Strategic Cost Management: The Value Chain Perspective

Maria Sandu

07/15/2016

Strategic Cost Management: The Value Chain Perspective

John K. Shank

Vilay Govindarajan

(Analysis)

In this article Shank and Govindarajan analyze several management accounting cases and emphasize how traditional analyses could lead managers to make poor decisions and how their strategy should lead managers to make better decisions. The authors argue that facilitating and implementing business strategies is very important in management accounting. In their opinion the management involves the following stages: formulating strategy, communicating strategy, tactics and controls, in order to monitor progress for achieving goals and purposed objectives. They define strategic cost management as “the managerial use of cost information”.

Shank and Govindarajan argue that structural cost drivers reflect strategic choices regarding the underlying structure of costs that drive the firm’s cost position: scale, scope experience, production technologies for each stage of the value chain, where each can involve economies or diseconomies. Executional cost drivers detain the ability of managers to execute the chosen strategy, quality management, capacity utilization, plant layout efficiency, and linkages with suppliers and customers.

The authors argued also, that strategic cost management