Strategic Cost Management The New Tool for Competitive Advantage

Chapter 1 AN INTRODUCTION TO STRATEGIC COST MANAGEMENTNew Wine, or Just New Bottles ?This book represents a new emphasis in managerial accounting. It is based on the premise that managerial accounting must explicitly consider strategic issues and concerns. We believe that the incorporation of strategic concerns into cost analysis represents a very natural, overdue extension of managerial accounting, which itself only became popular about thirty years ago.NEW WINE?In 1963 Sidney Davidson wrote a paper for theAccounting Reviewmarking the fortieth anniversary of the publication of J. M. Clark's book,Studies in the Economics of Overhead Costs.Davidson titled his retrospective of Clark's book "Old Wine into New Bottles." Davidson's paper acknowledge Clark's contributions to the development of relevant cost analysis -- one of the "new bottles" of managerial accounting in 1963. Though times change, this metaphor remains apt. Are the new ideas fomenting today in management accounting really new wine, or merely old wine recycled in new bottles? It is our belief that we really have new wine.To coin a new mixed metaphor, although the winds of change are clearly blowing for management accounting, some observers believe that too many management accountants are asleep at the switch. What is the evidence that the fundamental concepts of management accounting are changing or that they need to change? What is the evidence that too many management accountants are lagging behind this change rather than leading it? What is the evidence to support the assertion that the management accounting practiced for the past thirty years (since Anthony, 1956; Shillinglaw, 1961; and Horngren, 1962 popularized the term) is becoming obsolescent? These are the questions this book addresses.It is not our intent to belittle the accomplishments of the management accounting field over the past thirty years or to belittle the leadership efforts of those who have shaped and refined the current underlying conceptual framework. Management accounting could not go forward were it not for the achievements that have brought it this far. But, it must go forward. New times often call for new thinking.Looking back over the past thirty years, the transition from cost accounting to managerial cost analysis is one primary accomplishment. This transition has led to the prominence management accounting enjoys today in industry, commerce, and academe. The transition from managerial cost analysis to what is called herestrategic cost management(defined below) is one primary challenge looking forward. Success in that next transition will help determine the prominence of cost management in the future.Interest in strategic cost management derives from the rise to prominence of strategy over the past twenty years. Several influential books have contributed to the current widespread prominence of strategy. In addition, since the early 1970s, the major academic journals regularly have begun to publish articles about strategy) Also during this period two journals have been started that are devoted to strategic analysis,Strategic Management JournalandJournal of Business Strategy.The major management journals(Harvard Business Review, Sloan Management Review, Business Horizons,andCalifornia Management Review)now also regularly publish articles about strategy.Finally, a billion-dollar-a-year industry in strategic analysis has arisen. Even the CPA firms are now heavily involved in this consulting segment. Clearly, strategic analysis is an important element of what is taught in business schools, what is written about in academic and management journals, and what companies are concerned about.However, to date there has been little attention to this topic in the major research journals in accounting. Except for two papers in theAccounting Review(Kaplan, 1984b; PaShank, John K. is the author of 'Strategic Cost Management The New Tool for Competitive Advantage', published 1993 under ISBN 9780029126516 and ISBN 0029126517.