Management accounting can be defined as a process of providing appropriate information primarily intended to assist managers in making better decisions. In previous years, management accounting techniques like traditional budgeting, cost-volume-profit analysis, standard costing and variance analysis, were adaptable to the business environment when product varieties were few, competition was low, overhead costs were relatively low, automated processes were minimal and firms were mostly labor intensive. However, many businesses and environments began to evolve as a result of technological changes, globalization and changing customer mix. Authors identified inadequacies in these techniques, when used as tools in planning and control decisions. Awareness amongst companies on the need to achieve excellence in manufacturing/service delivery and use such an achievement as a strategy to compete effectively grew. Companies started linking their strategies with reduction in production and inventory costs, quality improvement and innovation, reduction in lead times and increased flexibility in meeting individual Continue reading
Strategic Management Basics
Political Environmental Scanning
Business firms, like people, are touched directly and indirectly by political/legal influences at all levels of government (central, state, and local). These influences run the alphabetic gamut from antitrust to zoning. The scale of central intervention in business is matched only by its turbulence. In addition to serving as regulatory bodies, governments also represent a major factor in the private sector through fiscal policy. Taxation and government spending can represent both opportunities and threats, depending upon the nature, timing, and position of the impacted enterprise. And, of course, fiscal policy can have dramatic impacts on the overall economic climate of the firm. Shareholders are affected by government interventions in a variety of ways. Changes in tax structures can affect tax exposure on corporate payouts when treatments of capital recovery versus earnings distributions are considered. To the extent that corporations themselves are shareholders, inter-corporate shareholding can be can affect the “tradability” Continue reading
Strategic Importance of Mission Statements
Mission statement is the description of an organization’s reasons for existence, its fundamental purpose. It is the guiding principle that drives the processes of goal and action plan formulation, “a pervasive, although general, expression of the philosophical objectives of the enterprise.” Mission should focus on long-range economic potentials, attitudes toward customers, product and service quality, employee relations, and attitudes toward owners. “A mission statement is an enduring statement of purpose for an organization that identifies the scope of its operations in product and market terms, and reflects its values and priorities…..Every company no matter how big or small, needs a mission statement as a source of direction, a kind of compass, that lets its employees, its customer, and even its stockholders know what it stands for and where its headed.” – Abrahams, 1995. From the above definition its clear that Mission statement is an enduring statement of a firm’s purpose, Continue reading
Downsizing – A Corporate Restructuring Strategy
Downsizing or layoff is a widespread strategic decision and change practice since 1970’s and during the economic downturn in the year 2016 it became a more common phenomenon. Changing patterns in reasons cited for job loss support this impression of the rising importance of restructurings. Differences in factors such as the state of the economy and the signal sent by job loss could make the process of downsizing and the effects of job loss differ between restructurings of healthy organizations and downsizing due to financial distress. Downsizing Approaches There are many kind of approaches in downsizing. The reasons for the firm to undertake such approaches also varies. They include restructuring, closing or selling of a business unit, cost reduction, cost savings, increased productivity through greater efficiency and effectiveness and coping with external pressure including recessions and economic downturn, economical change, increased competitive pressures through greater globalization of business and technological Continue reading
McKinsey’s 7S Model – A Great Strategic Management Tool
The McKinsey’s 7S Model was created by the consulting company McKinsey and Company in the early 1980s and subsequently has become the de facto standard used by practitioners and academics alike in analysing the performance of an organization. The McKinsey’s 7S model is a value based management (VBM) model that describes how one can holistically and effectively organize a company and together, these factors determine the way a company operates. There are seven variables in the model which include structure, strategy, systems, skills, style, staff and shared values. All beginning with ‘s’, justifying why it was termed as the 7S model. These seven variables can be classified as soft components and hard components. Strategy, structure and system were hard components which are usually feasible and easy to identify because they are usually in the policy statements, business plans, organizational charts, organizational structures and systems as recorded in the report. The 7S Continue reading
Six Elements of Organizational Structure
An organizational structure is a diagram displaying the hierarchical arrangement of lines of authority, roles and duties within an organisation and how they relate to one another. A structure is dependent upon the objectives and strategy of which the organization is focussed on. There are six basic elements of an organizational structure: Specialisation Departmentalisation Chain of Command Span of control Centralisation and Decentralisation Formalisation Work specialization gives employees specific duties and roles they are expected to perform within the company, factoring in their qualifications and skills. Having descriptions of duties for staff members helps the organisation to fully meet the workforce needs and to ensure there are no unnecessary duplications within roles. Departmentalization refers to how the organisation breaks down the functions and teams needed to run the company and carry out the essential tasks. Departments are usually made up of staff members who perform similar tasks in the same Continue reading