Chapter 2: Implementing Strategy: The Balanced Scorecard and the Value Chain

Summary

The use of cost management facilitates a firm's strategic management. The management accountant has moved from a procedural, stewardship role to more of a strategic facilitation role, to a business partnership role in the firm. Michael Porter's work in strategic management explains the fundamentals of how firms compete. This grounding in the competitive environment of the firm determines the cost management role. That is, knowing how a firm competes and identifying its critical success factors are necessary to know how the firm's cost management system should be designed.

Three important management techniques for implementing strategy are SWOT analysis, the balanced scorecard, and value-chain analysis. SWOT analysis is a technique for identifying a firm's critical success factors based on an identification of its strengths, weaknesses, opportunities, and threats in the business environment. Value-chain analysis is a technique for assisting the management accountant in identifying opportunities for reducing cost and/or adding value to the firm's products and services. The balanced scorecard is a cost management report that summarizes the critical success factors for management, and thus provides a basis for monitoring and rewarding achievement of the CSFs. The balanced scorecard includes four or more perspectives (groups of CSFs): the financial, customer, internal processes, and learning and innovation. An additional perspective many firms have added is sustainability, that is, the ability of a firm to develop a strategy that balances its short-term and long-term social and environmental goals as well as its financial goals.

The implication of strategic analysis is that the management accountant must also adopt a strategic focus, that is, develop integrative skills for working with teams of operations, marketing, and other managers in the organization to lead the company to competitive success.