01. Strategic Management Accounting

Question 1

What are the two strategic generic strategies for SBUs to create competitive advantage in a market according to Porter?

Answer 1

1. Cost leadership- lowest cost producer
2. Differentiation - unique/ different product for which customers will pay a higher price

Question 2

Outline the BCG matrix.

Answer 2

A model incorporating the product life cycle which helps assess existing products and services in terms of their market development potential and potential to generate a profit.

It has 2 aspects:
- relative market share ie revenue of SBU / revenue of largest competitor

• market growth ie overall growth rate of the industry.

Question 3

Outline the four types of products/services according to the BCG matrix.

Answer 3

1. Question marks - aka problem child. Low market share of high growth market. To move to star, management must invest large amounts to develop and advertise product.
2. Stars - good market share in strong and growing market in which the competition has relatively low market share. Demand is strong and market saturation is not an issue so prices are unhindered and profit margins are good. Manufacturing overheads are low to due high volumes and economies of scale. When growth potential no longer exists they become cash cow.

Cash cows - high market share of mature market and generate significant cash flows.

Dogs. Low market share of mature market and are usually loss making. Not necessary to retain in product portfolio.

Question 4

What are the three types of benchmarking?

Answer 4

1. Industry benchmarking
   Competitive
   Non-competitive - same industry not competitor.
2. Internal benchmarking
   - operating units or functions in same organisation
3. Best in class benchmarking
   Comparing performance of a business process to an organisation considered the best at performing that function.