SMA COURSEWORK. 21-22
Assignment:
Intensification of competition, especially in the last 30 years, has required different strategies. Discuss the implications of this trend for the design and operation of SMA.
Some points
- Intensification of competition, the changing environments.
PESTEL examines the macro context. The 5Fs focuses on the more immediate context, on, for example, the industry sector.
- Sustainable performance requires a match between customer requirements and the products and services a company provides. For a long time Mercedes was very successful but intensification of competition meant that it’s vehicles became ‘over priced and over engineered’ (Helmut Werner),
- Although the external environment is usually the major influence on strategy the owners and/or have choices.
For example, Myles and Snow 1978,examined about 30 companies in the same industry sector(publishing) . Notwithstanding the similar external environment of all the companies they had different ‘strategic orientations’(ref T2 Q10 and 11) namely prospectors, defenders, analysers and reactors.
The different orientations (approaches to the market) reflect partly different attitudes to risk and views on acceptable risk, the culture of a company and its internal resources. For example, if Steve Jobs (the industrial designer) not had Steve Wozniak the Apple corporation might never have happened.
- The various strategies and the organisational arrangements adapted to support them have implications for the design and operation of strategic management accounting. (Ref Cummings and Daellenbach, 2009 T1 Q13 re a major trend in SM practice—less focus on command and control and more on influencingand ‘nudging’
- The concept of strategic management was introduced in 1978 to address a so-called strategy implementation gap; the strategic planningthat dominated the professional and academic literature and that was a big business for consultancies was clearly not working.
- The strategic management concept has continued to develop since 1978; by contrast strategic management accounting appears to have fizzled out, like a fad . (Langfield Smith,2008, T.1 Q.5 It was never adopted in the USA where the focus was exclusively on management accounting to support low price competition.
The major reason for the demise of so-called strategic management accounting was that it focused on strategic planning and missed the target and significance of strategic management, especially the need for management accounting to be an integral part of the planning, implementation and control processes.reference for example Nixon and Burns, 2012, the paradox of strategic management accounting.(Ref. T1 Q8).
7 Otley (2006) suggestedthat the management accounting profession was focused on elevating their status from the shop floor to the board room. (T q Q 4) they focused on how accounting techniques could support strategic planning rather than on the p+l+c of SM (ref Cadez and Guilding T?1 questions 1 and 2)
Some background: a chronological perspective:
Post WW 2 (1945)in the USA and UK Manufacturing was the dominant discipline; companies could sell anything they produced. The manufacturing capacity of Japan, Germany and most of Europe had been destroyed in the war.
From financial control to strategic planning
By the 1950s financial control was the dominant discipline, The concept of strategy and business policy in conglomerates evolved in the 1960s and was the dominant theme in the management literature in the late 1960s and early 1970s.
However, by mid 1970s competition aided by new manufacturing technologies and globalisation was intensifying; Japan, Germany, Hong Kong,, Singapore and Malaysia were also catching up with USA and UK. The external macro environments of companies (PESTEL) were becoming more dynamic , interactive and unpredictable. Changes in the more immediate environments of companies (the 5 Fs), especially in the rate of change , were also occurring.
A shift from strategic planning to SM (1978)
By about 1975 there were signs that that the emphasis on strategic planning was not working. The concept of SM (P+l+C) evolved in 1978 to address a major limitation of strategic planning, namely a neglect of implementation and control.
The rapidly changing external environments of organisations created both strategic and organisational imperatives; how should companies ,
- align their strategies to external environments ( for example to competition, customers , innovation and shortening product life cycles, and fragmentation of market segments ).And,
- align internal arrangements to support and control) strategy. For example the ‘process factory’, ‘the power train’ and ‘on board navigation system’together support the SM process (p+l+c) of Bentley.
A key element of the power train is the communication among teammembers and the fact that the same team ‘travels’ with a project in all 14 stages of the 5 phases of each project.
