period (Ditkaew & Pitchayatheeranart, 2019). Farm costing helps calculate the total cost and per-unit cost of different activities covered under farming. It helps improve farming practices in the reduction of production costs, profit ascertainment for each line of farming activity to ensure better control by management and the obtaining of loans from financial institutions and banks as they offer loans based on good cost accounting records. Operating or service costing is suitable for firms that render services as distinct from the ones that manufacture goods. This method is used to establish the cost of provided services, and there is generally a compound unit in such undertakings. Multiple costing represents the application of more than the method of costing in regards to one product. It is suitable for industries where numerous parts are produced separately and assembled into a final product. In such businesses, the components are different from each other in terms of material used, price, and their manufacturing process. Operation costing refers to conversion cost; that is, the cost of converting raw materials into finished products (Sriyono et al., 2017). This method takes into account the rejections in each operation, calculating input units and cost. The main techniques of costing for ascertaining costs include; uniform costing, marginal costing, standard costing, historical costing, absorption costing, direct costing, and activity-based costing.

Operational Control and Management Control in Strategic Management

Operational control is the process of monitoring the activities of operating-level managers and employees by the mid-level managers. Management control takes place in the evaluation of mid-level managers by upper-level managers. In terms of critical analysis of activities, an organization needs to choose the indicators to measure performance and make strategic decisions to facilitate the proper use of opportunities and market changes. Operational control is the process of assessing and correcting the performance of different organizational units to establish their contribution to the achievement of organizational goals (Melnyk & Shmatkovska, 2016). The main idea behind operational control is the streamlining of the process of cost minimization and enhancing efficiency. It seeks to answer the questions; are raw materials, good-in-process, and finished product inventories being procured and produced in appropriate quantities? Are costs linked to the transformation process in line with cost estimates?

Management control functions within the framework established by the firm’s strategy. The objectives are stipulated for major subsystems within a firm such as projects, functions, products, and responsibility centers. Typical management control measures include residual income, cost, product quality, and returns on investment (Yan & Gray, 2018). These measures are a summation of operational control measures, and sometimes corrective action may involve small or considerable changes in a strategy. Operational control and management control are key in determining and assessing the costing methods and techniques that a firm chooses, their application, and the changes or modification needed for effective business.

Biblical Principles in Decision Making for Cost Management

Strategic decision making includes five steps to follow, and cost management participates in each of them. Cost management related to decision making can be determined as choosing the relevant costs. To set the costs correctly, factors such as planning, increment, and cash flow must be considered. Planning includes the costs changes because the demand in alternatives requires new financial decisions and makes the past costs irrelevant. Previous prices are irrelevant, as we cannot affect them by current choices, and they are common to all alternatives that we may choose. All of the incurred costs, regardless of the decision, should not be incremental to the decision. Expenses such as depreciation are not cash flows and are therefore not relevant to use as costs for the alternatives. Step one is to determine the strategic issues surrounding the problem. Step two identifies alternative actions. Step three is to obtain information and conduct analyses of the alternatives. Step four is to choose and implement the desired alternative based on strategy and analysis. Step five provides an ongoing evaluation of the effectiveness of the implementation of the replacement.

References

Abisourour, J., Hachkar, M., Mounir, B., & Farchi, A. (2020). Methodology for integrated management system improvement: combining costs deployment and value stream mapping. International Journal of Production Research, 58(12), 3667-3685. Web.

Ditkaew, K., & Pitchayatheeranart, L. (2019). Using Structure Equation Model for Evaluating the Impact of Activity Based Costing towards Strategic Management Innovation and Performance of Firms in Industrial Estate Authority of Thailand. Asian Administration & Management Review, 2(1), 110-118. Web.

Ho, S. C., & Chuah, K. B. (2019). Critical Success Factors for Strategic Management of ITF R&D Projects Commercialization: An Industry Expert Perspective. Handbook of Research on Contemporary Approaches in Management and Organizational Strategy (pp. 146-172). IGI Global.

Melnyk, K. P., & Shmatkovska, T. O. (2016). Fundamentals of the theory and methodology of operational control. Journal of Economics, Management and Trade, 14(4), 1-12. Web.

Rockart, J. F. (1979). Chief executives define their own data needs. Harvard business review, 57(2), 81-93.

Sriyono, S., Rahmawati, R., Bandi, B., & Agung Nur Probohudono, A. N. P. (2017). Effect of Strategy Type and Deliberate Strategic on Strategic Management Accounting-Strategic Costing and Strategic Decision Making Techniques in Indonesia’s Universities. Journal of Engineering and Applied Sciences, 12(16), 4175-4179. Web.

Yan, A., & Gray, B. (2018). Linking management control and inter-partner relationships with performance in US-Chinese joint ventures. Management Issues in China: Volume 2 (pp. 106-127). Routledge.

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