Strategic Management Accounting: A Practical Guidebook with Case Studies

263 Pages·2018·4.8 MB·English

Management for Professionals
Wing Sun Li
Strategic
Management
Accounting
A Practical Guidebook with Case Studies
Management for Professionals
More information about this series at http://www.springer.com/series/10101
Wing Sun Li
Strategic Management
Accounting
A Practical Guidebook with Case
Studies
Wing Sun Li
United International College
Beijing Normal University–Hong Kong
Baptist University
Hong Kong, China
ISSN 2192-8096 ISSN 2192-810X (electronic)
Management for Professionals
ISBN 978-981-10-5728-1 ISBN 978-981-10-5729-8 (eBook)
DOI 10.1007/978-981-10-5729-8
Library of Congress Control Number: 2017949668
© Springer Nature Singapore Pte Ltd. 2018
This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of
the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation,
broadcasting, reproduction on microfilms or in any other physical way, and transmission or information
storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the
editors give a warranty, express or implied, with respect to the material contained herein or for any errors
or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims
in published maps and institutional affiliations.
Printed on acid-free paper
This Springer imprint is published by Springer Nature
The registered company is Springer Nature Singapore Pte Ltd.
The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721,
Singapore
Acknowledgments
As a professional practitioner for more than 25 years and then an academic faculty
until now, I am fortunate to accumulate substantial practical experiences and aca-
demic knowledge in the management accounting profession. I hoped to write a
book about strategic management accounting. The book would conclude what I
learned from academic research and my previous employments as management
consultant and senior management in a few international firms. I wrote a few chap-
ters and held back for a couple of years. Two years ago, I met William Achauer of
Springer. Publishing in an Asian academic conference, who encouraged and helped
me sign up a writing contract with Springer, that I had no excuse to delay further
and the book was finally completed in one and a half year.
I wish to thank William for the encouragement to make it happen. I also wish to
express my sincere thanks to two retired professors and my colleagues, Park KJ and
Thomas Wong, who spent time to review and gave comments on my books. I learned
a lot from these accounting scholars.
I am also grateful for the editors of Springer who assisted me in proofreading and
editing. I also express my greatest gratitude to Springer Publishing for helping me
with the rest of the work to bring the book to readers.
Last but not the least, I like to express my deepest thanks to my wife Mandy, my
daughter Frances, and my son Henry whose emotional support gave me strength to
carry on with this lonely but stimulating work.
v
Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Boundaries of SMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Objectives of This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Organization of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Appreciation for Great Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part I Fundamental Concepts: Cost and Value
2 Cost Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Cost Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Contribution Margin Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Strategic Cost Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.5 Activity-Based Costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3 Value Concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.2 Value Chain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.3 Vertical Value Chain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 Present Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Part II Managing Customers
4 C ost to Serve and Customer Selection . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.2 Cost-to-Serve (CTS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.3 C TS and Customer Life Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.4 L inking Customer Profit to CTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
vii
viii Contents
4.5 Valuable Customers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.6 Customer Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.7 Action Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.8 Sale Performance Monitoring System . . . . . . . . . . . . . . . . . . . . . . . 71
4.9 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5 From Customer Profit to Customer Value . . . . . . . . . . . . . . . . . . . . . . 75
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.2 An Overview of the Customer Performance
Reporting Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5.3 Free Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.4 Customer Value Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.5 Modified CLV Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.6 Key Driver Performance and Financial Outcomes . . . . . . . . . . . . . 94
5.7 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Part III Managing Competitors
6 Competitor Analysis and Accounting Model:
Competitor Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
6.2 Analytical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
6.3 Competitive Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6.4 Competitor Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
6.5 Interfirm Market Rivalry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.6 Proxy Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.7 G uide to Use Proxy Measures in Interfirm
Competitive Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
6.8 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
7 Competitor Analysis and Accounting Model:
Accounting Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
7.2 Assessment of Competitive Position . . . . . . . . . . . . . . . . . . . . . . . . 126
7.3 Predictive Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
7.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
8 Competitive Analysis: Game Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
8.2 The Basics of Game Theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
8.3 C ase Revisited: Electrical Bike . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
8.4 M arket Power and Pricing Decision . . . . . . . . . . . . . . . . . . . . . . . . 151
8.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Contents ix
Part IV Managing Corporate Value
9 Strategic Value Analysis: Value Search . . . . . . . . . . . . . . . . . . . . . . . . . 159
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
9.2 Short-cut Financial Statement Approach . . . . . . . . . . . . . . . . . . . . . 160
9.3 Strategic Value Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
9.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
10 Strategic Value Analysis: Business Valuation . . . . . . . . . . . . . . . . . . . . 171
10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
10.2 Corporate Blue Print (Financial) . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
10.3 Case Revisited: Abbraccio Caffe (ABC) . . . . . . . . . . . . . . . . . . . . . 173
10.4 Free Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
10.5 Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
10.6 Business Valuation (Using DCF) . . . . . . . . . . . . . . . . . . . . . . . . . . 187
10.7 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
11 Creating Value Through Strategic Alliances . . . . . . . . . . . . . . . . . . . . . 193
11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
11.2 Value Formation in Strategic Alliance . . . . . . . . . . . . . . . . . . . . . . 194
11.3 Payoff Structure (Private vs. Common Benefits) . . . . . . . . . . . . . . 199
11.4 Strategic Symmetry (Interfirm Fit) . . . . . . . . . . . . . . . . . . . . . . . . . 207
11.5 Risk and Payoff Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
11.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Appendix: Composite Measure of Strategic Symmetry Index . . . . . . . . . 215
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
12 Cases and Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
12.1 Case 12.1: ART Food Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
12.2 Case 12.2: BAX Containers Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 225
12.3 Case 12.3: Scenario: Dealership Contract . . . . . . . . . . . . . . . . . . . 227
12.4 Case 12.4: Superstores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
12.5 Case 12.5: Ah Kin Electric Bike . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
12.6 Case 12.6: Tender Bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
12.7 Case 12.7: Abbraccio Caffè . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
12.8 Case 12.8: Telnet Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
About the Author
Dr. Wing Sun Li is a teaching faculty at the Hong Kong Baptist University in PRC.
He had been practising in diverse industries including ICT, foods, and management
consulting professions. He left his vice president position in a global telecom com-
pany and began his teaching career.
Dr. Li holds a doctoral degree in management and a CPA (Hong Kong). He had
served many professional bodies including a past chairman in North Asia Regional
Board of CIMA (UK). Dr. Li has publications in local journals and international
journals.
xi