STRATEGIC COST MANAGEME NT

STRATEGIC FOCUS AND

DEVELOPMENT OF
COMPETITIVE STRATEGY
FOR COST MANAGEMENT
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EXPECTED LEARNING OUTCOMES:
1 . Describe the more recent changes in contemporary business environment
such as: t he global business environment; advances in manufacturing
techniques; advances in information technologies, the internet, the e-
commerce, and m-commerce; a greater focus on customers; new forms of
organization; and changes in the social, political, & cultural environment
2 . Explain the strategic focus of cost management
3 . Understand the basic approach of how a firm’s competitive strategy is
developed
4 . Explain the strategic measures of success, financial and nonfinancial factors
5 . Describe the critical success factors in a business firm and how they can be
measured
6 . Describe the two basic competitive strategies: Cost Leadership and Product
Differentiation
CONTEMPORARY BUSINESS ENVIRONMENT

experiencing rapid change influenced by technology, globalization, and

changes in consumer behavior.
an important development driving changes at large is the growth of
markets and international trade
characterized by increasingly fierce competition, rapid innovation, and
constant change
Many changes in the business environment in recent years have led to
significant modifications in cost management practices. The main
changes include increased global competence, advances in
manufacturing technologies, advances in information technology, the
internet and e-commerce, and changes in the social, political, and
cultural environment of business
 GLOBAL BUSINESS
ENVIRONMENT
Growth of international markets and trade drives extensive
changes.
Economic interdependence and competition affect businesses,
consumers, and regulators.
Global markets provide opportunities for growth and
profitability
Competitive global environment necessitates cost management,
financial, and nonfinancial information.
ADVANCES IN MANUFACTURING
TECHNOLOGIES
Firms adopt new manufacturing technologies to remain
competitive.
Methods from Japanese firms lead to cost and quality
improvements.
Just-in-time inventory methods reduce costs and
waste.
Speed-to-market is a key competitive advantage.
 ADVANCES IN INFORMATION
TECHNOLOGIES, THE INTERNET,
E-COMMERCE, AND M-COMMERCE
Information technology, the internet, and e-commerce are key drivers of recent
business changes.
Rapid growth of internet-based firms like Amazon, eBay, and E-trade exemplifies
this shift.
Increased internet use enhances business data processing, communication, and
sales.
These technologies improve cost management by reducing transaction processing
time.
They expand access to information within firms, industries, and the global
business environment.
Due to the pandemic, many businesses have integrated online marketing and
delivery into their operations, making mobile commerce (M-commerce) a common
method for conducting business.
 A GREATER FOCUS ON
CUSTOMERS
Customer value is essential in the competitive business
environment.
Increased customer demand for product functionality and quality.
Shorter product life cycles intensify competition.
Managers shift focus to quality, service, faster delivery, and
specific customer features.
Cost management includes customer preference and satisfaction
measures.
Firms can establish competitive advantages by increasing customer
value.
Strategic cost management involves cost leadership or product
differentiation.
Understanding the value chain and supply chain is crucial.
NEW FORMS OF MANAGEMENT
ORGANIZATION
Management organization has shifted focus from financial to
customer-related, nonfinancial performance measures like
quality, delivery time, and service.
Traditional hierarchical structures are being replaced by flexible
organizations that promote teamwork and coordination across
business functions.
Cost management practices now support cross-functional teams
with reports that include both operating and financial
information, reflecting multinational roles.
·These reports cover aspects like product quality, unit cost,
customer satisfaction, and production bottlenecks.
COMPARISON OF PRIOR
AND CONTEMPORARY
BUSINESS ENVIRONMENT
CHANGES IN SOCIAL, POLITICAL,
AND CULTURAL ENVIRONMENT OF
BUSINESS
Significant changes in social, political, and cultural
environments impact businesses.
Diverse workforce, ethical responsibility, and deregulation
are key trends.
Firms need to be flexible, adaptable, and empower a skilled
workforce.
Focus on external factors and the global society where
customers live.
STRATEGIC FOCUS OF COST MANAGEMENT

Competitive firms integrate emerging and anticipated changes

in the business environment into their planning and practices.
These firms are customer-driven, utilize advanced
technologies, anticipate regulatory and customer changes, and
understand their complex environment.
Management accountants should focus on long-term success
rather than just cost control and financial measures.
Cost management should identify measures critical to the
firm's success.
CRITICAL SUCCESS FACTORS (CSFs)
CS F s are ess en ti a l p erf orma n ce mea s ures f or a f ir m ' s co m p etitiv e
adv antag e and s uc c es s .
CS F s can b e both f i na n ci a l a n d n on f i n a n ci al , d ep end ing o n the
competi ti on th e f i rm f a c es .
STRATEGIC FOCUS
DURING THE PANDEMIC
AND POST-PANDEMIC
PERIOD
DURING THE PANDEMIC
Digital Transformation: Organizations had to rapidly shift to
digital platforms to maintain operations.
Crisis Management: Effective crisis management strategies were
essential.
Customer Experience: With physical interactions limited,
businesses focused on enhancing online customer experiences.
Financial Resilience: Companies prioritized financial stability by
managing cash flow, securing funding, and cost-cutting.
Employee Well-being: Ensuring the well-being of employees
was critical.
POST-PANDEMIC PERIOD
Hybrid Work Models: Many organizations adopted hybrid work
models combining remote and in-office work.
Enhanced Digital Infrastructure: The pandemic accelerated the
adoption of digital tools and technologies.
Customer-Centric Strategies: Businesses are continuing to
prioritize customer experience by leveraging data to understand
customer preferences, personalizing interactions, and enhancing
service delivery through digital channels.
Sustainable Practices: There is a growing emphasis on
sustainability and corporate social responsibility.
POST-PANDEMIC PERIOD
Workforce Development: Companies are investing in upskilling
and reskilling programs to address skill gaps and prepare
employees for the evolving job market.

