Management Accounting and Business Strategy

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Management Accounting and Business Strategy

• Lecture 9 - Strategic Options
• Growth and Divestment

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Learning Outcomes

• You will
• evaluate and recommend growth and divestment
  strategies
• understand the advantages and disadvantages of
  various growth strategies
• know why and how firms use divestment and
  demerger strategies
• have a knowledge of the PIMS growth strategies

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Method of Growth

• Organic
• Acquisition
• Merger
• Joint ventures
• Strategic alliances
• Franchising

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Organic Growth

• Must include plans for INNOVATIONi.e. Developing
  new products
• Involves expenditure on RDheavy capital
  expenditure
• Fundamental to strategic management
  distinctive competence competitive
  advantage
• Difficulties of MAJOR innovative opportunities
  mix of skills and resources market
  reception lead time to profits new
  technology, TOO SOON

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Question for Discussion
Using the product life cycle as the basis of your
argument, why must an organisation plan for
innovation in its products/services?
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Innovation Strategies

• Attack
• Defensive
• Counter-attack
• Responding to, or anticipating, customer/market
  needs
• Having innovative people, with authority to
  innovate
• Having a culture, leadership and org structure
  thatencourages innovation

Successful innovation depends on
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Innovation and Management Accounting
Performance Indicators for RD must accept that
short term financial rewards are unlikely.
Measures might include

• No. Of new products launched
• No. Of product modifications
• Success rate for new and modified products
• External assessments of competence
  andcompetitive advantage
• Growth in sales, profits, market share overa
  long period of time
• Speed from design to production

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Mergers and Acquisitions

• MERGER joining of two separate companies to
  form a single co
• ACQUISITION purchase of a controlling interest
  in another company
• REASONS FOR ACQUISITION( which should be valid
  in terms of the strategic plan)
• Marketing advantages
• Production advantages
• Finance and management
• Risk spreading
• To retain independence

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Question for Discussion
Identify the reasons for merger behind one or
more national private companies
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Pims-market Position Boosts Profitability
50
45
40
33
35
30
25
21
25
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ROI ()
20
13
15
10
31
51
91
5
0
16
31
51
91
Relative Market Share ()
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Reasons for Mergers/acquisitions

• Speed of market entry
• Acquiring new competencies
• Reduce competitive backlash
• Asset stripping
• Cost reduction
• But some difficulties
• No-one available
• Integrating activities
• Clash of cultures
• One dominates?
• Keep separate?
• Build hybrid?

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Making Alliances Work

• Proactive attitudes
• Trust
• Cultural sensitivity
• Inter-personal relationships
• Clear organisational arrangements
• Desire to learn (not substitute)
• Allow evolution

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The Virtual Firm

• Extreme example of an alliance
• A network of alliances and subcontracting
  arrangements
• Outsourcing taken to its greatest extent
• Organisation concentrates on core competencies
  and outsources everything else (nortel?)

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Tests of a Winning Strategy (Porter)
Goodness of Fit test

• How well is the strategy matched to the company's
  situation?
• Competitive advantage test
• Does the strategy lead to a sustainable
  competitive advantage?
• Performance test
• Does the strategy boost company performance?
• A company is not a true winner unless
• It passes ALL THREE tests