LEONISA GUERRERO TORINO BSA 2

STRATEGIC COST MANAGEMENT

CHAPTER 3 ASSIGNMENT

EXERCISE 1

Required: Analyze the choice Joel faces, based on competitive analysis.

Joel faces the dilemma whether to stay committed to his current business strategy or whether to agree with
the business proposal of a large retail store. The business strategy to be a specialized women clothing manufacturer
whose products or services are sold in small upscale retail stores can be profitable since it can elevate its brand
image to a premium level and support its high profit margin in the long run. But the business proposal by a large
retail store could be hard to turn down due to the benefits of economies of scale (e.g. higher overall sales, lower
operating cost).

In this regard, Joel should identify his competitors and evaluate their business strategies to determine their
strengths and weaknesses relative to those of his own products or services. A competitive analysis should be
conducted to support his marketing plan and to establish what makes his products or services unique and what
attributes should be prioritized in order to attract the target market. Joel should evaluate his competitors by placing
them in strategic groups according to how directly they compete. For each competitor, Joel should enumerate the
profitability, cost structure, growth patterns, business strategies, marketing objectives, strengths and weaknesses,
and size in terms of sales.

As a result, Joel would have the information to base his decision on which business strategy to choose from.
All business strategies have their own advantages and disadvantages but the one that should be chosen is the one
that could sustain the business for the long term.

De Castro Enterprises Inc. is thus able to sell its clothing in upscale designer clothing retail stores, probably at
a premium price. Sale of the same or similar clothing to department stores could dilute the brand image, and thus
hurt the sales in the upscale retail stores. Customers who are willing to pay the premium to purchase the clothing in
the designer stores may not be willing to do so if the same or similar clothing is available in department stores. Thus,
while the special order might be very profitable in the short run, in the long run it is potentially very damaging for
the company.

The main point of this case, and a pervasive theme of strategic cost management, is that cost analysis from a
strategic perspective can often provide a different answer from the cost analysis which has short-term point of view.
In practice, many costs systems have a short-term focus, and the strategic emphasis of the strategic cost
management is used to bring the firm's operations and decision making back to consistency with the firm's strategic
objectives.
EXERCISE 2

Required: Develop a strategic analysis for Jim's new business plan. What should be his competitive position; that
is, how should be choose to compete in the existing market for sailboat supplies and equipment? How is he likely
to use cost management information in building his business?

Jim's new business is likely to face great competition, as there are already a number of firms in this market.
What Jim must do to have a successful business is differentiate his business from the other internet firms. Since the
current competition is successful at low costs and fast delivery, Jim must seek other ways to differentiate his
business. Because of his experience, it is likely that he can differentiate his business by finding and developing
unique products that are not available from competing sources. If Jim has been successful at racing, his racing
credentials can serve as a critical success factor, in addition to the unique products.

In order to execute flawlessly and establish Jim’s supposed new business plan he should first develop
strategies to be able to stay consistently in the market. The following must be pondered and acted in regards to
starting his own business.
a) Jim must choose whether he should compete using cost-leadership or differentiation and might as
well determine the mission of his new business.
b) Once a competitive strategy is chosen he then considers various means for
implementing such competitive strategy

Jim must also identify the value-chain activities and develop a competitive advantage or reduce
cost or in adding value. He may do the following
1) With his strong connection gained from doing the sport, he can garner suppliers that can give both
high quality and low cost at the same time.
2) He can also use his favors when it comes to designing in order to give more value to the product.

Determine the balance scorecard and strategy map for the business, which would require identifying and
linking goals, management techniques and critical success factors

The cost management information Jim is likely to need will be in planning and decision making, at least
essentially. He will need carefully developed expense budget, to control his cash expenditures until a stable sales
pattern emerges. He will also need cost management information for setting prices, evaluating product profitability.
and evaluating potential new products.