Innovation and Agility: The ability to innovate and adapt quickly

remains a key strategic focus. Businesses are fostering a culture
of innovation to stay competitive and respond effectively to
changing market conditions.
DEVELOPING A COMPETITIVE STRATEGY
DEF I NI TI ON O F S T R AT E GY

1 A set of policies, procedures, and approaches that produce long-

term success for a business.

PUR POSE A N D MI S S I O N

S t r a t e g y s t a r t s w i t h d e t e r m i n i n g t h e c o m p a n y ’s m i s s i o n a n d l o n g -
2
range direction. The mission is developed into specific performance
objectives.
I MPLEMENT AT I O N
3 Objectives are achieved through specific corporate or company
strategies, which are actions to fulfill the mission.
DEVELOPING A COMPETITIVE STRATEGY
STR ATEGY AN D CAPABIL ITIE S
S t r a t e g y i n v o l v e s m a t c h i n g o r g a n i z a t i o n a l c a p a b i l i t i e s w i t h m a rk e t
4 opportunities to accomplish objectives.
COMPETI TI V E APPR O A CH E S
C o s t L e a d e r s h i p : C o m p e t i n g b y o f f e r i n g q u a l i t y p ro d u c t s o r
services at low prices (e.g., Jollibee, Pure Gold, Cebu Pacific
5 Airline).
Product Differentiation: Competing by offering unique products
or services that are often priced higher (e.g., Rustan's
Department Store, BGC Shangri-La Hotel).
.
6 STR ATEGI C CO S T MAN A GE ME N T

F o c u s e s o n c o s t m a n a g e m e n t w i t h a n e m p h a s i s o n s t ra t e g i c i s s u e s
related to competitive advantage.
DEVELOPING A COMPETITIVE STRATEGY
· R OLE OF MAN AGEMENT A CCO U N TA N TS
Competitive Advantage: Provide information about cost,
7
p r o d u c t i v i t y , a n d e f f i c i e n c y r e l a t i v e t o c o m p e t i t o rs .
P r e m i u m P r i c i n g : A s s i s t i n a s s e s s i n g c o s t s a n d p ri c i n g f o r
distinctive features.
Strategic Questions:
-Who are our most important customers?
-How sensitive are their purchases to price, quality, and
service?
-Who are our most important suppliers?
-What substitute products exists in the marketplace, and how
do they differ from our product in terms of price and quality?
-Is the industry demand growing or shrinking?
-Is there overcapacity?
STRATEGIC
MEASURES OF
SUCCESS
Financial performance measures include among others
a. growth in sales and earnings
b. cash flows
c. stock price
They show the impact of the firm's policies and procedures in the firm's current
financial position and therefore, its current return to the shareholders.
Nonfinancial measures of operation include among others
a. market share
b. product quality
c. customer satisfaction
d. growth opportunities
The nonfinancial factors show the firm's current and potential competitive position as
measured from three additional perspective, namely:
1. the customer
2. internal business process and
3. innovation and learning
FINANCIAL & NONFINANCIAL MEASURES OF SUCCESS
OR CRITICAL SUCCESS FACTORS AND HOW TO
MEASURE CSF
 COMPETITIVE STRATEGIES

PRODUCT
COST LEADERSHIP
DIFFERENTIATION

Definition: Producing Definition: Creating a perception

products or services at the of uniqueness in products or
lowest cost in the industry. services, often through higher
Profitability : Achieves quality, features, or innovati on.
sustainable profits by offering Pricing: Allows firms to charge
lower prices. higher prices and achieve better
Competitive Advantage: profits without significantly
Limits competition through reducing costs.
price wars and reduces Industries: Common in industries
competitors' profitability by where quality and image are
forcing them to meet low crucial (e.g., cosmetics, jewelry,
prices. automobiles).
Examples : Walmart, IKEA, Examples: Tiffany, Rolex, Ferrari,
McDonald’s BMW
DISTINCTIVE ASPECTS OF THE TWO COMPETITIVE
STRATEGIES
 COST LEADERSHIP
ERSHIP

ADVANTAGES DISADVANTAGES

Competitive Advantage Vulnerability to

Increased Profitability Imitation
Barriers to Entry Quality Perception
Resilience During Limited Pricing
Downturns Flexibility
Resource Allocation for Competitive Pressure
Growth Innovation Constraints
Flexibility and Reduced Customer
Adaptability Loyalty
HOW TO BECOME A COST LEADER:
STRATEGY IMPLEMENTATION
 PRODUCT
DIFFERENTIATION
REFERENCES:
Borad, S. B. (2023, March 10). Advantages and disadvantages of differentiation strategy.
eFinanceManagement. bit.ly/4dz9kV0

Cabrera, M. E., Cabrera G. A., & Cabrera B. A. (2021). Strategic cost management (2021 ed.). GIC
Enterprises & Co., Inc.

EPAM SolutionsHub. (2023, June 9). Cost leadership strategy: How to gain a competitive edge in the
marketplace. https://solutionshub.epam.com/blog/post/cost-leadership-strategy

Rahma, A. Z., Qulub, A. N., Prasetyo, W., Rizqi, N. A., & Sodiq, A. (2024). Contemporary Business
Environment and Contemporary Techniques. Journal of Global Research Publications, 1(1),
18-25. https://doi.org/10.59435/jgrp.v1i1.2024.4
 STRATEGIC COST MANAGEME NT

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