Based on Chapter 13, Cost Accounting, 12th ed.
Horngren et al., Edited and
Modified by C. Bailey
• explores the use of management accounting
information for implementing and evaluating an
• shows how MA information helps strategic
Strategy describes how an organization
matches its own capabilities with the
opportunities in the marketplace to
accomplish its overall objectives.
In formulating its strategy, an
organization must thoroughly understand
the industry in which it operates.
Industry analysis focuses on five forces:
• Reducing prices of products is critical for any
industry to grow.
• Competition today is severe along the
dimensions of price, timely delivery, and quality.
2 Potential entrants into the market
• Competition usually keeps profit margins small.
• Existing companies probably have lower costs.
• Existing companies also have the advantage of
close relationships with customers.
3 Equivalent products
• How easily can users substitute other products
(consider MS Windows!)
4 Bargaining power of customers
• Customers may obtain the products from other
5 Bargaining power of input suppliers
• Suppliers of high-quality materials can demand
• Skilled engineers, technicians, and laborers can
demand higher wages.
Two generic strategies that organizations
1 Product differentiation
2 Cost leadership
Customersperceive product/service to
be superior and unique relative to
• Hewlett Packard in the electronics industry
• Merck in the pharmaceutical industry
• Coca-Cola in the soft drinks industry
Achieving low costs relative to
• Productivity and efficiency improvements
• Elimination of waste
• Tight cost control
• Dell, Bic
To be successful, a company must
• formulate an effective strategy
• implement it vigorously.
Management accountants play important
• collecting meaningful data
• designing reports to help managers track
progress in implementing strategy.
The balanced scorecard translates an
organization’s mission and strategy into a
comprehensive set of performance
Does not focus solely on financial
• highlights nonfinancial objectives that an
organization must achieve to meet its [long-
term] financial objectives.
Attempts to balance
• financial and nonfinancial performance
• short-run and long-run performance in a single
Why does the balanced scorecard
reduce manager’s emphasis on short-run
Reduces short-term emphasis because:
• nonfinancial and operational indicators measure
• financial benefits of these changes may not
appear in short-run earnings.
• nonfinancial measures (leading indicators)
signal the prospect of creating economic value
in the future.
Thereare four perspectives of the
1 Financial perspective
2 Customer perspective
3 Internal business process perspective
4 Learning and growth perspective
Evaluatesthe profitability of the strategy.
Focuses on how factors affect income:
• Growth (units sold, inputs need)
• Price Recovery (higher prices, lower costs)
• Productivity (efficiency of resource use)
– Increase shareholder value
– Increase in operating income
– Revenue growth
– Cost reduction is some areas
– Return on investment S SALE
the targeted market segment
and measures the company’s success in
– Market share
– Customer satisfaction
– Customer retention percentage
– Time taken to fulfill customers requests
Focuses on internal operations
• Create value for customers
• Further the financial perspective by increasing
• Improve manufacturing capability
• Reduce delivery time to customers
• Meet specified delivery dates
– Innovation Process
Number of new products or services
New product development time
Number of new patents
– Operations Process
Time taken to deliver product to
Percentage of on-time delivery
– Post-sales service
Time taken to replace or repair defective
Hours of customer training for using the
Emphasizes capabilities of
• Info systems
Develop process skill
Empower work force
Enhance information system capabilities
– Employee education and skill level
– Employee satisfaction scores
– Employee turnover rates
– Information system availability
– Percentage of processes with advanced
1 It tells the story of a company’s strategy
by articulating a sequence of cause-and-
2 It assists in communicating the strategy to
all members of the organization by
translating the strategy into a coherent
and linked set of measurable operational
3 In for-profit companies, the balanced
scorecard places strong emphasis on
financial objectives and measures.
4 The scorecard limits the number of
measures used by identifying only the
most critical ones.
5 The scorecard highlights suboptimal
tradeoffs that managers may make.
1 Don’t assume the cause-and-effect
linkages to be precise.
2 Don’t seek improvements across all
measures all the time.
3 Don’t use only objective measures on the
4 Don’t fail to consider both costs and
benefits of initiatives such as spending
on information technology and research
5 Don’t ignore nonfinancial measures when
evaluating managers and employees.
End of BSC Presentation