Of course, new competitive strategiescreate new organisational imperatives. When falling sales, profit and cash flow compelled Mercedes to adopt a new more market oriented competitive strategy the new CEO, HelmutWerner,and his management team had to change the internal processes and culture to implement and control the new strategy.The new strategy started with targets for price, profit, cost and volume sales at the target price. Therefore,accounting became an integral part of the SM system. The financial numbers of the BTB became the common language shared by all new product design and development participants including external service and component suppliers.
Intensification of competition and dynamic, unpredictable environments has created both opportunities and threats for companies. They have also been good news for management consultants such as McKinsey (eg the 7S model and on Search of Excellence) and The Boston Consulting Group (eg The Adaptive Advantage).
However, as Stern pointed out there is no ‘quick -fix’ solution to aligning the many internal organisational components with each other (eg the VW ‘power train’ and ‘meshed gears’) and also with strategy.
There is a broad consensus that there is a reciprocal relationship between the external and internal environment but that the external environment is the major influence on strategy. Strategy is often viewed as the intervening variable between the external and internal environments of an organisation.
A company’s products and or services need to be aligned with (also referred to as consistent with) the external environment.
A great product with perhaps breakthrough technology is of relatively value if there are no customers. For example, Godfrey Hounsfield , 1919-2004,was an electrical engineer who obtained a Nobel prize in 1979 fordevelopingcomputer assisted tomography (the CAT scans that are now used in every hospital and medical clinic for viewing organs from outside.) At the time Hounsfield was employed by EMl and was working on radar and guided missiles. EMl virtually gave the technology to General Electric of USA because they did not know how to market or develop further the CAT technology.
There is also a broad agreement among management practitioners, consultants and academics that the strategic imperatives of the external environment create internal organisation imperatives.
For example, a strategic imperative for Mercedes was to adopt a market-oriented approach to competitive strategy but the internal organisational imperatives of this strategy were a revolution in its culture and approach to new product design and development.
Contingency Theory: external and internal consistency
The need to align strategy with the external environment and also withinternal systems, structure, management style and culture with strategy reflects the concept of external and internal consistency of contingency theory (Lawrence and Lorsch, 1969.
The McKinsey 7S model was a pragmatic approach to approachto external and internal consistency. It fell from popularity because it did not address the challenge of achieving and maintaining consistency (a fit or match) among the 21 pairs that the 7S model involves (21=6+5+4+3+2+1j.
The conventional wisdom is that sustained performance depends upon maintaining both internal and external consistency.
Eminent academics such as David Nadler and Michael Tuchman made a strong argument in 1999 that contingency theory is more important than ever (Organizational Dynamics, pp.46-60).
A problem with many theories and contingency theory in particular is that they oversimplifycomplexity.Also, many theories do not stand the test of time. Porter’s theory of competitive strategy, competing either on low price or differentiation seemed to be valid until new manufacturing technology and management systems made it possible to compete on both bases simultaneously.
The increase in the number ‘Ps’ (from 4 to 12)in the marketing mix is an indication of the ongoing intensification of competition at least in some sectors. Abbreviated product life cycles is a further indication of competition.
In the case of Bentley, for example, price relates to the quality and cost of a vehicle and also service for both the vehicle and its owner over its lifecycle of about 40 years.
Flexible manufacturing systems and electronics have increased the degree of customisation that is economic. For example, a Bentley customer has a great deal of discretion with regard to acoustics; the sound of the engine, doors, tyres, indicators, radio and music. The cost and value of options to customers (as well in some cases to Bentley) are carefully assessed.
Since Lorenz ‘article in 1992 competition has continued to intensify, driven partly by globalisation, by innovation, reverse engineering and the difficulty of protecting intellectual property. Related to increase in competition is change in the external environment has been ongoing and accelerating inthe decades following Lawrence and Lorsch, 1969.
Some attributes of good discussions:
Strong on relevance
A well-integrated and clear structure (explanation and description precedesthe evaluation)
Good evidence and logical argument; no arrestations.